Even as apparel and footwear brands and retailers are passing on the full price benefit of the GST rate reduction on the range priced under ₹2,500, the discount they offer from their own margin is going to come down, industry executives said.
The executives said the drop in prices due to the tax cut should lead to higher sales, reducing their unsold inventory and allowing them to lower the discount which they offer from their own pocket. Companies in the two segments were largely surviving on discounts and flash sales due to poor demand for over ten quarters now.
Departmental retail chain Lifestyle International chief executive Devarajan Iyer said while brands will pass on the GST benefit of 7 percentage points (from 12% to 5%) to consumers from Monday when the new rates come into effect, the discount it offers to consumers will come down by that extent. The retailer will complete updating all price tags by this Sunday and will pass on the full price benefit to consumers, he said.
Shoemaker Woodland said there will be a reduction in discount. “The GST benefit when passed on to consumers will reduce product prices, which should lead to higher sales reducing unsold stocks. Hence, discounts offered in the sub-₹2,500 segment will come down,” managing director Harkirat Singh said. “GST reduction will be a big benefit as market sentiments are not good.” The sub-₹2,500 segment accounts for about 15% of the company’s sales.
The GST impact is a mixed bag in apparel and footwear. Products, which are selling at up to ₹2,500, will witness a big benefit as the GST rate now will be 5%. Till now, the GST on apparel and footwear priced up to ₹1,000 was 5% and above that was 12%. With the abolishment of the 12% tax bracket, the GST on products priced above ₹2,500 will become 18%, increasing their prices.
Iyer said global brands like Levis and Puma have a portfolio ranging from ₹799 to over ₹5,000. “If earlier their mix of sales was 25-30% below ₹2,500, and the balance came from higher price, the mix might change. The less than ₹2,500 may be 40-50% now,” he said.
Rahul Mehta, chief mentor at industry body Clothing Manufacturers’ Association of India, said there is a very small product category between ₹1,000 and ₹2,500 where discounting is likely to be reduced because of the GST revision.
“A retailer or brand might halve the discount as the GST drop benefit will already reduce the pricing. However, products above ₹2,500 will see an increase in price as the GST has increased,” he said.
As per a September 16 report by Motilal Oswal Financial Services, retailers anticipate a strong recovery in sales between late September and December driven by the GST cuts, festivals and weddings. The report estimates mid- to high-single digit like-to-like growth in branded apparel. It said the retail environment remained muted during July-August. “Footwear will now be at par with apparel due to the reduction of GST and instead of reduction in discount, we might see realistic MRP of products below ₹2,500,” said Punit Bhardwaj, MD at Iconic Creations.
