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Brick-and-mortar retailers to offer deep discounts to shore up revenue

June 26, 2015 11:46 IST

Feel the pinch of predatory pricing by e-tailers

Retail companies, which have witnessed a continuous fall in same-store sales in the 2015 financial year, are expecting sales to pick up by October, when the festival season kicks in.

“The pick-up (in consumer demand) is not there the way retailers had expected it. Things are muted and same-store sales growth will be in lower single digits,” said Sangeeta Tripathi, senior research analyst at brokerage firm Sharekhan.

For instance, the same-store sales growth of apparel retail chain Shoppers Stop showed a steady fall at 11 per cent, 0.8 per cent and four per cent in the second, third and fourth quarters for FY15, respectively. Same-store sales growth means the growth coming from stores in the business for a year or more. It captures consumer spending data and falling growth shows lack of consumer confidence.

“There is a slowdown but I think things will change after the September quarter and growth will come when the festivals kick in,” said Alok Dubey, chief executive officer, Lifestyle Brands at Arvind Lifestyle Brands, which retails brands such as Gap and Calvin Klein, among others.

Beside a slowdown in consumer spending, retailers are also hit hard by the hefty discounts offered at e-commerce portals. “E-commerce has hit the footfall at malls. Walk-ins have come down by 10-15 per cent. But I feel it should get over in the next one quarter,”  said Timmy Sarna, managing director of DLF Brands, which retails Mango, Forever 21 and Mothercare, among others.

According to a senior executive at Tata-owned Trent, certain formats such as hypermarkets are facing headwinds but others are not. Apparel retailers have already resorted to mid-season offers to win back shoppers.

According to experts, overall sales are down 10-15 per cent in May over a year and 70 per cent of brands have done mid-year promotions. To entice customers and  perk up sales, retailers are offering gift vouchers, flat discounts and free merchandise.

Prashant Agarwal, joint managing director of Wazir Advisors, said, "Around 70 per cent of the brands have not performed to expectation. Hence, they are coming up with offers and promotions to cover the fall in sales." Agarwal added brands did not have budgets to offer flat discounts because the peak sales season was underway and discounted sales would start only by next month.

“Walk-ins are not high and we are not getting vibes. Consumers are cautious about spending their money,” said a senior executive at Pantaloons, owned by the Aditya Birla Group The weak consumer sentiment seems to stem from the macro economic outlook they have.

While consumer confidence in urban areas has increased by nine points from the first quarter in 2014 (121), 44 per cent of respondents polled feel India is still in "economic recession", said a Nielsen global survey of consumer confidence and spending intentions.

However, Rakesh Biyani, joint managing director at Future Retail, says even though the numbers are below expectation, there is nothing to show they will deteriorate further. “Customers always look for value. All we have to do is to work hard to deliver better value to customers,” he said.

Raghavendra Kamath in Mumbai
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