Reasons behind forced apparel discounts
Apparel retailers in India sold close to 40 percent of their clothing products by giving discounts or end-of-season sale (EOSS). The reason for this is due to these retail stores having more inventory stock than they can sell. It indicates the mismatch between the planned inventory of the store and its actual sales.
Reasons for forced discounts on apparels
The retailers often faced the issue of having more inventory stock of clothing products than their actual sales. It leads them to give discounts or end-of-season sales to reduce the inventory. Apart from this, retailers also face issues with the supply chain in the market. It often faced the issue of delayed delivery of clothing products to their retail stores. The delay can occur in between 7 to 30 days resulting in contraction in the time period to sell products at their full price. It forces most of the retailers to implement discounts in order to clear their inventory. This information is based on the survey conducted on 100 companies by Vector Consulting Group and Nielsen IQ on apparel industry.
Impact of discounting on margins
Though discounts boost sales in the market, it adversely affects the margins of the company. The CEO of lifestyle business, at Aditya Birla Fashion and Retail, Vishak Kumar stated that the company is trying to limit their discounts by creating a balance between physical stores and online channels which will lead to healthy sales growth.
However, the task of balancing the stocks between different channels manually is quite time-consuming and inefficient in nature. The apparel brands have to decide their clothing collection prior to 6 to 9 months. It is the reason why it is difficult to project future demand in the market accurately. It often results in unsold clothing product stock in the stores. Additionally, some products which are trendy get sold out but some remain in the inventory only.
The expansion in inventory stocks than the actual sales results in serious issues in terms of financial and operational functioning of the brands.
Festive seasons are often considered good for the apparel brands. Many retailers recorded strong growth in the festive season. However, it faced subdued demand in the winter season later. According to V-mart, it is difficult to project dynamics of seasonal demand. V-mart faced subdued demand for apparels in the winter season. It stated that in this situation, stores have to either give a bit of discount in order to reduce inventory or it has to face some leftover stock in the stores.
Approach of retail brands
Many apparel brands are taking efforts to limit forced discount offerings in order to maintain stable margins. The companies are focusing on expanding their channel mix, particularly online channels. Arvind Fashions was successful in achieving full price on its sales. It delayed offering discounts and did not have end-of-season sales.
The company believes that focusing on discounting and thinking it as a solution to reduce inventory leads to low-quality growth. Its main purpose is to remove business strategies resulting in low-quality growth. It also closed its under-performing stores. It resulted in contraction in total store space of the company in the first half of the previous year. The company is now focusing on growth driven by online channels.
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