03 April 2023, Mumbai
Retailers and fashion brands are facing a dilemma: the issue which perenially dominating is whether to give or not to give discounts. The Covid pandemic has left retailers with piles of unsold inventory, and with the impending recession, they are seeking ways to clear these stocks.
Indian shoppers are essentially bargain hunters as there is an adage that," The Indian middle-class concept of a penny saved is a penny earned is widely recognized as a holy cow in the Indian retail parlance".
Apparel retail like most other consumer segments is now struggling with the high price of commodities as there’s been a surge in cotton yarn prices, with most retailers passing on the rise to the consumers.
Different strokes for different folks
However, not all retailers are adopting the same approach when it comes to discounting strategies. The branded apparel industry, including both Indian and global fashion brands, is trying to understand the evolving post-Covid consumer patterns and is fine-tuning its marketing and discounting strategies accordingly.
The article is an attempt to get into the exercise of historic data crunching giving insights into its performance trail within the retail sector at large.
The phenomenon has somehow emerged as a notable marketing opportunity and as the fervour is catching up in India, it only gets bigger through the years as marketers are looking to create events by giving some discount as it works given that brands, retailers, malls, and e-tailers respond by coming out with value propositions/offerings in the form of strong sales-promotional campaigns, in the anticipation of driving incremental buying/purchases.
Walking a tightrope walk
Indian retailers are thinking of reducing prices for consumers. This comes at a time when there has been some softening in raw material costs in recent weeks. Since consumers have not been able to accommodate price hikes, and consumption has been impacted, retailers are adopting this strategy to ensure products remain affordable while continuing to innovate.
Some brands have also begun considering rolling back price hikes for products positioned at the entry level to boost volumes.
Inflation bites; Inflation impact in the sub-segment of value retail stores is being felt harshly by many companies here.
Balancing Profitability and Consumer Demand
As economic uncertainty continues, sticky inflation persists retailers are turning to out-of-the-box discount strategies to clear out pushover inventories driving sales & volume up.
This encompasses targeted promotions to the other end of the spectrum like personalized offers, and discounting being deployed strategically to meet consumer demand while balancing profitability and unit economics.
The case in point is what has been experienced in instances like mid-segment retailers reducing discount days to premium brands offering to lure discounts to clear unsold/stuck-up inventory all creative/innovation-led discounting strategies and business approaches used in the Indian apparel industry to drive sales and navigate economic uncertainty.
The State of Fashion report of McKinsey reflects that " 84% of industry captains/leaders expect market conditions to only get worse before it starts to improve/stay the same in 2023".
Horses for courses; Taking a cue from some of the prominent Fashion & Lifestyle brands like Woodland have shortened the number of discount periods/reduced no. of days while premium brands like Nautica and Mango offer bigger discounts.
Bata has managed to navigate inflationary pressures reasonably well till now but is continuously monitoring the situation and wherever possible is trying to ensure it remains competitive while also maintaining margins.
How Discounting Strategies are Driving Sales in the Indian Apparel Industry
Many leading Indian retail and departmental store chains such as Aditya Birla Fashion and Retail, as well as Lifestyle International, are planning to reduce discount levels. Most mid-segment retailers feel that high discounts during the Covid years are no longer needed, and it is mainly the premium high-fashion brands with high inventory levels that need to offer high discounts to survive.
Data-Driven Discounting
While fresh stocks at regular prices sell well, premium brands are offering bigger discounts at the beginning of the season itself to attract buyers and liquidate inventories. Many international and Indian fashion brands have started by offering up to 50% off to their customers and this trend is continuing through 2023.
From Mid-Segment to Premium Brands; Mid-segment brands are giving lesser discounts, as fresh stocks sell well, and they are under pressure to clear out inventory and start afresh in the next fiscal year.
The reduction in discounts is also helping improve profit margins at a time when fixed costs like high rentals in LFs, MBOs, and EBOs are increasing but still have to be maintained.
Find Success with Targeted Discounting and Promotions
Large retail companies such as Shoppers Stop are concluding end-of-season sales far later this year than usual as the regular price stocks are selling comparatively well.
Premium brands are singing a different tune as the stock pile-up of unsold inventories in warehouses and low sales have forced them to prepone their bi-annual end-of-season sales by about two weeks, rather than postpone.
Most have had to offer bigger discounts at the beginning of the season itself in a desperate effort to attract buyers and liquidate inventories.
The silver lining here is “However, value retail national retail chains like V-Mart is expecting to increase sales in H2FY23 onwards". Strategies to Navigate Economic Challenges
In a challenging economic environment, retailers must leverage data and insights on buying habits & seasonality to create targeted/calibrated promotions, so brands can balance profitability and unit economics with meeting consumer demand as effective marketing strategies used by businesses to drive sales & volume up and retain customers.
The measured effort is to pump prime to incentivize consumers by offering luring/targeted discounts and tempting promotional schemes, to make customer purchases and build brand loyalty for a larger purpose.
At the end of the day, everybody realizes that it is up to the brand to decide what discount scheme works for them.
Retailers and fashion brands must understand that no two downturns are exactly alike. Balancing inventory well has become the need of the hour, and discount strategies need to be creative and tailor-made to attract customers in these turbulent post-Covid times.
