Consumer durables sector likely to see lukewarm festival season

Consumer durables sector likely to see lukewarm festival season

New Delhi: India’s festival season, which begins in October, is unlikely to add any shine to the country’s Rs40,000 crore consumer durables and electronics industry because high inflation and interest rates are expected to dampen sales growth.

“The industry will not see growth of more than 5-6% in the festive season this year, which is significantly lower than last year’s growth rate of 12%," said Soumya Kanti Ghosh, a director at the Federation of Indian Chambers of Commerce and Industry (Ficci).

Ghosh leads the industry lobby group’s economics and research unit, which compiles monthly data for the consumer durables sector in collaboration with the Central Statistics Office of the ministry of statistics and programme implementation.

Ghosh added the increase in equated monthly instalments (EMIs) due to recent interest rate hikes will also create pressure on a consumer’s wallet.

The Reserve Bank of India has raised rates 12 times since March 2010, making loans costlier.

A large number of Indians prefer to buy consumer goods and home electronics on hire purchase. Dealers say some 40% of the good sold in the festive season is purchased through this route.

In the premium goods segment (in which a product costs more than Rs30,000, according to most dealers and retailers), sales might actually fall.

“Sales might dip by about 10% this coming Diwali for premium products as they might not sell much due to a steep rise in EMIs," said Nilesh Gupta, managing director, Vijay Sales, a Mumbai-based dealer of consumer products.

A well-known consumer electronic firm may see slow sales growth “as the middle class and the upper middle class are not buying due to increasing EMIs and inflation," said an operations manager at a company-owned showroom in the National Capital Region. He spoke on condition that neither he nor his company be named.

Wholesale Price Index rose to a 13-month high of 9.78% in August from 9.22% a month ago.

The interest rate on loans for consumer products have shot up by about 4 percentage points in the last two years from 13% a year in September 2009 to about 16-17% now.

The lacklustre sales forecast for the festive season is in line with the slower growth rate seen right from the start of this fiscal year.

The consumer durables industry grew at a meagre 4.2% between April and July, compared with a healthy 18.5% during the same period in the previous year, Ficci data shows.

Little surprise then that several brands are holding back marketing and promotions expenditure. Whirlpool of India Ltd has cut back advertising budget to Rs12-15 crore this year from Rs18-20 crore last year.

“We are going through a terrible period of slowdown in demand," said Shantanu Dasgupta, vice-president, corporate affairs and strategy, Whirlpool of India.

LG Electronics India Pvt. Ltd, too, has slashed its marketing spend by about 12-15% this year owing to flat sales, said Y.V. Verma, chief operating officer.

However, Verma also said his company will improve sales by about 25% as festivities gain momentum. The company’s annual revenue was Rs16,000 crore last year.

Whirpool, too, estimates to grow sales by 10-15% in the next three months compared with last year’s growth of 25%.

The sector will not be able to see healthy growth, according to Pinakiranjan Mishra, partner and national leader, consumer products and retail, at consultancy firm Ernst and Young.

“However, individual companies might be able to achieve their targets by offering attractive price points and promotional offers," Mishra said.

Samsung Electronics Co. Ltd, for instance, will give out gifts worth Rs150 crore during its 45-day promotion Samsung Smart Utsav. The company is promoting its LCD and LED televisions by offering gifts like 50 blockbuster DVD pack, 3D titles, DVD and Blu-ray players, or a Samsung Soundbar.

Assured cashback of denominations between Rs200 and Rs15,000 are also available on the purchase of goods such as washing machine, air conditioner, microwave, etc. The company did not offer any promotions last year.

Mahesh Krishnan, vice president, home appliances, Samsung, is confident of Samsung performing better than the industry as a result of a better and bigger product line-up.

He said although the buying cycle for the industry was uneven, traditionally demand tends to go up during the festival time as companies give out bonuses and gifts are exchanged. “This should facilitate a positive consumer sentiment and bring in greater sales for us," he said.

Meanwhile, Japanese brands such as Sony India Pvt. Ltd, a unit of Japan’s Sony Corp. and Panasonic Corp. are eyeing better market shares and sales.

Sunil Nayyar, senior general manager, sales, Sony India, said LCD and LED televisions would be the main growth drivers for the company as it expects to sell a minimum of 400,000 units.

Manish Sharma, director, sales and marketing, Panasonic India, is also expecting to double its revenue for the season to Rs1,000 crore from Rs550 crore last year.

The company has invested Rs100 crore in marketing this time over Rs65 crore last year during the same period. Panasonic’s wide product portfolio and the focus on smaller cities would be its growth drivers, Sharma said.