Apprehension over GST rates has resulted in some benefits for shoppers, who have not only enjoyed an unseasonal sale period before the tax regime rollout, which happened for liquidation of stocks by manufacturers, but lower prices on apparel and footwear post GST as well.
Apprehension over GST rates has resulted in some benefits for shoppers, who have not only enjoyed an unseasonal sale period before the tax regime rollout, which happened for liquidation of stocks by manufacturers, but lower prices on apparel and footwear post GST as well. Before the rollout, several manufacturers offered discounts in June to liquidate their stocks, apprehensive of price-rise due to higher GST rates. But a month after the rollout of GST, several apparel and footwear manufacturers have reduced prices by 12-19% because of lower tax rates.
Prior to GST, the excise duty on apparel was 7%, which went up to 12% in GST on products priced above Rs 1,000. On footwear, earlier the duty was 14.41%, while under GST, the rate is 5% for products below Rs 500 and 18% for products priced higher. Analysts said that due to the benefit of input tax credit, the overall burden of taxes has come down for manufacturers, leading to price reduction of products.
Retailers like Max Fashion, part of the Landmark Group, and Shoppers Stop, among others, have reduced prices of apparel from the earlier starting points of Rs 1,199 and Rs 1,299 to Rs 999 and Rs 1,049, respectively.
“Earlier the maximum retail price (MRP) of affordable range of apparel was priced between Rs 1,199 and Rs 1,299, which has now been reduced by 12.5%-19.2% in case of new stock. The MRP of affordable range of apparel is now priced at Rs 1,049, while the MRP on the premium range starts from Rs 1,399,” said Vasanth Kumar, executive director, Max Fashions.
However, consumers said most items available at Max cost Rs 999, and in certain cases where the price was Rs 1,049, the company gave a discount of Rs 50. The scenario is similar in case of footwear, with what was earlier priced as Rs 800 now costs Rs 500. At Shoppers Stop, the price of affordable range has been reduced to Rs 999 compared to the earlier Rs 1,099 and Rs 1,199.
“With the cost of supply chain coming down by 10%-15%, the overall operational expenditure has reduced by 20%-30%. This has helped in reduction of prices. Manufacturers have begun to pass on the benefits to consumers by lowering prices of goods,” said Rajat Wahi, partner, management consulting at Deloitte India. Premium brands, which on an average hike prices between 2%-6% every year during August, have refrained from doing so this time. Rajesh Jain, MD and CEO, Lacoste India, explained: “We make a price hike of 5%-6%, every year. However, this year, due to lack of clarity on the anti-profiteering law, coupled with the benefits of being able to claim input tax credit, we haven’t upped the prices yet.” Jain said the clothing brand witnessed a 5%-10% drop in sales in July, but sales have started to gradually pick up from the first week of August post the arrival of new stock. Apparel and footwear brandWoodland, which increases prices by 2%-3% every year in August, hasn’t hiked prices so far. “As the market stabilises, post the slump in sales in July, one cannot increase prices just now. Also, this is just the second month post the rollout of GST; we need to look into several factors before increasing the prices of our products. For instance, by what per cent the cost of business has reduced as we begin to claim input tax credit, and how much of that can we pass on to consumers,” observed Harkirat Singh, MD, Woodland Worldwide.
However, Govind Shrikhande, MD, Shoppers Stop, said a price hike of 4%-6% in two tranches later in the year could be likely.