Durables offtake improves despite rising cost

Durables offtake improves despite rising cost

Author | Source: The Economic Times | Friday, May 18,2007 9:04 AM

Durables offtake improves despite rising cost

MUMBAI: Consumer durables' sales in the first quarter of 2007 were fairly insulated from the rising interest rates. Consumers played merry with purchases of hi-end LCD and plasma televisions, frost-free refrigerators, convectional microwaves and split ACs.

Manufacturers zero percent consumer loans led to an upbeat demand. In fact, the durable market is expected to close the year with a 10% plus growth against 8% last year. Robust growth over 12% from rural markets has also cushioned companies from the impact of price hikes in a rising cost scenario.

Consumer aspriations have picked up sharply in semi-urban markets and smaller towns, where corporate interest in terms of investments in distribution and marketing to the rural markets have substantially picked up.

Mirc Electronics CMD Gulu Mirchandani said, “durables are relatively low-ticket purchases and therefore consumers did not shy away from picking them up. “Products priced at Rs 35,000- Rs 1 lakh are being picked up in a segment, which is relatively price insensitive. Prices of most mid-to low-end products are backed by heavily subsidised finance schemes by manufacturer, she said.

Changing lifestyles are fuelling growth of hi-end categories - while frost-free grew by 42% year-on-year during January-March, direct cool refrigerators grew by just around 8%; fully automatic washing machines grew by 40% and semi-automatic by 19%. The microwave convection category grew by 74% as against the solo (entry level) growth of 19%, split ACs grew by 58% and room ACs by 11%; Plasma by 59% and conventional category de-grew by 3%.

Companies such as LG, Samsung Onida, Whirlpool are pushing sales of high-margin products to improve profitability. While prices in the colour television segment recorded some erosion owing to competition, manufacturers hiked prices of white goods like refrigerators and ACs to cover rising input costs. “Technology-led product launches have really caught the consumer's fancy, prices no bar,” Samsung India director, sales, Pradeep Tognatta said.

Sales of high-margin products is cleary more attractive to the big brands, which are under pressure from input costs and competition. Also, at a time when margins are under pressure, manufacturers do not have enough funds to make significant investments in brand building.

“And manufacturers have been supporting dealers by bearing a part of the cost so that customers don't bear the brunt of any increase in cost,” Haier India CEO Pranay Dhabia said.

Value erosion over the past two years, especially in refrigerators, makes a further price correction economically unviable, industry players said. Besides, even with input prices going up over the past couple of months, manufacturers have maintained prices at competitive levels, officals said.

Industry leaders fear a high level of trade resistance on the premise that higher prices will upset an otherwise upbeat momentum in purchases. Affordable products and a general feel good factor are helping shore up volumes since the last one year with the semi-urban and rural market throwing up bigger volumes.

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