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Suresh Krishnamurthy

IN AN economic slowdown, the axe falls first on luxury goods. In India, consumer durables such as television sets, refrigerators and washing machines are considered purchases that can be postponed. Hardly surprising then that the sales of these items should slump in 2001.

Sales of TV sets were down until end-September, while that of washing machines and refrigerators remained sluggish through the year. Air-conditioners were the only exception, notching double-digit growth over the previous year.

Demand slowdown defined the industry and its efforts. Companies strained every nerve to outwit competitors.

Some — friends and foes — got together to find ways to expand the segment as a whole, as in the case of TV.

In other segments, companies invested despite the slowdown as holding back could have meant more trouble.

Generally, companies spent to get a bigger bang out of their buck and to ensure they did not pay too high a price for doing business in the slowdown. The slowdown's impact on demand was evident.

The demand in the premium and low-price segments registered relatively better growth rates compared to the mid-priced segments.

This was because high-networth consumers continued to buy while consumers whose incomes were under pressure down-traded.

The implications were significant for companies with a presence in only one of the segments. In the end, there were more losers than winners.

TVs: Old order changing

In the television segment, sales of the industry in volume terms in the first nine months of the year was negative. A survey by the Association Council of CII estimated that production in April-September 2001 slumped 5 per cent over the corresponding previous period. While some of the decline might have been due to the elimination of inventories, the decline in the sales was an important reason for the cuts in production.

There was, however, some respite for television manufacturers. Sales jumped in October and November. According to the Consumer Electronics and Television Manufacturers Association (CETMA), sales in the two months increased 13 per cent in volume terms, though only 3.6 per cent in value terms.

As expected, growth was higher in the intensely competitive, low margin 20-inch segment. Overall, the growth for 2001 may not exceed 5 per cent what with sales dropping off in December. The slowdown in the television industry put the majors — BPL, Videocon and MIRC Electronics — through the wringer. For these companies, the slowdown in 2001 had come on the back of a flat 2000, when sales grew less than 5 per cent. These companies were already strapped for cash at 2000-end. But some of their competitors, such as LG and Samsung, were less leveraged and made the most of such a situation. Consequently, the majors had to cede market share to companies such as Samsung and LG.

Samsung and LG have claimed to have made significant inroads into the market share of the established majors. While independent confirmation is not available, the industry's old order has changed. The days when the top three brands — BPL, Videocon and Onida — accounted for more than 50 per cent of the market are past. Now five brands — BPL, Videocon, Onida, Samsung and LG — account for around 60 per cent of the market share. According to CETMA, the top six brands accounted for 75 per cent of the market in July 2001 suggesting a consolidation of market shares.

The downturn

On the other hand, the washing machines and refrigerators industry remained mired in the downturn for the second year. According to the survey conducted by the Association Council of CII, the washing machines market declined by 3 per cent, while that of refrigerators sales rose 1.5 per cent in the nine months ended December 2001. In the year ended March 2001, the two segments entered the negative territory. The continuing decline in fortunes must haunt the major players.

In the year ended 2000, Whilrpool of India and Electrolux Kelvinator successfully increased their hold over the market. However, 2001 proved difficult even for these players. Whirlpool managed to record growth in terms of the volumes sold. However, the price erosion has had its impact.

Electrolux Kelvinator's sales in value terms declined significantly through the year. The merger with itself of group companies Electrolux Voltas and Intron may used up the energy required to battle the competition. Else, the slump in Electrolux's fortunes is inexplicable. The going has been worse for the segment's other majors — Videocon, Godrej and BPL. Videocon is the market leader in the semi-automatic washing machines segment, while BPL is a leading player in the frost-free refrigerator segment. Godrej has a prominent position in the direct-cool refrigerators segment.

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