With just a couple of weeks left for the country's biggest tax reform, the Goods and Services tax (GST), to become operational, there has been a mad rush among the retailers to clear off their old inventories before the new tax regime kicks in.
The latest to offer steep discounts ahead of GST launch are clothing and sportswear brand retailers, as they look to clear off their merchandise amid worries that a higher tax would be applicable on old goods sold from 1 July.
US-based sportswear brand Puma is giving 10 percent additional discount over and above the 40 percent discount it is already offering at its stores. Similarly, clothing brand Allen Solly is offering a buy-one-get-one free scheme in its pre-GST end-of-season sale for members, while Levis is giving customers two items free on purchase of two. Also, clothing brand Flying Machine is offering around 50 percent off and Pepe Jeans is running a buy-three-get-three offer, said a report in The Economic Times.
The decision to offer hectic discounts on branded goods comes after the GST Council at its meet earlier this month said man-made apparel with a price tag of over Rs 1,000 will be taxed at 12 percent as against the current levy of 7 percent.
“The difference in the tax will be a big hit for the brand, so we want to keep the channel clean with lower inventory dues. We are doing this to liquidate merchandise before the new designed regime (GST) kicks in on July 1,” the ET report quoted Kavindra Mishra, managing director of Pepe Jeans, as saying.
Another international sportswear brand Adidas said the implementation of GST beginning next month has forced the company to advance its end-of-season sale to 10 June-20 July period from the usual 1 July-15 August period.
Not just retail shops, e-commerce major Flipkart has come with a nine-day long sale as more than 50 brands are offering discounts on its marketplace, while brands like Biba and W are giving around 30-50 percent discounts on its clothing brands on Myntra.
Earlier this month, retailers were offering discounts on wide-ranging electronic goods and appliances. Retailers were offering discounts of up to 40 percent on various electronic goods and home appliances ahead of the GST rollout.
Consumer electronic companies like Samsung, Hitachi, Panasonic, Videocon, too, started giving consumer promotional offers to clear their inventories, as most of the retailers stopped taking fresh orders.
"Retailers want to liquidate their entire stock as they cannot bear the load of the remaining 40 per cent central GST which will not be credited to them on unsold inventory," the ET report quoted Pulkit Baid, director at Great Eastern, one of the largest white goods retailers in the East, as saying.
Nilesh Gupta, managing director, Vijay Sales, however, said while the increase in tax credit limit is good, even that is not enough to cover losses for retailers. “So, the liquidation of the stock will continue," said BloombergQuint report.
However, distributors are not sure whether brands will be able to clear more than 40 percent of the stock due to the GST factor. Surprisingly, brands are offering steep discounts even after the GST Council raised excise credit to 60 percent from 40 percent on the transitional stock.
Several manufacturers say that traders are forcing them to offer steep discounts as they are concerned about the cash flow issues in its initial days of GST implementation.
Most of the dealers are not sure whether the new transition rules will allow them to claim over 40-60 percent tax credit on excise duty paid by manufacturers in their showrooms post 30 June, said a report in The Times of India.
New GST rules allow dealers to claim full credit on items like refrigerators, ACs, computers and mobiles that cost over 25,000, but most of these items cost less than Rs 25,000, the TOI report said.
“Companies are doing inventory correction before the [GST] rollout. We saw this in May and we are seeing it in June. We believe that in the final 10-15 days before the GST kick-off, we will see a complete lull as dealers will stop picking up stocks. But we expect to see a quick recovery in July and we anticipate a huge surge in demand," BusinessLine report said quoting Ashok Goel, Vice-Chairman and Managing Director, Essel Propack, a leading manufacturer of packaging material.
Updated Date: Jun 15, 2017 15:26 PM