Thursday, December 07, 2006

Jeans at 199

Read this report from the TOI today that Reliance retail has plans to sell Jeans at 199 rupees in its stores.

The company has asked Arvind Mills, the world's biggest denim manufacturer, to produce jeans that can be sold at that price. Sources in Arvind Mills said the company was working on it but declined to provide details.

Sriram Srinivasan, head of Reliance Retail's apparel business, said he could not comment on the matter. Other sources close to Reliance said Reliance does not expect to make money on the product, but intends to use it as a "loss leader". In other words, sell it at a loss to increase store traffic and sales of other items.

So, at this point the news article is not 100% verifiable, but my first thought was why jeans at 199? And my next thought was it is a smart move perhaps.

Indias retail revolution has not really reached the masses. Our malls are filled with showrooms for premium stuff. True, with the rentals that the stores have to pay, there is no way anybody (other than perhaps Big Bazaar) can make money selling mass market items. Ever seen Cambridge shirts (a big hit in Bombay some years back for their inexpensive readymades.)

My guess is, if one went by footfalls, a place like APMC (wholesale market - Bombay) or Chikpet (market for everything - Bangalore) would easily outscore any (or all) mall(s). There is a lot of value that value seekers can get in places like this.

The way for a hypermarket to make money is to get footfalls from all types of customers - not necessarily only high end customers. That may be a challenge in itself (and how they plan to overcome it will be interesting to see), but the thinking around a 199 rupee jeans is to attract those who may get dissuaded by a mall, thinking , "Everything here will be costly." - which is what my mom still says each time she says a mall. There are still a lot of people in India who rarely enter a mall or if they do, rarely buy anything because there is a lot of value available outside. Unless these people are "captured", it will be one long haul.


Arjun Narayan said...

I wonder what the is the point that reliance is trying to make out here. For every pair, the loss is going to be about 40 bucks and as one of the denim experts points out in the article, these are just going to end up as denim look alikes.

Prasanth said...

"The way for a hypermarket to make money is to get footfalls from all types of customers - not necessarily only high end customers"

Are you not confusing between hypermarkets and malls? If a hypermarket has to survive, then it has to provide the goods at competitive rates. However a mall is a different proposition altogether - Here individual stores can be as "up market" as they want. Reliance (if i'm not mistaken) is going in for hypermarkets where they HAVE to sell at competitive rates and compete with Kirana stores/"dress" stores.

Neelakantan said...

Yes you are right.
I am arguing for a position that Reliance perhaps has to start with hypermarkets and not malls and then again, they have to balance the two formats well...