Pre-GST sale: Early Diwali cheer for consumer goods, retail chains

But disruption in July looms large as inventory thins and there are prospects of price hikes

Retailers of consumer electronics and home appliances are rejoicing at the bumper pre-GST sale that has advanced the festive mood to June. While, a wide-spread disruption in trade is looming large over the sector once the much-awaited goods and services tax (GST) regime kicks in from 1 July, executives at brick and mortar outlets, selling air conditioners, refrigerators, washing machines and television sets, are busy counting money, in exchange of every last piece of inventory that was lying in their godowns.

Retail footfall in these stores jumped by up to 30 per cent in the second week of the month, thanks to heavy discounts and special offers that were lined up to lure consumers. While, discounts at large format electronic retail chains like Croma, Reliance Digital and Vijay Sales ranged between 10 to 50 per cent, stand-alone outlets were quick to pick up the cue. Large format and small outlets in many parts of Delhi, for example, started offering unusual discounts from the first week of June. And many went out of stock for older inventories by the third week. Retail chains began their special offers only in the third week of the month.

Sales, however, jumped by about 70 to 120 per cent owing to the introduction of price offers, unheard of for quite some time. On top of this, the fear of price hikes from July led consumers towards purchasing items that were not essential. “The crowd resembles one that we witness during the festive seasons and sale this month should be unprecedented. Consumers are aware of the prospective price hikes from July and discounts that we are offering varies from 10 to 50 per cent” an executive from Reliance Digital said.

“Consumers are aware of the fact that prices may go up once GST sets in. Also, discounts across stores have come to their notice. Most of consumers are coming here to seek special pre-GST discounts. Footfall has gone up by 25 per cent and sales by over 30 per cent”, a Vijay Sales executive said.

As destocking at the trade level hits new high, consumer good firms in the country are preparing for a tough month ahead. While, companies in the sector are actively engaging with the trade partners in allaying their fears over the new tax structure, most of them are still clueless about the real impact of GST on the basic model of accounting and costing that they have been following for years. Come July, they are expecting to get a clearer picture and lay down their modified costing norms and, consequently, respective pricing strategies. Which leaves a vacuum in their supply chain.

Trade partners on the other hand, would be left with the minimal inventory at their end since pre-GST sales in full swing. For example, while small dealers and retailers in the consumer durable space maintain an inventory to feed them for 30 days, larger partners maintain a 60-day stock. However, from July 1, these will be almost nil as none are willing to bear the pain of claiming input tax credit on transitional stock– even though it has been raised from 40 per cent to 60 per cent recently.

According to C M Singh, chief operating officer, Videocon, business will spring back to normal, in terms of supply, by mid-July. “Only after observing the full impact of GST, the trade partners would prefer to place new orders. While, there is loss of business due to this, no one is interested in placing new orders at this moment. Fortunately, this a lean period as after a bumper sale during the March-June period, sales in July and August are usually low. It again starts picking up from September onwards. Thus, the impact is expected to be very low”, he said.

“It’s a fact that, primary sales growth has come down significantly in June, compared to the previous three months. We are currently preparing warehouses to get GST-ready and there are lots of procedural issues that need to be sorted. After all this is the transformation of the tax structure of a large country. But supply side issues should be a small blip. A better monsoon this year, backed by payments made by the government under the 7th Pay Commission scale should give a boost to the festive season sale. GST is unlikely to hamper the festive mood”, said Kapil Agarwal, vice president, marketing at Whirlpool of India.