Franchisors favour discounts for high returns
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Retail 2015-03-17

Franchisors favour discounts for high returns

SALE!!! SALE!!! As the season changes or year ends, this word becomes the top favourite for shopaholics around the globe. The question is hard to answer whether the franchise retailers look for footfalls or more revenue and returns. For the brands, who do

Franchisors favour discounts for high returns

The common theory behind discounts and sales is that the retailers stock up goods and then put them on sale once they don’t sell or they are off the top selling season. But this isn’t the whole story. There are retailers who actually wait for the sale season to get additional footfalls and conversions. It becomes vital for the brands to do a proper planning for the end-of-season sales. Not just to maximise sales but also to protect margins and cash flow. The Indian retail industry is one of the most vibrant industries in the country. It is currently ranked at 20th position among the top 30 developing countries identified by management consulting firm AT Kearney in its 2014 Global Retail Development Index (GRDI). Woodland, country’s leading outdoor adventure brand brings set of new technologies that speaks for the brand and ensures necessary support to the Woodlander who is looking at exploring outdoors. Harkirat Singh, MD, Aero Club- Woodland and Woods comments: “New products have their own pull and we sell them at maximum retail price (MRPs) that are reasonable by default. Thus, we don’t intend to offer discounts. However, end of season sale is a global phenomenon and is practiced across. This is that time of the season when brands look for clearing their shelves for the new season launches.

Reason is simple: retaining these stocks will be an equi-cost and thus, it’s wise to focus on more innovative products to reach the stores for the consumers. We do follow this as an industry player but ensure that our fans / followers get the same benefit across platforms. Thus, we follow a uniform pricing policy across POS (Point of Sales), be it retail stores or even e-commerce platforms.” With changing consumer behaviour and increasing sale periods, shopping patterns are also altering. Most buyers actually wait for year-end or seasonal sales to buy items and keep it for the next season. So, there is a definite pressure on the retailers to organise sales and offer heavy discounts whenever possible.  Discounting has always been an effective strategy to increase sales. Retail stores usually reduce costs to create more business. However, it is equally important for retailers to understand the disadvantages of such sales and heavy discounts. Actor Salman Khan’s Being Human is already famous amongst youngsters for its diversity of range.  The brand certainly generates revenue from the sales it organises. Kunal Mehta, VP Marketing and Business Development, Being Human Clothing comments: “The sale period for retailers lasts about 45 days. Due to growing trend of maximum discounts offered by retailers and online marketers, consumers have now become discount-sensitive and postpone their buys to avail discounts. Offering discount does not only help get decent sales but also helps in inventory management. Our discount rates are most often same across all cities but our inventory differs. For example, we have larger inventory for winter clothes in North cities as compared to South cities. We offer up to 50 per cent off on various men and women categories during the entire sale period, this is the maximum we offer. We also practice offering additional discount on basket value for weekday shopping.”

Temptation for rock bottom prices

Unlike most brands, there are some brands that arrange the sale just once a year. So, the lure is even more for the buyers.  KAZO arranges sale only once every year. The competition is even more when the brands, offer discounts and time to time sales on the e-commerce websites as well. But, surely the strategies for online and offline schemes are different. Siddhartha Bindra, MD, BIBA, says: “Discounts and end of season sales have always given us tremendous response. The kind of response which we receive from consumers is in accordance with our expectations. Various offers provide an opportunity for creating newer brand patrons for whom discounts and sales are an impetus for visiting the store.”

Creating loyalists

There are a few retail brands who instead of making profits even during the sales time, prefer on making loyal customers for a life time. Kavindra Mishra, CEO, Pepe Jeans comments: “Sales and discounts are a great way for a brand to drive purchase by exciting and encouraging the consumer. At times it even helps the brand to reach out to a new set of aspirational consumers, with a possibility of creating loyalists.” For BIBA, discount on various categories varies from 10-50 per cent. Bindra of BIBA adds: “Sales and discounts give the brand an increased footfall which obviously adds to the revenue bit as well, apart from creating new set of customers. As some would say that sales and discounts do not fetch the brand loyal customers, however, we beg to disagree, reason being, there has to be an initiation for any relation and discounts/ offers serve as an opportunity for people to associate with a brand in a more free manner, hence, such offers/ sales hold its own importance when it comes to cumulative outreach growth.”

Revenue vs customers

 The question is hard to answer whether the brands really look for footfalls or more revenue. For the brands, who do not make a good sell out during the normal days have to be more optimistic for sale times. Pepe jeans store count is currently, 156 in India and for them, the key focus is to increase walk-ins and conversion. It is an opportunity to extend a great customer experience. KAZO currently has 22 EBO’s out of which three are franchisee run. KAZO also has seven point of sales partnered with ‘Central’ by Future group. Deepak Aggarwal, MD, KAZO opines: “The revenue during the End of season sale is comparatively high, increased footfall at malls lead to new customers too.”  For Woodland, like for any other brand, the End-of-Season Sale season does invite heavy footfall as well as incremental revenues. Singh of Woodland concludes: “This being a widely accepted global trend, consumers delay their purchase decisions for better deals and the same is supported with the delay in season cycle.”

City matters?

Pepe Jeans discounts may vary slightly from city to city. This is primarily due to the margin decided upon for the franchisee in that particular city. Pepe Jeans ensures that all outlets across various franchisees in every city runs the same set of discounts and offers. It is important to maintain a uniform communication with the end consumer across the city.  Like for the End of season sale Jan/Feb 2015, the brand had offered flat 40 per cent off on winter wear and accessories and also 20-40 per cent off schemes on men’s and ladies wear. Not just discounts, brands also offer free merchandise as promotion schemes. BIBA has the sales and discounts same across all cities. Same for KAZO, it has same discounts across all cities as products are the same.

Retailers: How to avoid crisis during SALE

  1. Do a lot of prior planning so, that not too many discounts have to be given.

  2. Keep lesser stocks even if the suppliers offer striking prices for bulk orders.

  3. Make a tight sales strategy for goods.

  4. Avoid offering discount every now and then just for fancy short term profitability.

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