The new tax regime will not allow retailers a full set-off on goods procured in the last six months
If you have been bitten by the shopping bug, you can’t be blamed. Well, at least, not this year. After all, it is not often that retail stores offer steep discounts in the months of May–June. While monsoon sales by apparel stores usually start by end of June and electronic stores do have some clearance sales in June-July, this year with the Goods and Services Tax (GST) starting from July 1, discounts are bigger than before.
For instance, electronic stores like Vijay Sales, Kohinoor and Digi1 are offering up to 50 per cent off on certain models or till stocks last. Snehanjali, another Mumbai-based electronic chain is advertising its offer as the pre-GST sale with a warning thrown in for good measure that “Prices for most electronic items are set to rise by 5 per cent’’. Electronic manufacturer Samsung is offering free DTH connection with televisions and extended warranty periods and free services with air-conditioners (ACs) and microwaves as part of its ‘June Fest’.
Brands such as Puma, Bata, ONLY, Jack & Jones, Vero Moda, Louis Philippe, Van Heusen, Benetton and US Polo have already begun their sales across major cities.
Retail chains such as Pantaloons, Lifestyle and Shoppers Stop are yet to come out with their formal end-of-season sale, but they have already started giving discounts on select brands in the range of 20-40 per cent.
Then, Flipkart and Shopclues are running their own versions of GST sale. Flipkart Fashion Days will run for nine days, from June 10 to June 18 under which the company would offer products from 50 brands. It will also hold A ‘Bid n Win’ contest for customers during the nine-day sale and the lowest unique bidders will win prizes like Emporio Armani watch worth Rs 13,995, Victorinox bag worth Rs 15,960 and more.
Impact of GST: With the GST on the anvil, retailers are worried that as any stock that they have procured in the last six months will not get the full set-off on the tax already paid when the transition to GST happens on July 1. That is why there is a scrambling to clear off stuff.
Currently, on stocks which are invoiced and delivered to the retailer, the VAT, excise and octroi in some cases have been has been paid. From July 1, if this stock is not cleared, retailers will be stuck with two kinds of stock. Stock on which there are GST invoices from the manufacturer client where the retailer can bill out and effectively claim a set off on GST and stock that is from before GST. On that stock retailer does not have GST invoice. And the effective set off would be only 60 per cent. “Essentially there is a loss on that and that is why retailers are trying to get the old stock out,”Ritesh Ghosal, Chief Marketing Officer, Infiniti Retail which owns Croma. The impact of GST will not be uniform and will vary depending on the region. For instance, in areas that have a lower VAT regime, like Karnataka and UP, prices could go up post GST. While in areas with higher VAT like Gujarat or Mumbai (which also has octroi) there could be softening of prices. “The immediate impact will not be more than 1.5 per cent either way,” he adds.
case of apparels, with the input tax credit being made available under GST, prices will go down for cotton apparels below Rs 999 and remain unchanged for apparels above Rs 1,000, says Rakesh Biyani, Joint Managing Director, Future Retail. Apparels have a tax rate of 5 per cent and 12 per cent under GST. “June end-July is when end of season sales are held at stores. With the festive season this month, we are offering 50 per cent cash back on purchases of Rs 2,000,’’ he says.
Older models are being cleared: According to Arvind Singhal, Managing Director, Technopak, a management consulting firm, June and July are among the weakest months in the year for a number of categories. So these sales could be a way for many companies to actually use the pretext of GST and get their slow moving stocks out of the way by giving a discount. “Inventory lying in the pipeline will not be able to get any kind of tax rebate abatement. So, that is one reason why sales are happening. But GST is also a reason for stores to get their slow moving stocks out of the way by giving a discount,’’ he says.
Ghosal adds that the current sales are more clearance sales as stores push out inventory. “Every year, at this time there is a churn that happens. It is end of season and setting up for the new season. May and June is the period when stores flush out old stock,’’ he says. For instance, new television models are launched around August and between the festival season. Similarly, new laptop and computer models are launched in July when schools and colleges start their new terms.
It is likely that the discounts may continue post July, as stores clear their stock to make place for new models. “The festival period begins in September and usually there are not much discounts on the new models which will hit retail outlets by then,” says Singhal.
The discounts going on currently are more of a unit wise discount rather than a category wise discount. The discount depends on the age of the model and the particular store. Largely, they range from 15-25 on most categories. Though in stray cases they could be 70 per cent.
“Essentially the discount is catering to people who are deal seekers and who are happy to settle for older models,” Ghosal says.