Dark clouds hanging over white goods sector
Jul 16 2012, 20:03 | By Business Line
If expensive money, lingering inflation, slowdown in reforms, and the weak rupee weren't enough, the possibility of a deficient monsoon dampens consumer sentiment further, this year.
As the urban market is already slowing, many durables majors are betting big on rural consumption. However, industry sources say that the demand for consumer durables in tier II and tier III markets, too, has started tapering down. With most of the rural population directly or indirectly dependent on agriculture, the truant monsoon makes them even more reluctant to let go of their purse strings.
The festival season that begins with Onam in August and goes on till New Year is traditionally the prime time when durables manufacturers and retailers gear up for sales of big-ticket items as families in rural areas set out to buy consumer durables during this period.
This year, even retailers are a little anxious about sales trends. According to the retail industry, air-conditioner and refrigerators sales during the year so far has come down by 30% compared with the same period a year ago.
Mr B.A. Srinivasa, Joint Managing Director and CEO of durables retail chain Viveks, says retail stores in tier II and tier III towns see much lower footfalls this time in comparison with the same period last year. "Days ahead seem a little depressed."
However, he said there has been a moderate growth in high-end product categories such as LED 3D TVs, side-by-side refrigerators and fully automatic top-loading washing machines.
In the last eight months, prices of durables - particularly, air-conditioners, refrigerators and washing machines - were jacked up by up to 18 per cent in 3-4 tranches, owing to cost pressure. On the other hand, thanks to food inflation, consumers are spending at least 20 per cent more on food.
Mr Manish Sharma, Managing Director of Panasonic India, said: "Consumers are wary of spending on durables at the moment."
LG Electronics, too, says the sentiment is weak. Mr L.K. Gupta, Chief Marketing Officer of the company, says: "There is a slowdown and consumers are cautious about their spends."
Impacted by serious cost pressure and thinning bottom lines, durables majors, too, cut down their spends on advertisements in the first half of the calendar year. According TAM AdEx data for January-June 2012, advertising by the durables sector dropped by 20 per cent in the electronic and 14 per cent in the print media, compared with January-June 2011.
Advertising industry experts say that they do not expect big spends during the festival season this time.
Quoting a report by CMIE (Centre for Monitoring Indian Economy), a senior industry source said that the demand is expected to remain weak in the near term.
The sluggish demand is expected to hurt the overall growth in consumer durables production index in 2012-13. "The demand may improve post September, provided the monsoon turns out to be better and interest rates soften by then," he added.
Though there is an argument that the National Rural Employment Guarantee Scheme (which guarantees 100 days of employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work), will thwart the 'bad monsoon' threat, retail industry sources say the impact of that will be very minimal.
However, durables majors will leave no stone unturned to sell their products.
To beat the slowdown blues, they have are trying various tactics.
Panasonic, for example, has put in place a multi-pronged approach to draw consumers impacted by slowdown.
Its strategy, according to Mr Sharma, is to enter new product categories and launch India-suitable products, drive growth in the tier-II towns, enhance retail footprint, and drive sales through "affordable" pricing and also by providing easy loans to consumers. Of course, he also warned saying if there is any further deterioration in the rupee, "we may have to increase the prices".
LG, for its part, plans to come out with new "affordable" range of products, and various other schemes. "With these things up our sleeves, we expect to post a flat year, if not a year with marginal growth," says Mr Gupta.
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