Home / Companies / Retailers bet on freebies, discounts to revive sales

Mumbai: Consumer goods makers are lining up large-scale promotion offers even for fresh merchandise to revive sales during the coming festive season.

With demand moderating in key categories, including jewellery, watches, spirits and paints, the discounts, promotions and the loss of ability to hike prices translates into more pressure on already stressed margins, analysts said.

“There is evidence of increased price elasticity halting further price hikes over the next few months (thus reducing profit margins)," said a 3 September Ambit Capital report, based on a survey of 100 large distributors across India conducted in the last fortnight of August.

Placing it right: A file photo of shoppers in a store during Diwali. Manufacturers are drawing up plans for new launches and increased spending on advertising and promotions for the festive season. Photo: Indranil Bhoumik/Mint

The pricing power may no longer remain with the manufacturers. “We won’t raise prices till Diwali, " said L.K. Gupta, vice-president of marketing at LG India, while admitting that the input costs remain high and margins are under stress.

Despite this, manufacturers are drawing up plans for new launches and increased spending on advertising and promotions for the festive season. Ganesh Chaturthi on 19 September will kick off the festive season in Mumbai which will end with Christmas through the Navratras, Dussehra and Diwali.

For consumer durable makers, the season accounts for close to 25% of their overall sales.

“There will be a slew of new launches from mobile phones to consumer durables. We will see a lot of offers, promotions, schemes and higher advertising spends," said Raghav Gupta, principal, Booz and Co., a consulting firm. According to him, multinationals are aligning their launches with the Indian festive season.

To revive consumer sentiment, LG expects to spend close to 150 crore on advertising and promotions, 10% higher than the last season, according to Gupta.

For Godrej Appliances, the consumer durables arm of Godrej Industries Ltd, the advertising spending will be 30% higher than last year, said George Menezes, chief operating officer. The Mumbai-based company plans to launch new refrigerators, microwaves and washing machines. It will offer consumers a free La Opala crockery set on every purchase.

Sales growth in the 52,000 crore consumer durables category (television sets, refrigerators, washing machines and the like) has dropped from 14.2% in 2010-11 to 2.5% in the fiscal ended March, according to data from the Centre for Monitoring Indian Economy Pvt. Ltd, an independent think tank, and industry lobby Federation of Indian Chambers of Commerce and Industry (Ficci).

To be sure, sales from discounts and promotions are already on the rise for retailers. Most single-brand retailers such as French Connection, FCUK, Regal, Guess, Puma, Fila, Aldo, Mango and even multi-brand retailers such as Pantaloons and Lifestyle started their end-of-season sales in the beginning of July, a month ahead of what is normally done, as they feared an inventory build-up due to slowing demand.

They are betting on discounts and promotions to drive sales even for fresh merchandise. For instance, Pantaloons, an apparel and fashion retail chain promoted by Kishore Biyani-led Pantaloon Retail India Ltd, has an ongoing offer where consumers can get a 500 gift voucher on purchases of 3,000.

E-zone, an electronic appliances retail chain promoted by Biyani, launched a three-week exchange offer in September asking consumers to “exchange anything old for electronics". Chamois, a leather handbag retail brand, waives 20% on the price of fresh merchandise.

“The proportion of sales from promotions and discounts as a percentage of overall sales has increased from 25% to 30% over the last two-three years," said Gupta of Booz.

“The mindset is oriented towards giving promotions and discounts," said Govind Shrikhande, managing director and chief customer associate, Shoppers Stop Ltd. “Such a mindset is harmful for the industry and the companies."

Meanwhile, companies are also working on improving efficiencies and bringing down prices. “Our entry level price points will be lower by 5-7% for our new collection in mid-October," said Sanjeev Narula, managing director of troubled kidswear retail chain Lilliput Kidswear Ltd.

The combination of economic slowdown and high inflation has affected spending by consumers on household groceries such as biscuits, tea, detergents, soaps and shampoos. Volume growth of consumer packaged goods across India has declined by 6.44 percentage points to 2.16% in the 12 months ended June from the year-ago period, according to Nielsen Co.

However most listed companies such as Hindustan Unilever Ltd, Godrej Consumer Products Ltd and Marico Ltd have not seen demand slow.

According to distributors of consumer packaged goods surveyed by analysts at Ambit, even though the demand has remained strong the companies are cautious. “There appears to be a clear risk of a reduction in consumer spending if further...price hikes are taken by manufacturers in the coming quarters. Such price hikes might have to be taken if prices of edible oil and sugar continue to increase in the third quarter of the fiscal," said the Ambit report.

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