Post Diwali, the festive lights have also dimmed for retailers across the country. There has been a sharp drop in shopping since the Diwali weekend, prompting worried retailers to rewrite calendars and go in for discounts and markdowns to clear excess stock.

This is likely to impact margins by one to one-and-a-half percentage points in the second half of 2011-2012, said industry CEOs and analysts tracking the sector.

BS Nagesh, chairman of the apex industry body Retailers Association of India, said: “Margins will take a hit as 10-12 per cent of the inventory needs to be cleared. Sales in the November-December 2011 period have been slow industrywide.”

Since the festive season accounts for a major part of apparel retailers’ sales and profits for the year, poor sell-through of inventory has forced retailers to mark down prices to liquidate unsold stock. Without this, they will not be in a position to stock new season wear which can sell better than old stock that is either not in fashion anymore or is inappropriate for the weather.

“Margins will be hit in the December quarter, and so will same store sales growth,” said Gautam Duggad, an analyst at Prabhudas Lilladher.

On an average, organised retailers had an operating profit margin (Ebitda margin) of around 9.2 per cent in September quarter that Crisil forecasts would fall to 8.5 per cent in the quarter ended December 2011.

Apparel retail chains such as Westside, Provogue, Diesel, Raymond, Esprit are offering deep, cross-category discounts to entice shoppers into their stores, said industry experts. After a bright Diwali, in-store shopping at major apparel retail chains has dropped by around 20-30 per cent, said Jay Gupta, MD of The Loot. Retailers are desperately trying to get as much holiday merchandise out of the door while there is still demand for it. “Promotions would be aggressive as stocks have to be cleared. Margins will definitely take a hit in the next quarter for most players,” said Nikhil Chaturvedi, MD, Provogue. The chain is running higher discounts than it offered last year. “However, despite that our shopping bag count is still lower than last year,” he added.

Consequently, these discounts and higher costs of carrying the unsold stock will translate into lower profits for firms in the present quarter. “Most retailers, including us, will see an impact on margins in the next quarter,” said Chaturvedi.

Even high-end retailers seem to be finding it tough. While some of the big brands such as Canali, Jimmy Choo and Paul Smith are trying to attract buyers with up to 50 per cent discounts. Others such as Forever New, Mango, Vero Moda are doling out discounts up to 40 per cent. “The growth rate of luxury players might get a little slower, but margin in same store sales growth will not get impacted,” said Arvind Singhal, chairman of Technopak Advisors.

The Indian luxury market is estimated to have touched Rs 28,000 crore, growing at the rate of 20 per cent over the past year and it is likely to grow at the same rate in the coming years as well, according to a report by CII-Kearney.

Retail chain head honchos are seeing the worry lines multiply as they see the festive season slip away, said industry experts. For instance, Westside, a unit of the Tata-owned Trent, is offering up to 60 per cent discount while Esprit is running a flat 40 per cent discount. Future Group has started deep discounts on apparels and electronic stores and it plans to advance sales in the lifestyle format Pantaloons. Italian premium brand Diesel has been running a sale for the past one week.

Shreyas Joshi, president at Raymond Apparel said: “Footfall has gone down and sales are not buoyant.” The chain is offering up to 40 per cent discount on its products. Apparel sales have been hit as prices have gone up by around 35 per cent in the past one year due to rising raw material prices and an increase in excise duty on branded apparel. High inflation, too, has eaten into consumer budgets, again landing a blow on sales, said industry experts.

“For a player like Pantaloon Retail (PRIL), it is more important to clear the piled-up inventory. PRIL’s margin would get impacted in the third and fourth quarters. Same store sales growth would be in single-digit or negative for most players,” said Shiv Nanda, associate VP, Enam Securities. He estimated that the listed retailers would see their profit margins decline by around 100-150 basis points in the current quarter on account of the markdowns.