Aditya Birla Fashion and Retail (ABFRL) has trimmed prices of its apparel range at Pantaloons Retail by 7-8% as the company passed on the benefits of the goods and services tax (GST) to customers and sharpened its focus on value fashion.
Aditya Birla Fashion and Retail (ABFRL) has trimmed prices of its apparel range at Pantaloons Retail by 7-8% as the company passed on the benefits of the goods and services tax (GST) to customers and sharpened its focus on value fashion. The company has consciously been focusing on value fashion and bringing down product prices in the Pantaloons stores for the last one year. With taxes lowering post roll-out of the GST from July 1, the company passed on the lower tax of 5% from the earlier 7% on products costing below Rs 1,000 to customers to boost demand. Supply chain efficiencies following GST implementation have provided more opportunities to companies to reduce prices. “As we continue to focus on value fashion, we have brought down our prices by 7-8% in the July-September quarter post implementation of the GST,” said Ashish Dikshit, business head, Aditya Birla Fashion and Retail, at a post earnings conference call.
As on September 30, 2017, Aditya Birla Fashion and Retail has 1,893 exclusive brand outlets and 210 Pantaloons value stores operational in the country. The company operates a total 6.7 million sqft of retail space across formats. Experts said the price cut is higher than the direct tax benefit ABFRL got post the roll-out of the GST as companies also passed on lower costs of supply chain, warehousing, among others, to customers. Rajat Wahi, partner, Deloitte India, said: “Apart from getting a direct tax benefit of around 2%, retail companies focusing on value fashion must be passing the supply chain benefits such as abolition of tolls in many locations and reduction in number of warehouses, among others. While there may be short-term impact on margins of companies due to the price cuts, the main focus of companies is to boost sales. However, in the long-term, cost benefits got through supply chain will mitigate the impact.”
Anurag Mathur, partner, PWC, said: “Transportation and logistic costs have rationalised, which has helped the companies to lower prices.” Aditya Birla Fashion and Retail had cut prices of its apparel range by around 4-5% last year as well and had indicated that the company would take further price cuts as it would sharpen its focus on value fashion. Value fashion, or fashion at affordable rates, ranges between Rs 400 and Rs 1,500, and had emerged as one of the fastest growing segments with all large players rapidly expanding their footprints. Vasanth Kumar, executive director at Max Fashion, told FE that the company has reduced product prices by 2-5% in its stores following the GST roll-out. The price cut has been a little higher than the direct GST benefit as the company passed on the benefits of supply chain to customers. Sales of Aditya Birla Fashion and Retail were impacted in July soon after the roll-out of the GST, but there was a swift recovery in August. September recorded a strong like-to-like sales growth of 23% on the back of the festive season. The company added 30 Pantaloons stores in Q2FY18 and 72 stores were added between Q2FY17 and Q2FY18.
Hit by the GST, ABFRL reported a net loss of Rs 10 crore in Q2FY18, against a net profit of Rs 65 crore reported in the year-ago period. The profit after tax before the GST impact in Q2FY18 stood at Rs 16 crore. The company reported a 4.3% decline in net revenue to Rs 1,804 crore, mainly due to the impact in sales following the GST.
Moreover, due to early season sales announced in June to clear stocks ahead of the GST implementation, customers made their purchases a month earlier. The company reported earnings before interest, taxes, depreciation and amortisation (EBITDA) of Rs 100 crore in Q2FY18, compared with Rs 172 crore in Q2FY17. ABFRL’s EBITDA margin for the second quarter stood at 5.5%, against 9.1% in the same period a year ago. At the end of the September quarter, the company had net debt of Rs 1,946 crore.