Leading fashion and apparel retailers are adjusting their discount strategies amidst subdued demand and significantly reduced inventory levels, as stated by chief executives. This adjustment follows cautious procurement practices over the past 2-3 quarters, with a focus on enhancing margins and profitability.
These companies believe that in times of low foot traffic in stores, offering extra discounts is unnecessary. Instead, they prioritize enhancing the premium experience for these consumers.
Ashish Dikshit, the managing director of Aditya Birla Fashion & Retail, a major apparel retailer and manufacturer, noted a slowdown evident in reduced foot traffic to malls and stores. He informed investors that the company has opted to reduce discounting, a strategy that notably boosted margins in the last quarter.
“We recognized that in this market situation, it would be a sharper strategy to stay tight on discounts, manage for profitability, which is what we have done. So we were able to make the most of the footfalls, which came into the stores, which was linked with the premiumization strategy,” said Dikshit, who runs stores like Pantaloons and sells brands like Allen Solly, Reebok and host of ethnic designer brands like Sabyasachi and Masaba.
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Arvind Fashions, known for its brands such as Arrow, Calvin Klein, and Tommy Hilfiger, has also adjusted its discounting strategies at its stores. Shailesh Chaturvedi, the company’s managing director, highlighted that although participating in early end-of-season sales (EOSS) could have potentially boosted revenue growth in the last quarter, the company prioritized profitability and reduced discounts due to stringent inventory management.
“We also made a choice of increasing marketing investment by 130 basis points in order to support growth and keep our brands top of mind. We chose investment in marketing over investment into discounting,” Chaturvedi told analysts. A basis point is 0.01 of a percentage point.
Arvind Fashions witnessed an 18% growth in EBITDA (earnings before interest, taxes, depreciation, and amortization) last quarter, attributed to reduced discounting. Meanwhile, Aditya Birla Fashion & Retail achieved a consolidated EBITDA of Rs 605 crore, with a margin expansion of 150 basis points, reaching 14.5% compared to 13% in the same period last year.
Apparel brands and retailers have experienced a downturn in sales since November 2022, following a significant surge in demand driven by post-COVID wardrobe refreshes. The abrupt decline in demand caught brands off guard, leaving them with excess unsold inventory. Consequently, there has been a widespread need to reduce sourcing and clear stock through frequent and substantial discounting.
Even during the last festive season, demand failed to rebound, with brands attributing the decline to the adverse impact of cricket matches during the ICC World Cup. Despite this challenge, nearly all brands succeeded in lowering their inventory levels through decreased sourcing efforts.
Devang Parikh, the business head of Shoppers Stop’s apparel value retail format, Intune, informed analysts that this innovative format has exceeded all projections regarding full-price sell-through. The retailer refrained from significant discounting during the last end-of-season sale (EOSS).
“We may have some liquidation as is the nature of the business and everyone needs to. But we don’t see the need for a very aggressive EOSS in Intune as of now,” he said.
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