For the past decade, brands like Koutons, Cantabil, Allen Cooper and TNG relied on a year-round sales offer to woo consumers. Now, it is time to review their strategy: Given the rising input costs, imposition of excise duty and a slowdown in the retail industry, discount designer brands in India have suffered a 30-40 per cent dip in sales over last six to seven months.
The increase in cotton prices, non-profitable stores, lack of funds, declining investor confidence and a fall in the purchasing power of the consumer have further added to their woes.
Vijay Bansal, MD, Cantabil Retail India Ltd, says: “Many competitors have closed down their non-profitable stores, mainly their second brand stores which ran on larger discounts. There has been a sharp decline in the purchasing power of middle class buyers due to inflation. Also, the 10 per cent excise duty on branded apparels from April has forced players to reconsider their strategy of the volume game and bring down prices to MRP.” Cantabil owns a second brand ‘Lafanso’. The company had closed 134 Lafanso and 21 Cantabil stores last year.
Koutons Retail India Ltd has closed down more than 350 stores in the recently to stem losses. It offered 50-80 per cent discounts on brands like Koutons Menswear, Charlie Outlaw, Les Femme and Koutons Junior. Reportedly, the company has stalled operations of their second brand, Charlie Outlaw, to improve cash flow.
These brands offered discounts up to 80 per cent all through the year. The strategy worked on basic consumer insights — the obsession for discounts among the middle and upper-middle class. However, with changing times, the Indian consumer has evolved and could sense the underlying scheme.
Bansal adds: “It’s high time for companies to revive their strategy if they want to survive. There are many ways to check losses — closing down of non-viable stores, selling on actual MRP or offering lesser discounts, cutting down on marketing and advertising spends, reducing manpower and preferring company-owned stores. The owners now prefer to work on commission basis with franchisees rather than minimum guarantee income.”
Cantabil offered clothes ranging from Rs 600- Rs 1,000 after discounts. To ensure better margins, they now plan to launch a premium line of apparel brand ‘Kaneston’, sold on net price within the range Rs 1,100-Rs 2,000.
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Earlier, the owners used to get 30 per cent margin on every unit, but as a result of increase in cotton prices, their margins have fallen to 7-8 per cent. “Our sales dipped eight per cent over the last seven months to Rs 186 crore this fiscal, against Rs 202 crore in 2010,” says Bansal.
The discount brands industry that started flourishing in 2000 is estimated at Rs 2,000 crore. In its initial years, the industry was booming with increased consumption, registering over 60 per cent growth year-on-year. This encouraged retailers to launch other brands and run multiple stores to ensure high footfall.
TNG, another company that owns 150 stores across India, has also revived its strategy. Dwarka Das Agarwal, MD, TNG Retail India Pvt Ltd, says, “Since we had already foreseen the future, we gradually shifted from discount to flat price model almost a year back. We are negotiating on high rentals, closing down non-viable stores and revising the margins.”