| There's no question of a slowdown as the consumer durables industry enjoys exceptional growth this year with all classes of consumers on a buying spree. |
Upbeat: A combination of factors helps the consumer durables industry flourish.
R. Ravikumar
Debdatta Das
Vinay Kamath
It's a large media conference in Chennai on a recent afternoon which H.B. Lee, President and CEO, Samsung South West Asia, and Ravinder Zutshi, Deputy Managing Director, Samsung India Electronics Pvt Ltd, are addressing. The meet is to announce the launch of Samsung's second factory in India, after the one at Noida, at the Sriperumbudur SEZ, around 25 km from the city. The plant will have a capacity to make 1.5 million units of flat TVs and 30 lakh units a year of LCD TVs.
The warm afterglow of the launch conference is interrupted, however, when a media person puts a question to Zutshi on the day's headlines that the consumer goods industry has dragged down industrial growth in September, according to official data from the Central Statistical Organisation. An indignant Zutshi is quick to take umbrage and defend the industry, emphasising that overall the durables industry has grown 12-14 per cent with every category seeing growth. As he says, he's not sure where the government is getting its figures from, but the industry is doing quite well, thank you. And, to boot, he points to Samsung's huge expansion in Chennai.
Indeed, as Zutshi told BrandLine later, "The consumer durable industry has shown a healthy growth trend this year linked with the higher growth in the high-end categories, the rapid adoption of consumer electronics in the non-metro markets, new technology and range introduction that is encouraging people to upgrade, easy financing options as well as the buoyancy being seen in the economy that is fuelling consumerism."
And, the festival spirit of soaring sales — stretching from Onam to Diwali — extends to fellow chaebol LG Electronics, whose managing director, Moon B. Shin, is extremely upbeat. During this festive season so far, LG India has recorded 51 per cent growth in terms of value and 34 per cent in terms of volume over the same period last year. "We posted a record sales revenue of over Rs 1,100 crore just in October this year," says Shin. According to him, it registered a growth of 78 per cent growth in the home appliances business, with 85 per cent value growth in refrigerators, 96 per cent growth in washing machines and 41 per cent in the air-conditioner category.
So, if the two big 'uns of the durables industry are seeing scorching sales, what gives? Why do official figures trotted out by the government say durables sales are flagging? Are the Cassandras beating the wrong drum? As Suresh Khanna, General Secretary, Consumer Electronic and Appliances Manufacturers Association, explained to Business Line in an earlier interview: "The very basis of computing the data is wrong since it takes into consideration only the obsolete product categories such as VCRs and curve TVs, and do not take into consideration newer categories such as DVD players and MP3 players that have high volume generation. Also at times the Government is not able to get all the production data from each of the companies."
Endorses Vivek Sharma, Vice-President (Marketing) of MIRC Electronics which markets the Onida brand, "The Government definition of consumer durables is over 20 years old and obsolete. It still gives high weightage to typewriters, clocks and calculators while it is zero for microwave ovens, which posted a handsome growth this year. It gives minuscule weightage to home theatres and washing machines. So, it does not reflect the current market trend." R. Subramaniam, Managing Director of discount retail chain Subhiksha, offers a fresh perspective when he says, "The price performance equation in durables is almost like in computers – vastly better products at prices that are continually lower, making the reported official numbers (on value basis) not so relevant."
And, current trends are that high-end durables are driving sales and even changing purchase patterns of consumers across demographies. Explaining the reasons behind the phenomena further, V. Ramachandran, Director (Marketing and Sales), LG Electronics India Pvt Ltd, says, "Increase of incomes is riding the demographic dividend. Not only are its repercussions being felt in the higher strata of the society, even the lower end is experiencing benefits of higher incomes. So, where the higher strata is going in for premium items such as LCD televisions and four-door refrigerators, the lower end of the demography, with rising levels of aspiration and salaries, is going in for multiple ownership of durables and electronics such as air-conditioners, televisions and refrigerators."
Onida's Sharma says that the housing boom too is a major factor for the spectacular growth this year. "When people move into new houses, they also want to buy new durables. And, as a result of increasing disposable income, they tend to graduate to high-end products, which is another major reason for this growth (in value terms)," he says.
Francis Xavier of Francis Kanoi Marketing Planning Research is of the opinion that the past decade has been good for durables as a whole, with blips now and then in some category or the other. He does not buy the theory that tightening of finance could slow down spending on durables. "Like earlier, prioritising purchase of durables is not an issue any longer," he says. With more money in consumers' hands, and with durables by and large being smaller-ticket items compared to say, a car or a high-end two-wheeler, consumers, he points out, are looking to buy them outright rather than look for finance.
Manufacturers of durables and retailers saw a very sharp uptrend at Dhanteras and Diwali, a trend that is expected to continue. As Subhiksha's Subramaniam says, "We expect the durable market to be showing strong growth in coming years also as the larger numbers of nuclear families, higher income levels and access to credit and faster replacement cycles and larger incomes in hands of young consumers create a potent combination of high growth. There has been a huge upswing in sales of mobiles, especially, as there was a bit of a lull around the time of the Nokia battery crisis."
B. A. Srinivasa, Director of Chennai-based durables retail chain Viveks, says their sales in the period April to November this year were 25 per cent higher compared to the same period last year. "It's not clear who is driving the sales, whether the manufacturer, consumer or the dealers; it's a combination of everyone," he says. The consumer, he says, has benefited from the double '0' (zero) offer - he doesn't have to pay either processing charges or interest which is borne by the manufacturer and the dealers.
Categories such as air-conditioners are red hot and growing at 25-30 per cent, says Srinivasa. "Even a few years ago, air-conditioners were not part of middle-class households. Now, people are looking at owning multiple air-conditioners for the various rooms in a house," he points out. LCD TVs too is another category that is growing even at 300 per cent in some markets, albeit on a low base.
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