Consumers postpone upgrades as inflation takes its toll

Monetary tightening by the Reserve Bank of India to control the sharp rise in prices has checked the march of Indian consumers up the consumer electronics value chain.

Several dealers as well as manufacturers told Business Standard that there is a sharp fall in “repeat” customers that upgrade their buying choices by as much 40 to 50 per cent, it is learnt.

“Given the economic situation right now, it is natural that consumers have deferred their purchase or upgrade time,” said Godrej & Boyce Chief Operating Officer (appliances division) George Menezes.

Last year the market for premium air-conditioners recorded a growth rate of nearly 60 per cent. This year, growth has dropped to around 27 per cent. For high-end frost-free refrigerators growth has slowed from 30 to 10 per cent over the past two years.

Premium consumer durables typically accounted for 25 to 30 per cent of sales last year; this year, the proportion has shrunk to 15 to 20 per cent.

However, flat panel display(FPD) televisions, being an emerging category in India, still haven’t seen a significant slowdown.

“Many people have deferred their decision to upgrade to premium products,” confirmed Samsung India Managing Director Ravinder Zutshi, adding: “The sentiment to upgrade exists but the current economic conditions have led to a delay in purchases.”

“Many second-time buyers who wish to upgrade come and inquire about the discount or finance schemes available but since neither option is available they choose not to buy,” said a Delhi-based dealer, unwilling to be identified, adding: “The sale of high-end products has suffered the most in this situation.”

Over the past few years, customers in the Rs 32,000-crore consumer durables market had been upgrading at a fast clip. In televisions, the market had moved from curved screens to flat screens and there were signals that it would now move to LCDs. Customers also rapidly migrated to high-end fridges, washing machines, microwave ovens and air-conditioners.

But the speed of this upgrading has now decelerated. According to sector expert Harish Bijoor Consults Inc CEO Harish Bijoor, the inflation spiral and the lack of easy availability of consumer finance have created a definite “postponement of purchase syndrome” in the durables market.

Not only have interest rates gone up sharply in the last few months, several consumer finance companies have stopped lending for purchase of consumer durables. With GE Money, ICICI Bank and Citibank now out of the segment, only Bajaj and Shriram are left in the field, apart from the smaller in-house lending from dealers.

Naturally, consumer durable makers are worried. “Fewer financing options will have a definite bearing on sales,” said LG Electronics India Director (marketing and sales) V Ramachandran.

“Manufacturers will definitely have to re-look their pricing if they want sales to pick up, otherwise they will have a big inventory pile-up to deal with. They will then also need to look at newer ways of liquidating inventories,” added Bijoor.

Even as the industry gears up for the upcoming festival season, most companies are wary of what lies ahead. “The impact on the bottom line is evident but the top line is still not under stress. But we are concerned about the uncertainty that lies ahead,” said Ramachandran.