Retailers grapple with duty hike, input costs

Swetha Kannan Anjali Prayag Bangalore | Updated on March 04, 2011

Inside a hosiery unit in Tirupur, where manufacturers stopped production on Friday as part of the nationwide strike against the excise duty levied in the Union Budget. — Photo: M. Balaji

Consider cutting costs on fabric & trims, tightening supply chain, even import options

Just when consumers were upgrading to premium brands, last week's announcement of 10 per cent excise duty on branded garments, could be a dampener to retailers' expectations of fat shopping bills.

Even as they hope the excise duty would be rolled back, retailers are also mulling strategies to survive the double blow of rising raw material costs and excise duty — right from tightening the supply chain, to cutting costs on fabrics and trims, cross-selling to drive volumes and, possibly, consider import options.

Already, consumers are staring at a 10 per cent hike in retail prices in January thanks to spiralling cotton prices. The excise duty could bring in another 10 per cent increase. “If raw material prices continue to rise, we could hike prices by another 10-12 per cent in winter. This could result in a 30 per cent effective hike in retail prices in just a year, forcing people to buy less and look at value brands,” says Mr Ashish Dikshit, President, Madura Fashion and Lifestyle.

Mr Kabir Lumba, MD, Landmark Group, says the industry is hoping for a roll-back of duty or else it could have a serious impact on business.

In FY11, the apparel industry had recorded a growth of 40 per cent; this could slip to 20 per cent this year, says Mr Dikshit. The immediate impact on business could be 15-20 per cent, says Mr J. Suresh, MD, Arvind Brands and Retail.

Retailers are, however, strategising to lessen the impact on their margins. Ms Rachna Aggarwal, CEO, Indus League, says retailers have to look at value engineering, reworking entry-level offerings and possibly look at importing garments. Pantaloons and Lifestyle, which already cross-sell their in-house brands with other retail chains, could do more of that to drive volumes, say industry analysts. But if retailers think they can dodge the excise duty impact by moving products from branded to non-branded status, they may not have read the fine-print of the FM's speech, says Mr Sharad Mehra, Senior Vice-President (Fashion & Apparel Operations), Technopak Advisors. “Except made-to-order garments, all other products sold in a retail outlet — labelled or otherwise, will have to shell out the duty.”

Published on March 04, 2011

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