Metro Brands CEO on what a possible GST rate hike on premium footwear could mean for business – CNBC TV18
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“All it might do is slow a little bit of demand in that sector. It’s a small piece of our business right now, so I’m not really focused on it,” he said.
Joseph was addressing concerns about potential GST rate changes likely to be proposed by the Group of Ministers (GoM) on rate rationalisation, in an interview with CNBC-TV18.
According to sources, the GoM is likely to recommend taxing luxury footwear above ₹15,000 at 28%, up from the current 18%, as part of a broader effort to introduce differentiated rates for items based on their price brackets.
Also Read: GST rate rejig on the cards–what to watch out for
These recommendations are expected to be discussed at the upcoming GST Council meeting.
Footwear and other luxury goods like handbags, watches, and cosmetics are expected to face higher rates if the proposals are accepted.
These are the edited excerpts of the interview.
Q. From Metro’s perspective, out of your total inventory, how much would be above 10,000 how much would be above ₹15,000 because you do have a lot of the top notch brands.
A. I think you’re implying that there’s a proposal in the government to raise the taxes over ₹15,000 rupees. When you look at the business over ₹15,000 for an individual item in the footwear business, it’s very limited. It’s not a huge market. So one could also argue that raising it does not help, neither the Centre nor the consumer necessarily. All it might do is slow a little bit of demand in that sector. It’s a small piece of our business right now, so I’m not really focused on it.
Q. Is it 5% or 10% or less than that?
A. It’s in a single digit range.
Q. And this would be pricing above ₹15,000, right?
A. Correct
Q. How much of your footwear above ₹10,000 ?
A. I don’t think we’ve bifurcated necessarily by that. We look at our footwear business over ₹3.000. So what I can share with you is that over ₹3,000, we do in excess of 50% of our business. So you can extrapolate that number. There’s going to be a markedly downward sloping curve on that price to demand ratio there. We don’t like to speculate on what the government will do.
Q. The story has been premiumisation. The hope has been that not just you, but other footware makers, will keep going up the value chain. Effective purchasing power of consumers will keep going up as per capita goes up, and people will be able to afford higher priced products, which means higher margins for you. So how do you read this proposal in that context.
A. So premiumisation is a little bit in the eye of the beholder. So for somebody that’s buying a ₹2.000 rupee shoe, the ₹3,000 rupee shoe is premiumising their their their purchase. There’s a huge amount of people in the ₹3,000 to 10,000 space that we cater to. We’re not ignoring people underneath the ₹3,000 range, either. So premiumisation is really to some form aspirational. We try not to speculate too much on what ifs out there. When we get the actual notice, then we start looking at it and responding to it.
Q. But do these higher priced items does higher taxation hurt sales of these products?
A. We currently do have a slab already in footwear. So we have the 12% up to 1,000 rupees, and then 18% over that. Taxation always increases prices, and that always dampens demands, as if you look at it from an economic standpoint of view. So that is something that would happen, but I think that we always consistently looked at how we mitigate those things and how we are able to continue our sales plan and our sales growth as a business.
Q. Everyone’s hoping that quarter three has been much better than what we saw in the first half of the year. You’ll also get some positive impact of the best wedding season as well as festivities. Could you tell us, has quarter three been as strong as what everyone has anticipated and as good as what you were estimating? And is it good enough for you to do that 12 to 15% revenue growth for FY25?
A. We guided to 12 to 15% actually and we’re definitely comfortable with the numbers. There’s been no surprises, pleasant or unpleasant, through the quarter. If you look at what’s happening out in the market, there’s been a lot of talk about slowing demand and consumerism. Then we just read this morning about $10 billion worth of Apple phones being bought. Travel is also on the rise, especially international travel is now at 70:30 international to domestic, whereas if you look at it in 2019, it was 30:70, the other way, domestic to international.
So you know what you’re seeing is the consumer is spending in a hierarchical seasonal manner. So when we came out of COVID, they rushed out and bought new wardrobes. They were sick and tired of seeing their clothes or shoes. They went from that into eating out. We saw that big splurge, then we see that going into travel. And now travel is going into international travel. Then there’s iPhone selling. So demand is still there. It’s just a matter of where you’ve been in the hierarchy of the consumer’s demand cycle. And that that’ll vary.
Q. Tell us about the ecommerce business. You know, I think it contributes double digit to your total sales mix. Are you seeing things plateau out there and for the year, what kind of a number will you look at?
A. Yes, we had a lot of catch up to do in the ecommerce space. And we weren’t very invested in it pre-COVID. We started our investments at COVID. And we continue to have some significant growth come out of our ecommerce business. At some point, you’re going to see that normalised to be in line with the rest of our businesses. We have are started to see that it’s going to be more in line with the normalised expected growth of the ecommerce business. Don’t forget, we can always pump up that ecommerce growth if we are willing to go the discount route. But, we do not believe as a brand to do discounting.
