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Losing their shirt over excise duty

Losing their shirt over excise duty
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First Published: Thu, Mar 24 2011. 09 11 PM IST
Updated: Thu, Mar 24 2011. 09 11 PM IST
Can you guess Ajay Ramachandran’s favourite brand of shirts? Okay, here’s a clue: Ramachandran is the business head for brands at Madura Fashion and Lifestyle, an Aditya Birla Group company that deals in branded apparel. The correct answer is Van Heusen, a brand marketed by the company that also retails Louis Philippe, Allen Solly and Peter England.
Would he would stop sporting a Van Heusen in view of the imminent price hike in branded apparel? Ramachandran laughs but quickly adds that the 10% excise duty on branded garments should not be taken lightly. The partial rollback of duty announced by finance minister Pranab Mukherjee on 22 March is small solace, he says, adding that the industry was expecting complete exemption.
Mukherjee stirred up a hornet’s nest when he announced a 10% excise duty on all branded garments in his budget. Even though he announced concessions a couple of days ago, apparel makers and retailers of branded garments are unhappy. Immediately after the Budget speech, retailers such as Shoppers’ Stop and Pantaloons shut stores for a day protesting the levy. On Tuesday, garment and hosiery manufacturers threatened to strike work if the government does not relent.
Their logic for such vociferous opposition is that the move will further hit the consumer who is already “reeling under high inflation on basic items. There has been a 10% plus annual inflation in food articles and a 30-50% inflation in clothing (owing to increased raw material costs) over the last one year”.
The association argues that branded garments are not just for the rich and that it is against consumer interest to promote unbranded clothes as they come without any assurance on quality. It’s a fair argument.
It is true that branded garments, a shirt for instance, low-end or premium, will now cost more as the companies will pass on the tax liability to the consumers. Citing example of a brand from the Madura stable, Ramachandran says the price of a formal shirt went up from Rs 1,500 to Rs 1,650 owing to increase in raw material cost. With additional duty, the same shirt may now cost Rs 1,900. While a gradual price increase is acceptable, such a spike in a single season is not justifiable, he rightly argues.
The garments manufacturer association thinks any price rise will affect sales. Surprisingly, marketing experts who keep a close eye on consumer behaviour do not seem to share the view. For a start, the basic assumption is branded apparel is bought by people who can afford it.
Their arguments are backed by a plethora of qualitative and quantitative studies they do for various brands to understand consumer mindset. Highlighting the characteristics of the modern customer, especially those born in the late 1980s or early 1990s, the experts wonder if price movement on apparel will really affect buying.
The relationship of post-liberalization customers with money is atypical. Money is a transactional means to facilitate fulfilment of a need and not a need in itself. A Delhi-based brand expert calls them the “need-it-so-must-have-what’s-the-big-deal” consumers. Madhukar Sabnavis, country head, discovery and planning at Ogilvy and Mather agrees: “For the young consumer ‘buying’ or consumption is not related to money. It is related to what they want. Hence, if they really want that dress, they will go for it.”
Other attributes that should reassure the apparel makers include the inherent desire to constantly upgrade across product categories. Yesterday’s luxuries are necessities today. So the pre-liberalization Indian consumer who was defensive, cautious and a value seeker is now demanding and optimistic but continues to be a value-seeker. Value-conscious not price conscious, stresses Arvind Wable, executive director and CEO at advertising agency DraftFCB+Ulka. In Wable’s view, the consumer is smarter, more informed and willing to pay more, but for full value. The qualitative shift is evident: Not just the cheapest cars are selling.
In the case of apparel, customers have mixed wardrobes. They are picking stuff off the streets of Janpath and Sarojini Nagar (in New Delhi) and from Levi’s and Marks and Spencers showrooms with equal ease. They are not risk-averse.
Sure, there’s no Jasmine revolution in the making, but there’s confidence. However, the consumer confidence should not be misread. “In a commoditized market, price will make a big difference unless you have a strong brand,” says Sabnavis from Ogilvy. Getting premium for labels is that much more difficult from consumers armed with knowledge.
To be sure, that is what is worrying the private labels (in-house brands created by retailers) in the apparel category. Their business model works by being 20% cheaper than other major brands. Any increase in prices may affect sales. Children’s wear brand Lilliput, therefore, will absorb the excise burden. The company’s managing director Sanjiv Narula says his margins may be squeezed but he will make up through volumes.
However, Ramachandran says that fears over consumers abandoning branded clothes are exaggerated given their changing nature. “The worry is that my share of wallet may drop.”
Shuchi Bansal is marketing and media editor with Mint. Comment at whatwebuy@livemint.com
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First Published: Thu, Mar 24 2011. 09 11 PM IST