The Hindu Business Line : Inflation, dearer money see slowdown in durables sales

Chennai, Aug. 1 The consumer electronics and durables industry is witnessing a slowdown in sales, which is being attributed to various reasons such as the inflationary trend, expensive money, limited finance options, deficit rainfall and the general slowdown in the economy.

According to industry sources, though the industry across segments has registered around 25 per cent growth, the growth rate is lower than what was during January-June 2007. Figures from ORG-GFK also support this trend in the industry.

According to ORG data, the CTV segment registered lower growth rate at 18 per cent during the January-June 2008 period compared with 21 per cent growth registered during the same period last year. DVD players registered 15 per cent against 30 per cent; air-conditioners posted 18 per cent (51 per cent) and refrigerators grew by 7 per cent against 15 per cent during January-June 2007.

Owing to inflationary pressures, most durables majors, including LG, Samsung and Onida, have increased prices of various products from 3 to 7 per cent in the last six months to protect their bottom lines. Besides, major financial institutions are no longer offering direct credit to consumers for durables. The banks such as ICICI Bank and Citibank now offer credit only through credit cards. Earlier, these banks were lending directly for consumer durables, irrespective of whether the consumer had the bank’s credit card or not. Another major player in this segment, GE Money, also withdrew from the scene, leaving only Bajaj and Shriram in the fray now.

Though from the financial institutions’ point of view, this is a small portfolio as commercial lending, housing and automobiles is much larger, for durables majors, finance-led sales contributes close to 30 per cent on an average. Industry sources say, as a result of banks pulling out, finance-led sales come down to almost 5 per cent now. That apart, as pressure is being built up on margins due to increasing input costs and logistics, companies also do not come out with any attractive finance offers such as “interest-free instalment schemes” these days.

However, Mr V. Ramachandran, Director (Marketing and Sales), LG Electronics India, says the slowdown is being witnessed only in a few categories and not all. For example, he says for LG, the growth is slower in the CTV and air-conditioners segments. “Last year, CTV sales were good because we had Cricket World Cup during the period. And, air-conditioners did not perform as well as it did last year, may be because of intermittent showers during the period this year,” he says.

At Samsung, “we could register a growth of around 30 per cent in the first six months of the year linked with the Samsung sales infrastructure and channel expansion and our marketing activities,” says Mr Ravinder Zutshi, Deputy Managing Director, Samsung India.

According to him, the growth drivers for Samsung include refrigerators, washing machines and flat panel TVs. He says finance-led sales account for 15 per cent for Samsung. However, as a note of caution, he adds that any further hike in interest rates will have a negative impact on this and may lead to a postponement of purchase decisions.

On the other hand, with a slew of new products planned for the year, players in the industry are bullish about the coming festival season. Industry sources say factors such as Sixth Pay Commission (arrears), farm loan waiver announced by the Government coupled with increased procurement price for certain agricultural commodities, which is expected to leave surplus funds on the hands of farmers, augur well for the industry.

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