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Discount stores steal the thunder

December 10, 2007 08:57 IST
They are considered the poor cousins of retailing. But discount stores that sell apparel and accessories at 30-40 per cent lower than the marked price are giving the primary retail chains a run for their money.

Consider this. According to India Retail Report prepared by Images, discount stores are expected to grow 30-40 per cent every year. Of the total organised apparel, footwear and accessory retail market of Rs 26,400 crore (Rs 264 billion), discount retailing already accounts for Rs 11,880 crore (Rs 118.80 billion), or 45 per cent. Analysts said this segment will easily become a Rs 26,000-crore (Rs 260 billion) market in the next three years.

No wonder, discount retailers such as Future Group's Brand Factory, Arvind Brands' Megamart, Provogue's Promart and The Loot, are planning to invest nearly Rs 1,000 crore (Rs 10 billion) and launch nearly 500 stores by 2010.

The expansion, which will also include tier-II and tier-III towns, is based on research studies that consumers in these towns aspire for good labels but at a cheaper price. Bipin Gurnani, chief executive of Promart, said his aim is to create a huge "second rung of brand loyalists".

Analysts said a plethora of brands flooding the marketplace accompanied by rapidly changing trends have created a huge demand for higher number of multi-brand discounted stores.

"More number of brands means higher surplus stock after the end of every season. So you have more number of brands that need liquidity. That's feeding the demand for more discount stores," said Purnendu Kumar, associate director of retail consultancy Technopak. However, Kumar has a note of caution for discount stores, saying they will have to move beyond stocking surplus stocks of their own company's brands and stock other brands as well.

"Having a number of national and international brands will obviously draw more footfalls than only having your own brands at the factory outlets," he said.

Higher volumes compensate for the lower margins. Naimish Dave, director, OC & C Strategy Consultants, said, "if you sell 100 shirts a day at normal stores and sell 200 shirts even with a 50 per cent discount, the volumes take care of lower margins."

Megamart, the off-price stores of Arvind Brands, is at the forefront of the expansion drive of discount stores. From 75 stores at present, the chain plans to open 200-plus stores, in the range of 3,000 sq feet to 4,000 sq feet, in smaller cities in the next three years.

The firm isn't ignoring the big cities and is planning to open 30 stores (40,000 to 60,000 sq feet each) in the major cities by the same time. It has earmarked an investment of Rs 400 crore (Rs 4 billion) for the expansion. Megamart witnessed a five-fold increase in its topline from Rs 20 crore (Rs 200 million) in 2003-04 to Rs 100 crore in the current financial year.

''It is a win-win situation for the company. While our discount stores clear our unsold inventory, the main stores can launch new merchandise every season,'' says KE Venkatachalapathy, business head, Megamart, the discount store of Arvind Brands.

Pantaloon's Brand Factory which currently has only six stores plans to have 55 by 2010, with an investment of Rs 275 crore(Rs 2.75 million). Spread over an area of 70,000-1,00,000 sq ft each, these outlets offer close to 120 brands such as Reebok, Levi's, Pepe, Wrangler, Provogue, Van Heusen, Esprit and Arrow.

Provogue India which opened its discount chain Promart in May this year plans 3-4 stores every financial year with an investment of Rs 3.5 crore (Rs 35 million) per store. Another Mumbai-based discount retail chain The Loot is planning to take the tally of its stores to 200 by 2010 from 25 now. Jay Retailing and Merchandising Pvt Ltd, promoters of The Loot, is planning to go public in 2009.

"We are growing 20 per cent on the same store level. We plan to increase our turnover to Rs 200 crore (Rs 2 billion) by 2010 from Rs 60 crore (Rs 600 million) now,'' said Jay Gupta, managing director, The Loot.

Raghavendra Kamath in Mumbai
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