The Hindu Business Line : Durables steadfast

The slowdown in the economy has started to weigh heavily on the durables industry. So far insulated from the impact of the slowdown, the latest Index of Industrial Production (IIP) figures show a three per cent decline in the sector which has raisedquestions about future prospects for the industry.

Competition in the durables industry has increased three-fold in the last decade with well-entrenched players looking for a slice of the Rs 13,000-crore durables market in India. The business, which calls for huge working capital requirements and an intensive brand building exercise, has so far been able to sustain growth due to rising consumer aspirations. Though companies remain optimistic, analysts project a sluggish outlook for the short-term. Not surprisingly, many companies are tightening their belts to meet the situation.

The Consumer Electronics and Appliances Manufacturers’ Association (CEAMA) General Secretary, Suresh Khanna, says: “The method by which they (IIP) have come up with the figure seems incorrect. It does not include products such as set-top boxes, CCTVs and DVDs. They still include VCRs and electronic typewriters, which are outdated. During the month of October, before Diwali, the consumer durables market had recorded an overall growth rate of around 10 per cent.”

The durables industry has been witnessing turbulent times. Earlier this year, there was a steep increase in the input prices of commodities such as steel and plastics. Consumer finance too had begun to erode and consumers were postponing purchase decisions.

“In durables, the slump has been expected for a while. During Diwali, sales had peaked. But compared to last year, there has been a slackening in demand. There is likely to be an intensive cut in production in the forthcoming quarters as well,” said Rajoo Goel, Secretary-General, Electronics Industries’ Association of India.

But manufacturers are putting up a brave front and increasing their ad spends to boost sagging consumer sentiment. On its part, the Government has announced sops to boost liquidity in the market. This includes a four per cent cut in the Cenvat rate from 14 per cent to 10 per cent.

The Chief Operating Officer, Haier, Pranay Dhabhai, says: “This year all the major festivals were in the month of October as compared to last year when the festival period fell in November. Production usually happens a month before the festivals. Hence, there will be a dip if you compare the figures with last year. So far, we have not seen a slowdown in demand.”

Korean chaebols LG and Samsung too hold similar views. V. Ramachandran, Director, Sales and Marketing, LG India, notes that “the industry has grown by 15 per cent. On an average, consumer electronics has shown a growth of 12-15 per cent, home appliances 15-20 per cent and air conditioners 8-10 per cent and the demand has been consistent.”

“We disagree with the IIP figures as we have been witnessing double-digit growth. Despite a bad summer, we do not expect a negative growth in the categories that we deal with,” says Ravinder Zutshi, Deputy Managing Director, Samsung India.

Water purifying devices company, Kent RO, however, said it was witnessing slowing demand. “We are feeling the heat. It may be seasonal but, in general, demand has gone down by about 5-6 per cent. We are not undertaking a cut in production as we manufacture according to the market demands,” says Mahesh Gupta, Managing Director, Kent RO.

So does that mean advertisements budgets will be trimmed and pruned for the forthcoming year?

Industry watchers note that durables makers will have to stick to their budgets as the durables business is a marketing-heavy segment that needs to keep stoking demand. They say the trick is to offer consumers value propositions with a lure of high-end technology during recessionary times rather than doing away with brand promotion budgets. A slew of below-line activities will also form a part of the brand campaign.

“We increase our marketing budget every year by about 12-15 per cent. It is going to be no different this year. We are cautious but certainly not pessimistic. Early summer will be a good indicator of the market conditions,” says Kamal Nandi, Vice-President, Sales and Marketing, Godrej and Boyce Appliances. Last year, Godrej had earmarked Rs 110 crore towards brand promotions.

Mr Francis Xavier, Managing Director, Francis Kanoi Marketing and Planning Service, holds a different view. According to him, “Ad spends will be some what subdued for the coming year. It is believed that 2009 will be a rough year for the manufacturing sector as a whole. Despite their claims, companies will adopt a wait and watch policy. In reality, the budgets will nosedive but it will be more in planning.”

“As a part of the communication and marketing strategy for Sony India, we had budgeted Rs 200 crore for the entire year’s promotion. We have used television commercials, outdoor opportunities, advertisements in print and online media, radio as well as initiating activities in malls and airports for our campaigns,” explains Cyril Mani, Head, Marketing Communications, Sony India. Next year could well be a rough ride.

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