Short summer swells AC inventory levels

Dealers of white goods are a worried lot these days. Stocked heavy with air conditioners in anticipation of record sales, the short summer has ensured they are stuck with huge inventories.

A score of dealers Business Standard spoke to in New Delhi and Mumbai admitted that unsold ACs have become a headache.

With manufacturers pushing dealers to buy more, friction has emerged in the trade channels. Some dealers are reluctant to lock horns as companies might cut incentives like foreign junkets.

"In this difficult time, we almost dread the mid-month and month-end closures when we have to pay the companies," said a Mumbai-based dealer. Added Manav Bhandari, a South Delhi AC dealer: "This year, sales touched an all-time low. We have a huge pile up of unsold stocks and the demand has been slow."

Most companies had ramped up their production capacities in anticipation of a robust jump in AC sales this year. But long rain showers during the summer months, the rise in interest rates and the general economic slowdown have put paid to all their plans.

According to ORG data, in April"�May this year, AC sale volumes grew just 10 per cent, against 79 per cent in the same period of the previous year. 
 

NUMBED NUMBERS Growth of AC market in Apr-May (%)
Period	Volume	Value
2007-08	79	83
2008-09	10	12

All estimates now suggest there is no way industry will be able to meet this year's sales target of 2.8 million units or even best last year's sales of 2 million.

Market leader LG Electronics managed to sell about 100,000 ACs in May (the month sees maximum sales in the year), way below its target of 150,000. Even Samsung has seen a 10-15 per cent decline in AC sales so far this year.

Even these numbers, some dealers grumbled, do not reflect the actual bloodbath in the market place -"� ORG numbers only take into account what is sold by companies to dealers and not what the dealers sell to customers.

Result? Dealers are straddled with unsold ACs. No precise estimate of the inventories is available. On talking to dealers, it was learnt that an average mid-sized dealer had an inventory of 250-300 ACs at the beginning of the season and now finds it difficult to get more than 30-40 off the shelf in a month.

Last year, most dealers were able to sell 80-90 per cent of the stock. Inventory carrying costs are up almost 30-40 per cent, some dealers said.

To be fair, AC makers are aware of the problem and are on the lookout for a solution. Some have announced discounts, freebies or bundle offers, while others like LG have offered free installation. LG India Managing Director Moon B Shin had recently told Business Standard that the inventory pile up had compelled the company to offer deals under its 11th anniversary offer.

"The way forward will be product differentiation. Only the best product will sell in these trying times," said Godrej & Boyce Chief Operating Officer (appliance division) George Menezes.

Dealers and manufacturers are also relying on bulk deals with real estate developers and other such institutional sales. The market now hopes to gain some momentum in the festive season.