Home / Companies / As organized retailing takes off in India, so do discount chains

Bangalore: Mayank C., a 27-year-old engineer, loves shopping and confesses to indulging in retail “therapy" every fortnight.

Nothing unusual really, except that Mayank never steps into the upmarket outlets near his home. Instead, he travels the 10km it takes to get to a discount mall.

“Why should I spend Rs3,800 for the same Reebok shoes that I can get for Rs2,400 here?" he reasons.

Turns out, Mayank is not alone among India’s young shoppers looking for famous brands at reduced prices.

Expansion mode: The LOOT plans to invest Rs100 crore by March 2009 to expand its footprint across the country. The group currently has 30 stores and plans to raise the number to 100 within a year.

A year ago, there were some three prominent discount retailers in the country, but in the last few months, there have been four new entrants and, they are all on an expansion spree.

Pantaloon Retail (India) Ltd’s Brand Factory, Arvind Mills Ltd’s Megamart, Vishal Megamart, the discount store chain of Vishal Retail Ltd, and Provogue (India) Ltd’s Promart have been the most prominent players in the field.

A number of relatively newer players, such as The Loot (India) Pvt. Ltd, which operates The LOOT outlets, Krishna Group’s The Grab Store and Prateek Apparels Pvt. Ltd’s Coupon have started in the last few months.

Some 45% of branded products are estimated to be sold at discounted rates.

Brand discount retailers typically offer 25-80% discount on products through the year and insist they do not sell counterfeits or factory seconds, or products typically rejected by stores.

They claim they are able to buy at reduced prices as they purchase odd sizes, end-of-season surplus items and, often, make payments in cash to the manufacturer or distributor. The products generally include formal and semi formal as well as casual clothing, footwear and accessories.

The most visible Indian and international fashion brands at discount outlets include Reebok, Nike, Adidas, Van Heusen, Arrow, Levis, Lee, Pepe Jeans, Allen Solly, Reid and Taylor, Wrangler, Puma and Louis Phillip.

The size of the country’s retail industry is estimated to be Rs12 trillion, of which about Rs55,000 crore is contributed by the organized sector.

Pantaloon Retail, which currently has six Brand Factory stores, plans to have 40-45 stores in the two years. Megamart, which has 91 stores, plans to have 200-250 stores in four-five years, by investing Rs400-500 crore. It also plans to have 30-35 large format stores with a size of about 50,000 sq. ft. The Grab Store currently has one store and plans to have 50 stores by March next year. The company’s marketing head Snigdha Kar says each store would have an investment of Rs90 lakh.

The LOOT plans to invest Rs100 crore by March 2009 to expand its footprint across the country. It currently has 30 stores and plans to raise the number to 100 within a year. Prateek Apparels, which has two stores, plans to set up 50 more discount malls by 2010 at a cost of Rs400-500 crore, according to Sudeep Menon, director, Prateek Lifestyle.

“As the retail industry is booming, everyone wants to follow the precedent of a successful format," says Jay Gupta, managing director, The LOOT.

Brandhouse Retails Ltd, the brand-specific retail unit of apparel company S. Kumars Nationwide Ltd, is also planning to enter multi-brand, large-format, discount outlets. Meanwhile, the country will also see its first chain of discount malls, to be called Stadia Supercenters, soon.

Retailers say although the profit margins of a discount retail format are much less than a full priced retail store, the higher sales volumes in a discounted format compensate the cash flow. The profit margin in a discount retail chain is 6-10% says Ganesh Raman, marketing head, Megamart. He refused to divulge the profit margin of full priced retail stores.

The discount retailers, however, agree that success would not come easily to them.

“So many people are trying to avail the opportunity, but the success of a retailer lies in his ability and capacity for sourcing, manufacturing and designing of the apparel," says Menon.

But discount retailers are already facing stiff competition from exclusive factory outlets, seconds’ stores and seasonal sales at regular stores.

“When it comes to positioning, discount retailers do not pose a threat to us. People who are fashion-conscious and want to buy products when they are in vogue will anyway come to us. But yes, they are a threat when it comes to value share and wallet share. If a customer gets the same product at lesser price, it is obvious that they will go for cheaper options," says Govind Shrikhande, chief executive officer of Shopper’s Stop, a multi-brand retailer.

Shoppers such as Shruti Sharma have tried discount retailers, but find the lack of a full range—especially of sizes—a problem. “Small size fits me," she says. “But I can only find large and extra large-sized clothes here. The shoes here are available at 40% discount, but none is in size less than foot size six."

As a result, discount stores won’t necessarily eat into market share of other retailers, says Purnendu Kumar, associate vice-president, KSA Technopak, a management consulting firm. “Discount outlets are what we can call as working capital solution for brands owners," he says. “The discount stores sell products, which are mostly leftovers, or at least a season old. The customers get to buy them at a cheaper rate, so where does the question of cannibalism come from."

Kumar predicts discount retailing will grow at the 25-30% and would become more specialized in future.

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