The discounts that have been luring shoppers to indulge in clothing, electronics, and footwear may see a notable decrease, as retailers like Aditya Birla Fashion and Retail (ABFRL), Arvind, and V-Mart have decided against offering steep discounts in an effort to boost profits.
Madura Fashion, the company behind renowned brands like Louis Philippe, Van Heusen, Allen Solly, and Peter England, reported a significant reduction in discounts during the latter part of the previous fiscal year, particularly in the fourth quarter, aiming to fuel profitable growth by 500 basis points.
“We also realized that our inventory was well-managed, and we didn’t observe significant elasticity in discounting,” Vishak Kumar, CEO at Madura Fashion, informed investors. “We maintained tight control over this aspect, which also contributed to our cost reduction efforts.” Throughout FY24, the retail sales growth rate consistently declined year-on-year across segments such as apparels, footwear, and quick service restaurants (QSR), reflecting subdued consumer sentiment. The slower growth trend of 4-7% observed in FY24 persisted into the current year, with April registering a mere 4% increase, as reported by the Retailers Association of India (RAI) after surveying the country’s top 100 retailers.
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Over the past eighteen months, retailers have attempted to address declining demand by consistently offering discounts. However, these price reductions have not yielded significant benefits.
V-Mart, a department store chain catering to smaller towns, has redirected its attention towards enhancing internal capabilities that are scalable, replicable, and sustainable. “We’re prioritizing strategies that don’t artificially inflate growth, such as excessive discounts or customer incentives,” stated Lalit Agarwal, chairman of V-Mart, during an analyst briefing. “We’re focused on maintaining our gross profits and not compromise on them.”
Post-Pandemic Surge in Demand and Growth
With the relaxation of Covid restrictions, pent-up demand surged, resulting in a sales boom across athleisure wear, apparel, and lifestyle products. As offices reopened and social activities resumed, consumers embarked on wardrobe upgrades, leading to consistent monthly growth of 13-24% throughout FY23.
Shailesh Chaturvedi, managing director at Arvind Fashions, noted a significant shift among retailers towards a direct-to-consumer model for online sales post-pandemic. This approach allows retailers to have greater control over merchandise, assortment, and pricing compared to relying on ecommerce marketplaces.
“We set the prices ourselves, avoiding heavy discounting, ensuring a healthier and more sustainable business model,” he remarked during an earnings call.
Last month, Bajaj Electricals’ chief executive, Anuj Poddar, informed analysts that discounting in the electronic product categories the company operates in has reached levels as high as 5-6% in the market. He mentioned that some of these discounts are being scaled back due to their negative impact on margins, and the company has recently implemented price increases. “We are willing to take the risk of price hikes, aiming to mitigate any adverse volume impact, although it’s not feasible to roll back the entire 6% discount at this moment,” Poddar stated.
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