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High-end durables steal the show

High-end durables steal the show

Author | Source: The Economic Times | Thursday, Oct 12,2006 8:28 AM

High-end durables steal the show

A massive jump in big ticket purchases by consumers in '06 has helped the Rs 20,000-crore consumer durable industry break the price erosion jinx for the first time since '03, with value growth overtaking volume growth.

Despite price hikes in the wake of rising costs, consumers across urban and rural markets are clearly splurging on technology-led products enabling the industry to record a 12-13% value growth rate vis-a-vis an 8-10% volume growth, according to ORG-GFK estimates.

For the past three years, the industry had been grappling with sustained price erosion to the extent of 15-20% each year. In fact, smaller towns have been major contributors to the industry growth rate, primarily due to aggressive consumer finance options and marketing strategies of durable makers.

Growing consumer awareness about technology-led products has fuelled the demand for high-end products. Almost 70% of the growth is expected to come in from smaller markets like Lucknow, Jalandher, Nagpur, Mangalore, Kolhapur and Trichur.

“The value growth in the industry has picked up due to both high-value purchases and also a bit of price hikes in certain categories. The overall mood is upbeat and customers are on the lookout for continuous innovation and new products. Affordability in the upper-end of the market has helped sales substantially. Price rationalisation and technology-led innovations have fuelled the growth of high-end products significantly,” said Bhuwan Singh, associate director of ORG-GFK.

More consumers are launching new plasma TV models and LCD TVs, side-by-side frost-free refrigerators and automatic washing machines. Also, high-end products are selling in smaller markets because manufacturers have made them available by ramping up distribution.

Saturation levels in urban markets are forcing manufacturers to seek growth in small towns. Markets with less than one lakh population across the country have begun contributing significantly to all the high-end durable categories such as flat televisions and frost-free refrigerators.

“Earlier, it was unthinkable to buy a television priced at Rs one lakh. Also, there's far more innovation by manufacturers who have also invested significantly in pushing growth in smaller markets. The industry has also fuelled aspirations,” said Girish Rao, head (marketing) of LG.

This is helped by the fact that price cuts in high-end categories have resulted in average prices reaching their lowest point over the last three years. Pick-up in higher-end products was also the result of marketers investing in distribution networks and alliances across the country.

“The kind of interest and excitement shown by consumers in smaller markets for high-tech products is phenomenal. The value growth, this year, has been strong due to jump in sales of flat panel TVs, split ACs and fully-automatic washing machines. In fact, the flat panel business in televisions is showing an exponential growth this year,” said Pradeep Tognatta, director-sales, Samsung India.

According to industry players, demand for low-end products is recording a sharp declining trend. While flat televisions grew by 90%, fully- automatic washing machines grew by 66% and frost-free refrigerators by 60% in recent months.

On the other hand, semi-automatic washing machines grew by 2.2%, while direct cool refrigerators declined by 18%. The overall colour television market grew by a mere 1.8% in volume terms, while the refrigerator segment declined by 6%. However, washing machines grew sharply at 15%, ACs at 20%. And microwaves at a whopping 100% plus.

Fierce competition and an indifferent consumer mood, last year, had forced manufacturers and dealers to raise discounts. Rising cost pressures had also forced home appliances makers to hike prices by over 5% in Apr '06. The next few months are typically the most buoyant period for a consumer durable business.

Companies are pushing sales of flat panel range. Incidentally, more than 60% of sales come from the hi-end models every festive season.

“There is a definite consumer shift towards LCDs and plasma and affordability is a big contributor among first time buyers and upgraders,” said CM Singh, vice-president of sales and marketing at TCL.

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