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Rupee demonetisation can severely impact premium and luxury brands

Just as when the retail industry was celebrating a good festival season this year after two years of dull growth, consumption has yet again been hit thanks to the demonetisation of the Rs 500 and Rs 1,000 currency notes.

twitter-logo Ajita Shashidhar        Last Updated: November 12, 2016  | 09:39 IST
Rupee demonetisation can severely impact premium and luxury brands

Just as when the retail industry was celebrating a good festival season this year after two years of dull growth, consumption has yet again been hit thanks to the demonetisation of the Rs 500 and Rs 1,000 currency notes. Mid-segment fashion retail chain, Max Retail, for instance, has witnessed a 15 per cent dip in sales in the past three days, while premium denim brand, Pepe, after witnessing an over 49 per cent dip in sales on November 9 (the day after the announcement was made), has managed to reduce the gap to around 25 per cent. Kavindra Mishra, MD of Pepe Jeans, expects sales to be slow for the next 2-3 months.

Almost 40 per cent of Pepe's sales in the metro markets come from cash transactions, while it is as high as 50 per cent in the tier 2-3 towns. On the other hand, for value fashion brand Max, 30 per cent of sales happens through cash payments. Both Mishra and Vasanth Kumar, Executive Director of Max Retail, are confident that the dip in sales is temporary and would bounce back soon with digital payments methods such as mobile wallets becoming increasingly popular. Kumar of Max Retail claims that his company is already looking at collaborating with mobile wallet service providers. Similarly, Pepe, like several e-commerce portals is offering a 5 per cent discount to those consumers who are using their credit or debit cards to shop. "In fact, it is this initiative which has helped us to narrow our dip in sales from 49 per cent to 25 per cent," points out Mishra.

However, in the medium to long term, it is not formats such as Big Bazaar or Max that would face the brunt, but the premium and luxury brands across segments, point out industry observers. Bridge-to-luxury and luxury brands are segments where cash transactions are as high as 60-70 per cent, and analysts feel that it is going to take a huge beating in the coming months. In fact, the global head of a well known luxury brand admits that a bulk of the sales of his products don't come from his retail store, but the patrons prefer to shop in the comforts of their home and prefer cash transactions.

The government's decision for demonetisation is expected to trash out $45 billion of black money, which includes the unaccountable cash a number of rich Indians stack in order to avoid paying taxes. This will dry up cash transactions, which is usually diverted towards spends on luxury and premium brands.

While jewellery and real estate are the obvious sectors likely to get impacted, a senior retail analyst also expects high-end fine dining restaurants to be impacted, as they attract a high rate of cash transactions. The other segment this analyst says would de-grow is the luxury used car segment. "Most doctors and chartered accountants use their unaccounted money in buying second hand luxury cars, as buying a new luxury car would require pan card details," he says.

Luxury brands for sure need to come up with out-of-the-box ideas to woo the rich Indian consumers to indulge, as cash transactions are soon going to get passe.

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