The high street is not any more out-of-bounds for most city dwellers. Walk into a Zara or H&M store and one can find products on sale for as little as Rs 250 at H&M and at Rs 390 in Zara. In their bid to draw in more customers and build loyalty in what has become an extremely competitive market, Swedish fashion retailer Hennes & Mauritz (H&M) and Spanish fashion retailer Zara have reduced prices by 25-30% for sales kicked off end of December. The lowest price points offered by these two brands in the past ranged between Rs 500 and Rs 700. Pinaki Ranjan Mishra, partner and national leader, retail & consumer products, Ernst & Young, said, “With these brands going deeper in newer cities, they are introducing lower price points to attract customers. Moreover, both these brands have very efficient supply chains, benefits of which they may be able to pass on to customers.” An H&M spokesperson in a reply to an email sent to the company said, “End-of-season sales that occur twice a year start with up to 50% and this has been our strategy since we launched in the country.” No Zara spokesperson was available for comment.
Experts said when Zara had entered the country around seven years ago, their average price point was around Rs 1,200 to Rs 1,400. But to hold on to this price point was difficult. The pricing battle intensified after H&M entered the country a little over two years back. Zara has corrected prices by about 25-30% to bring its entry level to around Rs 799 per product (before discount) in the last couple of years to compete with H&M.
Overall in 2017, post the festive season, retail sales were low and the brands might be trying to clear their inventory. Although brands are introducing lower price points, this may not impact the company’s margins much as they are likely to make up for this through sale of products with higher prices. “Both the brands believe in profitable growth and would definitely try to save their margins,” Mishra said. Rajat Wahi, partner, Deloitte India, said international brands after opening the first few stores in metros are struggling to attract footfalls in smaller cities. So, to introduce the brand to the new customer segment, price points are being tweaked. What is driving most brands to introduce products under Rs 1,000 — say at Rs 999, Rs 899 or Rs 799 — is that customers have to pay less tax post the GST (goods and services tax), he said.
Post GST roll-out, taxes were lowered to 5%, from 7%, on products costing below Rs 1,000, even as they go up to 12% on products priced above Rs 1,000. Brands edging towards luxury are struggling in the country, and this is prompting them to tap opportunities in lower price segments, Wahi said. Inditex Trent, the joint venture between Zara brand-owner Inditex and Tata Group’s retail arm Trent, witnessed 21.4% increase in sales to Rs 1,023 crore in FY17, but the company’s net profit fell 40% to Rs 48 crore after the Spanish chain slashed prices by around 10-15% to keep pace with its competitors.
Arvind Singhal, chairman of Technopak, said brands have managed to do well mainly on account of affordable pricing, while providing quality products. Swedish fashion retailer H&M scaled up revenues to Rs 704 crore between December 1, 2016 to August 31, 2017 (nine months), from Rs 291 crore in the year-ago period, on the back of lower price points maintained to combat Zara.
Zara, which is present in India for the past eight years, operates more than 21 stores at present, while H&M, which entered the country more than two years ago, has 29 operational stores.