Discount retailing up in popularity

When the 60,000 sq ft Brand Factory mart in Bangalore, the Future Group's factory-surplus format which stocks 145 brands across lifestyle categories, notched up its millionth customer in less-than-a-year, the company knew it was on to a good thing.

What followed was a rapid expansion into four more cities with five stores.

Even as discount retailing chains in the areas of FMCG and food and groceries fight pressures to drop their discounts that "threaten" small retailers, a new category of discount retailing  --  lifestyle (largely apparel and accessories)  --  is catching the consumers' fancy.

"Food and grocery value retailing accounts for 70 per cent of organized retail. Apparel and accessories is a smaller but rapidly growing segment," says Gibson Vedamani, CEO, Retailers' Association of India.

Earlier, manufacturers discreetly offloaded their surplus and defective stock in insipid and scattered factory outlets. Today, discount retailing is being strengthened by the emergence and growth of multi-brand chains and dedicated discount malls.

The Loot store was one of the first multi-brand chains in this space, starting in Mumbai with five brands in 2004. Today, there are 24 stores spread across 60,000 square feet, with another 1 lakh square feet in the pipeline.

The Rs 25-crore business, according to CEO Jay Gupta, rides on the breadth offered by 60 "aspirational" brands  --  GAP, Mercedez Benz, Puma, Banana Republic. "Our audience does not care that the fashion is two seasons old, it's owning the brands that matters," says Gupta.

Gupta adds that earlier, Indian suppliers were fearful of diluting brand perceptions by being present in the discount channel, but today Loot has coerced even Arvind, Madura and Raymonds brands.

"Supply chain has got easier; brands now court value retailers," says Rajesh Sheth, chief of marketing, Brand Factory & Central. Brand Factory hopes to have a footprint of 50 stores by 2010.

Arvind Brands also owns its own discount channel with 55 outlets in all. Megamart accounts for 20-25 per cent of Arvind's retailing business.

"Discount retail channels have become a business necessity to liquidate excess stock," says Alok Dubey, vice president, Arvind Brands.

Customer apprehension is still a problem. "Our communication constantly reiterates that the merchandise isn't damaged or used," says Sheth.

The key to managing this, Dubey says, is controlling the supply pipeline so that there are clear boundaries for when full price stock becomes discounted. The discounts themselves vary between 20-65 per cent below MRP, depending on retailer.

Vedamani sees discount retailing as a parallel sales channel for manufacturers, often netting first time brand users. Dubey agrees - "As our business grows, our discount channels will see proportionate growth."

Retail infrastructure is also falling in place, and retailers can derive strength in numbers. Ansal Plaza in Ghaziabad, which opened last year, was one of the first "Factory Outlet Malls" where brands from Reebok to Cottons by Century and even Megamart opened stores.

There's more. Royal Palms developer's Orchard Road Mall in Mumbai's Goregaon, spread over 3,50,000 sq ft and 300 units, is being built on the premise of providing brand owners, wholesalers and retailers a common platform to deal with inventory and transactions in huge volumes.

Another developer, Akruti Nirman, is also said to be developing its own brand of discount malls in Tier I, II and III cities.

And retailers say it's a win-win situation. "The customer gets value and we're able to match standard retail operating margins by tightly managing overheads," says Gupta. Plus, conversions are far higher in value retailing.

"Purchases are quick because customers aren't interested in window shopping," says J Suresh, chief operating officer, Arvind Brands.

"We will see newer and more novel value retailing formats developing over the next few years," predicts Vedamani. Discount is a dirty word no more.