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White Goods: Grinding It Out
2018White goods may not have it all hunky dory this season as price hike and rupee depreciation play spoilsport. But online e-commerce is where the business talks
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The high-street herd is missing in action, but it seems that the number of couch shoppers are increasing. In the opening festival-season sale, online e-commerce players have shown phenomenal growth for large appliances and television sets. Flipkart reported sales grew 105 per cent in this category with a large chunk of them coming from tier-2 and -3 towns.
But, so far, large format stores are reporting slower footfalls and lower volumes. The white goods festival business does not seem to have kicked off with the same gusto in urban centres, but rather in the tier-2 and -3 towns where the distribution channels of e-commerce players have further made inroads.
If the initial response to the festival season is anything to go by, the white goods business could be a mixed bag in this year’s festival figures. As is always the practice, most consumer durables and white goods sales take place during the festival season of September to January beginning with Onam. Last year, reports say that consumer durables witnessed 10-15 per cent slower sales growth. But most of it was due to the pre-GST offers that drew customers much before the festival season began. Indians consider it auspicious to buy consumer durables during the festival season, and hence there’s always many launches, discounts and freebies during this season.
This year, of course, you have to look past high-street and modern-retail footfalls because volumes are being set through online channels. Online e-commerce players have widened their distribution networks to smaller rural towns for large appliances, and it’s paying off. Online e-commerce stores have reported over 100 per cent increase in white goods sales following huge discounts. E-commerce companies and distributors are said to be taking margin cuts in order to gain volumes, and that’s the reason why some offline brick-and-mortar sales are moving online.
Yet, this year, the festival season could be in slow gear for a couple of reasons. First, the rise in the interest rate by about 100 basis points could hamper growth in consumer durables. Financing accounts for about 35 per cent of the sales of white goods and that has hit a patchy spot of late. Second, NBFCs have curtailed their financing because of a liquidity crunch, which has come right in the middle of the festival season. However, corporate bodies see banks and credit cards filling the gap in financing consumer durables. In short, companies could also see lower-than-expected sales.
Nevertheless, companies have been gearing up for the festival season as smaller towns are expected to a play a huge role in this year’s demand. Says Mahesh Gupta, Chairman and Managing Director, Kent RO Systems: “This year there is greater demand expected from rural areas than from towns and cities.”
Prices of consumer durables have increased 5-10 per cent because of the fall in the rupee, which has dipped 10-odd per cent this calendar year to Rs 73.50. As a result, the government raised customs duty on refrigerators, washing machines and air-conditioners by 10 per cent.
Says Kamal Nandi, Business Head and Executive Vice-president, Godrej Appliances: “Despite high fuel prices pinching pockets, the depreciating rupee creating pricing pressure for white goods makers and the recent hike in import duty, we foresee some pent-up demand to work in our favour, fueling consumption this season because prices now are still 3.5– 4 per cent lower than the summer gone by. Also, the certainty of post-festival price hikes for some categories may also help drive festival sales. As of now, footfalls are low on the shop floor. However, we expect that sales should pick up closer to Diwali.”
The start of the festival season, of course, has not been in high double digits because of the floods that hit Kerala in August, resulting in lower demand during the festival of Onam. But that has not deterred companies from expanding their product profiles and offering discounts and freebies.
Godrej Appliances, for instance, is targeting sales of 25-30 per cent and has launched a slew of refrigerators across categories. It is also offering a financing scheme that allows consumers to take premium appliances at just Rs 60 as the brand completes 60 years. The company is also offering free gifts and vouchers such as Treo bowls on purchase of convection microwaves. Whirlpool of India, too, is offering discounts of 15 per cent on some of its products. Smaller home appliances such as toasters, irons, etc., are in robust demand. Bajaj Electricals, for example, is targeting 20 per cent revenue growth in home appliances following its revamped distribution network (it added more than 1.6 lakh distributors across India). Says Shekhar Bajaj, Chairman, Bajaj Electricals: “We are growing in high double digits and we should see an increase in growth of at least 15 per cent. People are looking for quality products in the lower price range and that has not changed.”
Besides, parts of the white goods industry are concentrated (washing machines and refrigerators) where the top five manufacturers account for about 75 per cent of the market. In home appliances, however, the business is fragmented as a large chunk of them are in medium and small enterprises, where the top-five account for just 35 percent of the market.
Air conditioners, though, are seeing an inventory build-up after the change in energy-rating norms, where the industry is shifting to variable-speed inverter ACs. This is a segment that could also see price hikes due to the rupee depreciation. Says Nandi: “The domestic capacity to manufacture inverter ACs is far lower than demand; hence, the recent hike in custom duties coupled with the depreciation is bound to lead to price hikes. This imminent hike and ongoing high temperatures should make people decide on an AC purchase now rather than in the coming summer.”
Overall, of course, the low penetration theory of the white goods sector is still valid. Market experts say that the penetration of white goods is still very low in India. Another huge untapped area is air conditioners. Research by IBEF shows that air conditioners have a penetration of 4 per cent, compared to the global average of 30 per cent. Rural areas have penetration of only nine per cent in washing machines. Increasing electrification of rural areas is also expected to aid rural demand. Improving energy efficiency of appliances is also expected to be a key driver of white goods. Air conditioners are already seeing a new labelling of energy coming into effect from January 1, 2019.
This financial year, the consumer durables sector is expected to grow 8.5 per cent. In the Index of Industrial Production, production of consumer durables grew 9.4 per cent in April-July 2018.
“With radical changes in lifestyles, the Indian consumer today seeks convenience in everything and is willing to pay a premium for the comforts that advanced technology brings in making everyday life much easier than ever. Hence the current owners of home appliances will always seek to upgrade to higher capacities and better technologies,” says Nandi.