By Writankar Mukherjee & Rasul Bailay
Top fashion retailers in the country plan to cut down on discounts and sale durations this year, after resorting to extended discount season last year to clear inventory pileups and create demand.
Retailers such as Future Group, Arvind Brands, DLF Brands and Adidas say they have rationalised their buying patterns and inventory management to reduce dependence on discount sales.
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FMCG market growth dips during January-March quarter
By Ratna Bhushan & Sagar Malviya
Global consumer companies, which consider India as one of their last bastions for growth, saw demand taper off during the January-March quarter despite a low base last year. Top multinationals including Unilever, Yum Brands, L’Oreal, SABMiller, Nestle, Coca-Cola and Pepsi-Co have all reported slower growth in India in the quarter ended March compared to a year ago period, as Indian consumers remained cautious about spending amid high inflation and a slowing economy.
While most of these firms had reported slower growth in every quarter last calendar year too, it was against a relatively high growth of 2012. “What we were experiencing in terms of the FMCG market growth slowing down has continued this quarter, both in terms of volume and value,” R Sridhar, Hindustan Unilever’s CFO, said while announcing the firm’s quarterly performance on Monday.
“Premium segment and discretionary categories were really under pressure. The markets are still growing, but the pace of growth is slow,” he said. The overall FMCG growth has come down to 6per cent in the quarter ended March from 18per cent a year earlier. Experts said continuing slowdown in formerly fast-growing emerging markets such as India has dimmed multinationals’ prospect at least for the next few quarters. Yet, India is better than developed markets.
“The India growth story is muted but it (India) is still growing faster than developed markets,” Debashish Mukherjee, partner at consulting firm AT Kearney, said. “There are structural headwinds in some sectors and downtrading across categories, but the overall macro outlook is steady,” he added.
In the Jan-March quarter Yum! India, which owns KFC and Pizza Hut quick-service restaurant (QSR) chains, saw its same-store sales growth decline 1per cent. While consumer demand continues to remain subdued, top QSR players such as Yum! have maintained a high level of promotional intensity to enhance customer footfall.”Understanding the market sentiment, we have doubled our efforts to increase variety in our menu and hence increase ‘relevance’ to attract new customers,” a Yum! Restaurants India spokesperson said.
Coca-Cola has reported 6per cent volume growth for its Indian operations in the quarter, impacted to some extent by a prolonged monsoon season, while its rival PepsiCo India delivered high single-digit organic revenue growth for its India operations. Companies’ performance also indicated that growth has been harder to achieve with most of them focusing on high-margin premium products even as consumers downtrade to lower prices products.
Some companies feel that support from India is fading. For instance, Nestle SA in its Q1’14 sales release highlighted that trading conditions in India remained weak due to the weaker economy and consumer sentiment. Nestle India will announce its first quarter result next week. World’s second largest brewer SAB Miller also noted that India group revenue declined by 3per cent due to a volume decline of 7per cent, partially offset by robust realisation growth of 4per cent. “Volumes were impacted by regulatory changes made in the earlier part of the year in several key states, coupled with the prolonged monsoon season during the year,” said SABMiller in its investor update.
Source:The Economic Times
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“Last year, retailers went overboard and the discounts went really deep. This year, the retailers are having a re-look at the strategy and might cut back on the discounts,” said Dipak Agarwal, chief executive at DLF Brands, which markets global brands such as Mango and Mothercare in the country. “Last year was best for consumers but this year will certainly be not going to be like last year,” he said.
Some retailers have already taken the lead. Adidas AG, which used to run four-five weeks of discount sales in January, restricted it to just two weeks this year.
According to Tushar Goculdas, brand director for Adidas India, the firm plans to have only short duration season discount, not exceeding two weeks, this year.
“We support our partners to ensure a more effective merchandise mix and sharper demand planning. As a result of these measures, our need to clear inventory at discount has been steadily declining,” he said.
Over the years when consumer spending soared in a booming economy, most fashion retailers started stocking heavy in anticipation of even higher demand. But an economic slowdown hit consumer sentiment in late 2012 and suddenly retailers were saddled with piles of stocks. To clear that inventory, retailers resorted to extended discount season last year.
Industry insiders say fashion retailers are now working hard on managing their inventory to avoid such a fate this year.
“Most of the retailers have become very smart and careful in terms of stock they hold and they currently hold very lean stocks,” Kumar Rajagopalan, chief executive of the Retailers Association of India, said. “It is also a matter of maturity of retailers. As they become mature their buying becomes more careful,” he said.
According to Rajagopalan, till some three-four years ago retailers would start the spring-summer discount season only in August; but more recently many retailers have been going on sale as early as in June and the discounts went on all the way till August.
Retailers say that such extended discount season hurt their businesses as sales have gone down substantially post-discount months.
“The sales seasons have stretched from four weeks to six weeks to eight weeks, so the actual season for fullprice is coming down, particularly the spring-summer which is a shorter season,” said J Suresh, chief executive at Arvind Brands, which sells various global brands including USPA and Gant here.
“There is a consciousness among everyone today that we should not unnecessarily get into too much discounting, but what happens (is that) if someone has extra stock they start (discount sales) and how the whole thing spreads,” he said.
Future Group, ITC Wills Lifestyle and Woodland too have decided to cut down the number of discount days and margin of discount they offered. “The problem of discount-led demand generation has been a self-created problem of the retail industry and the industry is now trying to solve the problem together,” said Rachna Aggarwal, CEO at Future Lifestyle Fashions. She said Future Group has decided to reduce the number of discount days and discount mark-up, and also to finish the discount period at least two weeks before main buying seasons.
“We are also placing fresh merchandise alongside the discounted products which has spurt sales of the fresh merchandise to almost 30% of the total sales during the last end-of-season sale in January,” Aggarwal said.
ITC-owned Wills Lifestyle has decided to reduce the discount markdowns by 5%-10% this year and will also put less number of stock keeping units or SKUs up for sale, said Atul Chand, ITC’s lifestyle retailing business chief executive. This will help ease the pressure on margins, he said. “We are rolling out six collections this year as compared to four collections before to drive sales without promotions,” Chand said.
Harkirat Singh, MD at Woodland, said the shoe and apparel retailer wants to reduce the share of discount-led sales on its total revenues to 15% this fiscal from 22% last year by cutting down on discount days as well as merchandise put on sale. “However, it is not possible and neither is it desirable to completely eradicate discount sales since in the fashion industry it is the best way to clear out old stock,” Singh said.
What gives retailers confidence to reduce discounts and improve sales of fresh merchandise is that many of them clocked double-digit growth in March-April without offering any discount. Also, consumer demand is expected to pick up once a new government takes office later this month.
Source:The Economic Times
Copyright © 2014, Bennett, Coleman & Co. Ltd. All Rights Reserved
Licensed to republish
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