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 Posted: Sun 21:42, 25 Aug 2013 Post subject: Apparel brands offering deep discounts be hit hard |
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Apparel brands offering deep discounts get hit hardest,[link widoczny dla zalogowanych]
The MRPs of discount brands are disproportionately greater than the final sales prices. Additionally, discounts can be found throughout every season. Therefore,[link widoczny dla zalogowanych], the implication of excise duty as a area of actual realisation is much higher for discounted brands compared to non-discounted brands.
Based on ICRA estimates,[link widoczny dla zalogowanych], effective excise duty works to 10-45 per cent for brands offering discounts between 50 and 90 per cent.
Within the Union Plan for 2011-12,[link widoczny dla zalogowanych], the optional excise duty levy was turned into a mandatory levy at a unified rate of 10 per cent for branded garments with abatement of 55 per cent. The modification was effected to bring branded readymade garments under the purview of excise under the impending Goods and Service Tax regime,[link widoczny dla zalogowanych], where exemptions aren't favoured.
Mr Rohit Inamdar,[link widoczny dla zalogowanych], Senior Vice-President, ICRA,[link widoczny dla zalogowanych], says,[link widoczny dla zalogowanych], mandatory excise duty will hit discount apparel brands that have adopted a steep discounting strategy whereby they offered discounts within the selection of 50-90 per cent on the printed maximum list price (MRP) throughout every season inside a bid to capture a larger share of the market as well as build their respective brands. Our prime MRP allowed these participants to keep their operating income within the range of 13-18 percent despite these heavy discounts. In fact,[link widoczny dla zalogowanych], even premium brands have resorted to increased discounts to liquidate inventory.
Additionally,[link widoczny dla zalogowanych], discount brands are facing stiff competition from private labels from the large format chain retail stores for example Shoppers Stop, Pantaloons,[link widoczny dla zalogowanych], Westside,[link widoczny dla zalogowanych], Reliance Retail and Spencer's that are aggressively promoting their own labels while offering value-for-money propositions for their customers.
In the last few quarters,[link widoczny dla zalogowanych], discount brands have experienced slowing sales growth as well as a decline in sales in some instances, thus,[link widoczny dla zalogowanych], squeezing their funds flows. Pressure on sales together with large and slow-moving inventory in the books may have a significant effect on the liquidity of discount apparel manufacturers. Therefore, it is clear that there's pressure on discount brand manufacturers to maintain their growth trajectory.
As offering large discounts is a valuable part from the pricing means of such brands, with discounts generally offered throughout the year, there might be a transfer of the online marketing strategy of discount brands.
Due to mandatory excise duty,[link widoczny dla zalogowanych], discount brands may correct their MRPs and start following the conventional route, whereby promotions and discounts are typically limited to end-of-season sales organised to clear unsold inventory when preparing from the year.
ICRA believes that the correction in MRP appears to be the only viable approach within the prevailing environment for branded apparel manufacturers in addition to their customers, as the effective price increase for that customers can be limited at around 5 per cent as the cash inflows of the companies can be maintained. Discount apparel brand manufacturers could also choose not to correct their MRP fully and still offer low discounts in the range of 10-20 percent throughout every season.
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