Taking a shine to the seconds

Love brands but are budget-strapped? Despair not. Help, in the form of ‘factory seconds’, is coming your way for cheap.

Be it a new-looking refrigerator, a television or a toaster, outlets that sell branded durables and consumer goods like footwear and apparel at deep discounts — 20-40% off — are a common sight these days in cities and (tier-II and tier-III) towns. Although single-brand factory outlets for apparel, electronics and footwear are commonplace, shops selling multi-brand, multi-product seconds (refurbished or unsold goods) are relatively novel in India. Apparel, footwear, electronics, home and kitchen appliances… all these can now be bought at heavy discounts under one roof.

Make no mistake, factory seconds are not the same as second-hand goods. The latter are used for a while and then resold cheaply by the consumer who may be moving on to the latest or upgraded model. But factory seconds are usually unused products returned by consumers, retailers or wholesalers on account of minor defects relating to manufacturing, packaging and transportation.

Hitendra Chaturvedi, founder and managing director of Reverse Logistics Company that owns  Greendust, an online and offline retailer of refurbished electronics, IT and home appliances, says there is a constant movement of products from customers back to retailers or manufacturers due to a scratch here, a dent there, a loose wire here and a tear there.

 Such goods are repaired, given an all-new look and sold at deep discounts. Factory seconds sometimes also include surplus or unsold products. Chaturvedi says factory seconds are “functionally strong products and value can be re-created by repairing them. And 95% of the products are unused.” Greendust buys unsold or returned products from retailers and manufacturers, refurbishes them and resells them across 50 outlets as well as online.

No wonder, both neighbourhood retailers and consumers are increasingly taking a shine to factory seconds, thanks to the cheerless macroeconomic scene. The 18 Brand Factory outlets — the Future Group’s value retail chain sells unsold branded apparel, accessories, footwear and luggage at deep discounts — record a weekly average of 2.5 lakh-plus footfalls. The number has been growing 20% a year, says an official. Why, Greendust has had some three lakh buyers since it started selling factory seconds in November 2008.

For instance, new home-owner Rohit Selvan, a BPO executive, recently bought a double-door refrigerator of a well-known brand for Rs19,000 from a factory seconds outlet. The same appliance retails for Rs27,000 at high street retailers.

Selvan is happy about his cool savings of Rs8,000 (30% discount) plus a year’s warranty. That the refrigerator had some scratches, was returned by a previous customer and refurbished subsequently was just a detail for the 26-year-old. “There was no issue with its functioning and the revamped look is good,” he says.

What’s more, there are warranties, after-sales service and return policies, just like for first-hand products. Typically, consumers in the 20-25 age-group - the brand-hunters on tight budgets - favour factory seconds the most, says Khalid Siddiqui, chief executive of the Huma Mall in Mumbai where 20 outlets (pictured above) offer refurbished products of 60 brands at massive discounts, over a retail space of 1.5 lakh square feet.

This leads to another aspect that marks the rise of factory seconds: the decline of social stigma attached to buying refurbished products. Amarjit Batra, chief executive of a classifieds website Olx India, says college-goers and young professionals have high aspirations, but their pockets are not deep enough; they cannot afford expensive branded goods, so factory seconds rescue such brand-lovers. Their numbers are large enough to warrant mega retail spaces.

“There is huge demand in smaller towns for these deep-discount products,” says a senior official of Brand Factory. To ride the demand, Brand Factory is looking at adding 17 stores to its existing 18-outlet chain in the next 14 months. Each of these planned outlets would be spread over an average 40,000 square feet, and will come up in smaller towns like Mysore, Madurai and Coimbatore and wannabe metros like Bangalore and Hyderabad.

Chaturvedi says Greendust will grow to be a 100-shop chain in the next six months with outlets in tier-III towns like Jalna, Churu and Parbhani. “Demand from places like Aligarh, Latur, Nanded and Mathura is phenomenal. The repeat purchases are as high as 60%.” Agrees Siddiqui of Mumbai’s Huma Mall. “The conversion rate is high, with at least 65 out of every 100 people walking in to the mall making some purchase.”

High demand translates to decent revenues, adds Chaturvedi. A typical 1,000-square-feet outlet nets average monthly revenue of Rs10 lakh. With demand rising, players like Brand Factory (revenue: Rs400 crore as of June 2011) expect revenues to double in the next few years. Greendust expects to close March 2012 with a turnover of around Rs100 crore. “It should be about Rs300 crore by March next year,” says Chaturvedi.