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January 31, 2009

The Loot seeks to capitalize on slowdown

Outlook Business has a profile of the discount clothing retailer The Loot.
How does a retail chain that offers massive discounts make profits? "We make money on buying, not on selling," claims Gupta. Here’s how it works: the company buys stocks in bulk from 100 national and foreign brands, paying cash for the entire lot. The cash payment makes it a win-win deal: the suppliers get their money immediately, and in return, shower massive discounts on The Loot.

Under the terms of the agreement, though, The Loot cannot return unsold stock, and that is a huge risk it runs. But it’s a trade-off—since they can book outright sales against cash and expect no liabilities, the suppliers extend the huge discounts. And that’s how The Loot ultimately makes its money. For instance, unlike other retailers, it can procure a pair of shoes that has an MRP of Rs 1,000 for Rs 300. In turn, it may sell the shoes for Rs 500, offering the customer a 50% discount on MRP and still enjoying a hefty margin in the bargain.

The Loot’s proposition is to guarantee big discounts on big brands all through the year. "Brand-conscious shoppers who now have tight budgets because of the slowdown will find The Loot more pocket friendly," says Gupta. The model seems to be working well—the company’s margins have grown from 9% in 2004 to 38-40% today.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in