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Published on: Nov. 3, 2020, 1:23 a.m.
A compelling change in consumer choice
  • Clean sweep: as consumers are looking for an alternative to domestic help, washing machines sales pick up, Photo: Sanjay Borade

By Anu Saraf

With the first half of the current financial year and the complete washout for consumer durables, manufacturers and retailers were eagerly awaiting the festive season to get things back on track for the second half of the year. 

“The uptrend in sales began in August itself, with the consumer durables industry registering a 10 per cent increase in sales over August 2019, so we were sure that the festive season would be a good one,” says Kamal Nandi, president, Consumer Electronics & Appliances Manufacturers Association (CEAMA). It has certainly turned out to be, with most retailers achieving high growth rates. Companies like LG, Panasonic and Sony have stated that they have registered a 30 per cent growth in sales in the festive season this year over 2019. 

 “Sales have picked up and, August onwards, retailers have been registering steady growth in demand,” says Harminder Sahani, founder & MD, Wazir Advisors, a leading retail consultancy. “This trend is a little skewed, with retailers doing better in North India than South India.”

The festive season, which started with Onam in September and will last till Diwali this month, usually contributes 23-25 per cent of the industry’s sales, but the percentage is expected to be higher this year (say, 28-30 per cent), due to lower sales in the first half of this fiscal. The appliance and consumer electronic industry had an estimated market size of Rs90,000 crore in 2019.

With work from home becoming the new normal, brands across categories witnessed a trend towards the premiumisation of products. “We have witnessed exponential growth in the high-end segment and a 100 per cent growth in dishwashers,” says Vijay Babu, vice-president, home appliances, LG Electronics, India, citing instances of higher sales in the 300-litre-plus and side-by-side refrigerators; 7-kg-plus washing machines, both in the top load and front load segments; and more customers opting for dishwashers.  

Adds Sunil Nayyar, managing director, Sony India: “The auspicious period of Navratri turned out to be favourable for our television and sound-bar sales in India, with an exceptional growth in the 55-inch and above segment.” The company has found ‘a compelling behavioural change’ in customers’ buying patterns, which are now more tilted towards the large-screen segment, due to the stay-at-home environment, he adds.

“We had anticipated a phase-wise revival of different product categories, beginning with ACs and air-coolers, followed by washing machines during the monsoon, refrigerators, dishwashers and other home appliances, before the festival period,” admits Pradeep Bakshi, managing director & CEO, Voltas, commenting on his experience. “However, it is interesting to note that almost all the product categories are already gaining momentum as people continue to spend on household appliances which are necessary in the post-Covid world.”

New category of customers

The pandemic itself has not been all bad news for consumer durable manufacturers and retailers, though the first half of the year was washed out due to the lockdown, with the lockdown itself mandating that spends in the home appliances category have moved from discretionary to necessity. People are now spending more on household appliances, as they seek to depend less on domestic help. 

So, in addition to the pent-up demand and the positive rural response, marketers were helped by a new category of customers, who wanted to find alternatives to domestic help. “Consumers are looking for a substitute for domestic help and appliances, such as washing machines, microwaves, dishwashers, and refrigerators are filling the gap,” says Nandi. Adds Raju Pullan, senior vice-president, consumer electronics business, Samsung India: “Since the unlocking of markets, there has been an increased demand among consumers to equip their homes with the latest technology while they stay and work from home.”

Industry leaders are upbeat about the current season, as also the future. “We anticipate that this growth in sales of consumer durables will continue,” says Babu. “And, we anticipate that Diwali sales will be higher this year.” LG’s factories are working at full capacity, he adds. Industry analysts believe that, while it may not be possible to make up for the lockdown losses in the initial part of the year, the industry may achieve volumes that are 60-70 per cent of 2019.

How did festive season discounts this year compare with the previous year? “The focus this year was strictly on the customers’ discretionary income,” says Nandi, who is also business head & EVP, Godrej Appliances. “So, we were not offering discounts as much as we were giving cashbacks, low EMI options, long-term finance options, higher warranties and more exchange offers.” Concurs Pullan: “We came up with a scheme that allowed customers to purchase multiple Samsung products under one single EMI and do away with the hassle of managing multiple EMIs. Consumers availing this finance scheme can purchase products with EMIs starting as low as Rs1,790 for two products, Rs2,490 for three products and Rs3,390 for four products.” For LG too, the focus was on providing financing options, giving cashbacks, etc, to consumers, thereby increasing the liquidity in the hands of the customer.

A major trend this year has been the shift of consumers to online channels of distribution, as customers were loath to visit showrooms. Consumer durables are typically a category with high customer touch-and-feel involvement, which cannot be replicated online. “Earlier, mainly small-sized appliances, such as grooming products and audio accessories, had a preference across online purchase,” says Manish Sharma, president & CEO, Panasonic India & SA. “However, this year, we have seen a significant increase in demand for large appliances such as refrigerators and washing machines. We have in fact witnessed an exponential growth of 11.7x this festive season on e-commerce platforms,” he adds.

To reach out to the customer online, Nandi outlines a host of initiatives Godrej undertook to reach out to the customer. “The company started getting its 25,000-plus retailers online and developed Facebook pages for them and added payment gateways too. In addition, we registered with Google Business too, so that the customers could see online which stores were near them and go there to shop. The company also did video sales and online demos, so that the customer did not have to visit the shops. 

Providing service to customers was also a major challenge, as there was a fear of infection in allowing the service people to come home. So, the company encouraged customers to see if they could solve some minor issues themselves, by offering video-assist and WhatsApp calls. Most of the company executives Business India spoke to admit that spends on digital media have gone up significantly, and so, they shifted some operations to the digital format.

No supply side challenge

While offline retail continues to dominate the split between online and offline retail, there is no doubt that the share of the former has increased and brands are now offering all models online, instead of having a particular range for the online customer alone. “The conflict between online and offline is gone now,” says Babu. And, as customers are visiting fewer shops, the fight for the lowest priced products has also gone down.

With the first part of the year being a washout, did the companies anticipate an increased demand during the festive season? Also, were there any challenges on the supply side? Answers Nandi: “We typically operate on a cycle of 90 days and not 30 days; so festive planning is done much in advance. Moreover, we are prepared.” Adds an industry observer: “Higher sales were expected since at first there was waited demand then pent up demand and add to that demand from rural areas and festive demand; so, the industry was prepared from the supply side.”

With the government restricting imports from China, will supply be an issue for the durables industry? With new processes being implemented at ports, Nandi believes that the industry could see a supply challenge in the fourth quarter of this year. An industry analyst expects 60-70 per cent of the components of this industry to be imported; so, challenges on the supply side too are anticipated. But, LG, which makes almost 95 per cent of its products domestically, is not affected by the import restrictions. “In fact, the company’s sales increased during the lockdown, as the trade partners were not encouraging the sales of Chinese products,” explains Babu.

While some may believe that the surge in demand of consumer durables is a temporary one, attributable to pent up demand, the durables industry is of the opinion that it is more to do with a distinct lifestyle change that has occurred in the past few months and which is here to stay.

E-tail takes the cake

Industry analysts state that India’s biggest e-tailers, Amazon and Flipkart, have together raked in $3.5 billion (about R26,000 crore) during the first four days of their flagship festive season sales events, with both the online marketplaces on track to meet expectations for the entire seven-day period.

Industry consultant Forrester Research & Red Seer Consulting are pegging the cumulative sales by the two e-tailers during 15-22 October at about $4.7 billion on an average. “The first few opening days of festive sales are skewed towards large value purchases and new launches,” says Manish Tiwary, vice-president, Amazon India.

Tiwary says that more than 1,100 new product launches have taken place on Amazon this year, with consumer-facing brands such as Samsung, Apple, Xiaomi, One Plus, Asus, Lenovo, HP, LG, Whirlpool and Bajaj Appliances witnessing their biggest two-day sales. A spokesperson for Walmart-owned Flipkart admits that more than half of all electronics goods purchased by consumers on its platform are in the work-from-home segment, with large-screen televisions, laptops, IT accessories and peripherals witnessing an increase of over 1.4x from last year’s levels.

Red Seer’s estimates reveal that during the six-day event in October 2019, sales at Amazon and Flipkart touched $2.7 billion (about R20,000 crore) – a 30 per cent increase from $2.1 billion in 2018. Forrester Research, on the other hand, has pegged the one-week numbers at about $3.6 billion last year. These estimates usually vary as Amazon and Flipkart do not officially give a breakdown of their sales numbers for the limited timeframe.

According to e-commerce companies, top brands and independent analysts, the overall e-commerce industry, too, has grown by 25-30 per cent during the four-day period. The sector is on track to increase sales by 30-36 per cent during the one-week period compared to last year, as the early numbers indicate. The sales surge in the first four days has come despite lower average discounts by brands this year.

The maximum discounts were offered in categories that had seen inventories pile up – such as high-end smartphones, fashion products and furniture. For categories like televisions and home appliances, the discounts have, however, been much lower due to stock shortages. Overall, e-commerce sales over the extended 30-day period are expected to grow to $6.5-7 billion (R48,000-51,800 crore), according to separate estimates by Red Seer and Forrester Research, which say the numbers would be boosted by new online shoppers. About 75 per cent of festive season sales have been recorded in just one week, during 15-21 October, reports Forrester.

Industry executives felt that top brands, including Samsung, Apple, LG and Xiaomi had seen sales increase by 80-100 per cent across smartphones and consumer durables through e-commerce channels in the four days, compared to the same period last year. LG saw a 100 per cent growth in business, led by the addition of first-time buyers from Tier II & III towns and increased demand for premium products across categories, says Deepak Taneja, its India head of online business.

Business has doubled during the four-day period, acknowledges Avneet Singh Marwah, CEO, SPPL, which makes online-focussed TV brands like Kodak and Thomson. Also, discounts have been lower this year, due to limited stocks, as also a 90-100 per cent increase in TV panel prices globally, which pushed up prices, Marwah adds.

Smartphones, the largest category online, witnessed a 2.5x business growth at Amazon during the four-day sale period this year, compared to last year, says Tiwary. Average spending on smartphones has gone up during the sales period, with the market skewed towards e-commerce purchases, adds Tarun Pathak, associate director, Counterpoint, a smartphone industry research unit.

Snapdeal, the home products category selling kitchen appliances, linen, home décor and LED lights grew 30 per cent over last year, according to value-focussed e-commerce platform data, overtaking fashion, traditionally the top performer during the sales period. Long-tail categories, including home and home furnishings, have also improved, as people spend more time at home, the data reveals.

Big ticket, one-time purchases are doing well. “A lot of people have also moved back to their home-towns and are buying more products across several categories for their family,” says Satish Meena, senior analyst, Forrester Research, which has forecast $4.7 billion in sales by the end of the first week. The pick-up in sales should not, however, be viewed as green shoots in the recovery of consumer spending, Meena and other industry analysts caution.

“This spending comes at the cost of leisure and eating out, as also travel expenses being negligible over the last six months… It remains to be seen if it will be sustained,” Meena explains. “How long this sales buoyancy will continue is anyone’s guess, although customer sentiment seems a little more positive than expected in the first four days,” adds Arvind Singhal, chairman, retail advisory firm Technopak. “If income reduction continues, discretionary spending will go down. This should not be seen as green shoots that give a fall sense of hope.”

On the other hand, brands in the smartphone space, like Huawei, Honor and Asus, and TV makers like BPL and Vu, which used to offer big discounts during the festive season to push up sales volumes, are missing in action this year, industry executives say, alluding to supply chain issues or import restrictions from countries like China.

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