Fashion, apparel retailers cut discounts amid subdued demand, low inventory

Fashion, apparel retailers cut discounts amid subdued demand, low inventory

Leading fashion and apparel retailers are reducing their discounts when demand continues to be subdued and their inventory much lower than earlier by cautious procurement in the last 2-3 quarters, to focus more on margins and profits, chief executives said.

These companies feel when store footfalls are weak, there is no need to provide additional discounts and instead focus on premiumization of these consumers.

One of the largest apparel retailers and manufacturers, Aditya Birla Fashion & Retail managing director Ashish Dikshit said there is a slowdown which is reflected in the footfalls into malls and stores. The company has decided to scale down on discounting which has helped to significantly expand margins last quarter, he told investors recently.

“We recognized that in this market situation, it would be a sharper strategy to stay tight on discounts, manage for profitability, which is what we have done. So we were able to make the most of the footfalls, which came into the stores, which was linked to the premiumization strategy,” said Dikshit, who runs stores like Pantaloons and sells brands like Allen Solly, Reebok and host of ethnic designer brands like Sabyasachi and Masaba.

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Arvind Fashions, which sells brands like Arrow, Calvin Klein and Tommy Hilfiger, also has rationalized discounting at its stores. The company’s managing director Shailesh Chaturvedi said the company’s revenue growth last quarter could have been higher if it had participated in early end-of-season sales (EOSS) but instead made a choice to focus on profitability and discount reduction due to tight control on inventory .“We also made a choice of increasing marketing investment by 130 basis points in order to support growth and keep our brands top of mind. We chose investment in marketing over investment into discounting,” Chaturvedi told analysts. A basis point is 0.01 of a percentage point.For Arvind Fashions, the growth in EBITDA (earnings before interest, taxes, depreciation, and amortization) last quarter was 18% due to lower discounting while Aditya Birla Fashion & Retail achieved consolidated EBITDA of Rs 605 crore with margin expansion of 150 basis points to reach 14.5% versus 13% last year same period.

Sales of apparel brands and retailers have been impacted since November 2022 after a massive surge in demand post Covid led by wardrobe refresh. The sudden lull in demand caught all brands unaware as they were stuck with piles of unsold inventory forcing everyone to cut down on sourcing and clear stock with frequent and high discounting.

Demand did not revive even last festive season with brands saying the cricket matches during the ICC World Cup then impacted demand severely. But almost all brands managed to reduce their inventory levels with lower sourcing.

Shoppers Stop’s apparel value retail format Intune business head Devang Parikh told analysts that this new format has beaten all estimates on the number of full price sell-through. The retailer did not go for any major discounting in the last EOSS.

“We may have some liquidation as is the nature of the business and everyone needs it. But we don’t see the need for a very aggressive EOSS in Intune as of now,” he said.

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