To avoid margins getting drenched, Companies fold back discounts as cost clouds hang low

KOLKATA: Consumer goods makers and retailers are scaling back discounts as higher input costs and volatile raw material prices squeeze margins, with average price incentives 5-10 percentage points lower than a year earlier across online and offline channels.

Companies are also putting fewer products on sale, signalling a shift away from aggressive promotions despite ongoing end-of-season sales, said industry executives.

Electronics and smartphone brands have cut direct discounts on maximum retail prices, cashback offers and card-based promotions by 5-7 percentage points compared to last year, according to market tracker Counterpoint Research.


Retailers, too, are trimming discounts even as they struggle to fully pass on higher input and freight costs triggered by the West Asia crisis due to intense competition. At the same time, healthy demand at chains such as Lifestyle International, V-Mart Retail, and Woodland has kept inventories under control, reducing the need for deep markdowns.

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“We have moved away from a flat 40% discount across products to offering 40% only on select items during the current end-of-season sale,” said Harkirat Singh, managing director at shoe retailer Woodland.

“Typically, 60-70% of our inventory would be discounted. This year, it is around 40%,” he added.

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Singh said Woodland has raised prices by 5-10% while absorbing a similar increase in costs as consumers remain sensitive to price points.

Smartphone and laptop prices have risen 30-40% over the past six months after memory chip costs surged two- to threefold. Prices of air-conditioners, refrigerators, and smart televisions have also gone up by up to 15-20% due to commodity inflation.

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However, manufacturers have absorbed part of the increase, leaving less room for discounts. For instance, in ACs, where prices are up by 10-12%, manufacturers are absorbing another 5-6%, fearing an impact on sales.

“Discounts have come down across brands,” said Counterpoint Research director Tarun Pathak. “On average, cashback and promotional offers are 5-7% lower than last year.”

Super Plastronics, which manufactures televisions under the Kodak, Thomson and Blaupunkt brands, has also cut discounts by about five percentage points as supply chain disruptions due to the Iran war impacted production and inventory levels.

“Even during the upcoming Independence Day sales, discounting will not be as lucrative as in previous years,” said Avneet Singh Marwah, chief executive officer.

Electronic retail chain Vijay Sales director Nilesh Gupta said all brands have reduced cashbacks for consumers. “To offset lower discounts, they have rolled out longer tenure and better finance schemes as most consumers now buy through EMIs,” he said.

Several retailers are also benefiting from stronger full-price sales. Bata India management recently told analysts growth in full-price sales is happening at twice the pace of overall sales growth, while V-Mart Retail has improved average selling prices by 5-10% through lower discounting and better full-price sell-through.