For most consumer product categories other than daily essential items like food and personal care/homecare goods, July and August are traditionally the slowest months for offtake. Brands and retailers generally use these months to clear the summer/older stocks through “discounts/sales” to make room for new merchandise for the autumn festive and traditional wedding season.
This year, however, the situation is different from previous years. Notwithstanding the prospects of the economy still achieving a 7 per cent plus growth rate in the current fiscal, inflation and a host of other factors have severely dented both consumer confidence and discretionary spending incomes. Further, in major urban centres and especially in the top 15-20 cities, there has been a marked expansion of retail activity, creating many additional millions of square feet of retail space with many more millions to come in the next few years. As a result, there is increased competition for the share of the wallet of the already circumspect customers in traditional retail high street and the new shopping malls.
Unfortunately, it seems that most brands and retailers have not really reflected enough on these changes in the external environment and have looked at discounts/promotions/sales activity as they have looked in years gone by. Almost all the retailers seem to have actually taken out their slowest-moving stock not only from the “back-rooms” in the retail shops but also from their warehouses. As a result, while many not-so-enthusiastic-to-spend consumers are still getting enticed to walk into the stores with the lure of a good bargain, the conversions are abysmal since they get to see only old/already rejected (from consumer preference point of view) merchandise or in the case of apparel and footwear, highly ill-assorted merchandise. Hence, not only are many retailers and brands not able to clear their excess stocks anymore through the traditional July/August discount sales, they are also risking losing credibility and brand integrity with the disappointed consumers.
I believe that the Indian consumer and retail market dynamics have already made a fundamental shift, especially in urban India, and it is therefore important for brands and retailers to accept and adapt to this. First, there will be continuous expansion in overall retail activity in the country, notwithstanding policy or other infrastructural hiccups that are currently stymieing more rapid growth. The traditional high street will see increased competitive activity for years to come and with that, it will become more difficult to maintain or even get a share of the consumer spending from that consumer catchment. Secondly, with consumers increasingly seeking newer/latest products (and such consumer behaviour not confined only to the highest-income classes), they will not readily accept old, slow-moving items even at hefty discounts. There is a very different class of consumers that is entirely driven by prices and such consumers are at very low-income levels and are usually not the ones who will be the regular shoppers at the Linking Roads, South Extensions, and Commercial Streets or at the premium shopping malls. Thirdly, for many years, the consumers' spending preferences in terms of spending categories have been increasing quicker than their incomes. Hence, the traditional retailers and brands face ever increasing competition not only from other brands and retailers in the vicinity but from newer product and service categories such as telecom, leisure and entertainment, specialised education or training, etc. The only way they can still get the customers to spend more money on clothes, footwear, electronics, etc. is through more innovative products, and higher standards of retail environment and service. Mere discounting will just not work for such middle- and upper-income consumers.
The strategic imperatives are somewhat obvious, since brands and retailers in developed markets like the US and Europe have been through such transition decades before. First, slower-moving items have to be discounted on the shelves on an ongoing basis — perhaps even daily or weekly — rather than just two times a year. Concurrently, specific limited-time (or even one-day) promotions on otherwise regular or even faster-moving items have to be also carried out selectively on an ongoing basis. This is to build customer excitement and loyalty to the brand or the retail store. For dud stock, selling through deeper discounts through the regular retail channel is likely to be unproductive for most brands and retailers. India does not, yet, have specialised deep discounted retail stores or outlet malls even though the need is glaring. Some retail entrepreneurs and most brands must develop a new, very distinct retail channel for deeply discounted merchandise. Such a channel will have very different geographical locations and a very different store format, ambience, and retail operations, and will be targeted at very distinctly lower-income consumer strata. The earlier this change in strategy is formulated and implemented, the better it would be for brands and retailers since even if the consumer spending sentiment dramatically improves next year, the buying patterns will not revert to those that were there till a few years ago!
arvind.singhal@technopak.com