Huge Inventories Push Retailers To Announce Mega Sales

Indian customers will benefit from the early start and longer period of the ‘end of season’ sales this year as retailers are in a hurry to dispose off their pile-up inventory this season. However, customers are not ready to buy discounted goods as there is no end to the various sales in the retail industry. This year, there was a continuous flooding of such sales with themes revolving around the seasonal sales of monsoon, summer and winter as well as Independence Day, Valentine’s Day, and so on.

The flooding of sales in the retail industry is a reflection of huge inventory pile-up since economic slowdown has dented the customers’ demand. As per the Indian retail industry norms, the companies maintain goods’ inventory for three months which is much higher than the international standards of two months. However, most of the companies have inventories which will last for the next 250 days this year. This is the primary reason for the early start of this year’s ‘end of season’ sale. Considering such huge inventory, we expect this sale to last for much more time till a considerable quantity of the inventory get exhausted.

Normally the retail industry gives us ‘end of season’ sales after the festive and wedding seasons as they prepare for the next season. However, retailers are now skeptical about placing new orders for the next season. These fresh orders are normally booked six months in advance of the season but this year the ordering period is expected to be reduced to two to four months. Furthermore, most of the retailers have been planning to reduce the procurement of goods by almost 10 per cent. The net margins of most of the retail companies have seen a downward trend for the trailing four quarters.

The retail market is facing a slowdown due to the ongoing financial crisis across the global markets. The organised retail sector in India is experiencing a major slowdown with expansion projects either getting postponed or being put on hold. Many such companies are closing down their under-performing stores and are moving to viable areas to curtail losses. The retail companies have been expanding their brands with minimum investments through the franchise route.

Moreover, the retailers are increasingly adopting measures to boost their bottomline by streamlining their existing supply chain, especially in terms of inventory control and cost control. Further, retailers are signing revenue-sharing deals with mall developers instead of fixed rent contract to cut down their fixed costs. Unless and until there is clarity on the retail FDI front we feel that this gloomy situation will continue for a long time.