It’s that time of the year again when brands such as Reebok, Shoppers Stop, Marks and Spencers start clearing inventory by offering discounts between 30-60% on their apparel and accessories.

“It has become a norm in the industry to have a sale in January-February and July-August every year. This way, while the consumers get to buy at cheaper price, as manufacturers, we also get to liquidate stock lying on the shelves, and prepare for introducing new products,” said Subhinder Singh Prem, MD, Reebok India. Reebok, like its rival Adidas, is running a 30% flat discount on its products.

The strategy works with deal-happy Indian consumers queuing up to sale counters. Marks & Spencers claims to have a 25% increase at its 16 stores in eight cities. Adidas India also claims to double footfall at its stores during sale months. The USD 120-million Indian branded apparel market which is growing at 15% annually, has average retailer margin of about 40%.

This takes a hit as these brands head with their sale periods, lasting anywhere between three to six weeks. Says Andreas Gellner, MD, Adidas India; “Growth in profitability is not a focus during the sale periods. Retailers have ample opportunity to make up for the reduced margin during the six months between the sales.”

But neutral industry observers claim that brands prepare for such profit erosion in their annual plans. Explains Saloni Nangia, VP, Technopak Advisors; “Indian consumers are just evolving to the phenomenon of discounts by leading brands. Manufacturers always factor in the cost ramifications of discounts in their profit and loss statements.” India is a large market with varied consumer segments that are well populated. Discounts help brands reach out to a wider set of consumers who are unable to buy the same goods at fresh prices.

Retailers are also witnessing increasing sales of their full price goods, thanks to the increased footfalls. Says Nandini Sethuraman, marketing director, Marks and Spencer Reliance India; “This year, sales of our fresh price merchandise during sale period have surpassed those of last year’s sale period. We have lesser range of products on discount yet we have managed to outgrow revenue from the sale last year.”

Agrees Vinay Bhatia, marketing and loyalty vice-president at Shoppers Stop; “Consumers come for discounted products but a lot of them also like products that retail under fresh price and buy them.” Shoppers Stop also runs its upto-51% off sale twice a year.

Nick Gordon, MD, Synovate India reckons that stocking old inventory is a costly proposition for brands so they are bound to sell it at discounted prices. “On the other hand consumers also get to experience their brands which makes this a win-win for both parties,” he says.

Source: The Economic Times, India (February 04th 2010)