Everyone loves a good discount

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Wednesday, March 19, 2008 at 2354 hrs and Loot Mart stores were also part of the campaign.

Similarly, Megamart Outlets have designated ‘marketplace zones’ within the store where non-moving merchandise is accumulated and offered at a discounted price. Moreover, these zones are located at strategic areas so that they catch the eye of the discount seeking consumer.

While discount retailing is in its infancy in India, the model is matured abroad. US retail biggie Wal-Mart has been successful in discount retailing because it was able to negotiate good deals with domestic suppliers such as Coke, Nestlé and P&G. Wal-Mart effectively procured goods from such majors and the cost advantage was passed on to the consumers. “Everyone looks for value whether he is rich or poor. Discount retailers lead markets in wealthy nations like the US and Germany,” says Subramanian.

Wal-Mart is now aggressively looking at foraying into markets such as India. Last August, the company joined hands with Bharti Enterprises to start wholesale (cash-and-carry) and back-end supply chain management operations in the country. The reason behind the entry is that countries such as India offer big platform for growth because of low per capita income.

But being a discount retailer is not easy. From initial scepticism from consumers to pressures on pricing, it’s a tough call. Subramanian of Subhiskha recounts his early days, “Consumers always thought about the reasons behind discounts? Was our product substandard or was this a temporary gimmick? There have been backlashes from other retailers who were worried about losing business and they tried to put regulatory roadblocks in our way. It’s been more a thorn ridden path than a rose ridden one.”

Moreover, discount retailing is not about price play alone. “It is cost play. Once we get the cost right, then we work to get the volumes so that efficiencies start kicking in,” says Subramanian. Retailers also have to ensure higher productivity per sq ft and with pricing being market driven; major chains have limited control over it. “A value format ensures serious buyers. While the normal conversion rates in large malls is 40%, in value format this would be 10% more,” says Venkatachalapathy of Megamart.