A tug-of-war between retailers and manufacturers over margins has resurfaced. Samsung, the consumer durables maker, is looking to rationalise payouts to channel partners by as much as six to seven percentage points, in a bid to reduce the price differential between retailers of home appliances.
The Korean giant has been looking at ways to get all its trade partners — small retailers, large-format stores, regional and national chains — under one pricing structure. That is, the margins it is willing to pass on would be uniform for all. The categories where it is targeting a uniform pricing structure include air conditioners, washing machines, refrigerators and microwaves. Audio-visual products, information technology and mobile phones are not part of this move.
Samsung is keen to bring margins to 17-18 per cent across formats. This has not gone down well with regional and national chains, since these enjoy margins of about 24 per cent. A small retailer’s margins are 12-14 per cent; a large-format store, basically a large neighbourhood electronics showroom, enjoys margins of 16-17 per cent.
Rajan Malhotra, the Future Group’s president, retail strategy, who also heads eZone, the group’s consumer durables and electronics retail format, confirmed it was talking to Samsung on the issue. “We are not willing to bring down our margins,” said Malhotra. “Samsung is a strategic brand and we continue to stock their products, but we have not agreed to a price revision in home appliances.”
Officials from Tata Group’s Chroma and Videocon’s Next Retail, also into consumer durables retailing, were not available for comment on the issue. Regional chains have, however, confirmed the issue has been a live one between them and Samsung. An official at Mumbai-based Vijay Sales said they were not doing business with Samsung at the moment. “We are not stocking their products,” he said, citing issues over Samsung’s attempts to lower margins. “The matter has to be resolved first.”
K Mulchandani, director, Snehanjali, another Mumbai-based consumer durables and electronics chain, also said it was talking to Samsung on margins. “They are a key brand and we continue to stock their products, but we are hoping this issue will be resolved soon,” he said.
B A Kodandarama Setty, chairman of Chennai-based Viveks Ltd, confirmed Samsung’s intention to lower margins in home appliances and the resulting tension. “We are talking to them and they have assured us that they will look into the matter,” he said.
Samsung’s Mahesh Krishnan, vice-president, home appliances, said the company continued to have a healthy relationship with retailers. “We continue to have a healthy business relationship with our retailers, even as we work together to strengthen and grow in the country,” he said. “All key channel partners continue to maintain healthy stocks of Samsung products.”
Persons in the know say Samsung’s attempts to trim margins is being watched closely by rivals. Says the chief executive of a consumer durables company, who declined to be named, “The question is who blinks first, the retailers or Samsung. If Samsung does manage to get its way, it would be a worthy effort at bringing some sanity in the pricing structure.”
But big retailers argue a price differential is a must, given the volume of business they generate over smaller retailers. “You cannot bunch us in the same bracket as a small retailer,” argues Mulchandani. “We have a chain of stores and the effort we put in to drive sales is far more than what a small retailer would do.”
The percentage of consumer goods sales coming out of modern trade in India is eight to nine per cent for a manufacturer, while traditional trade (basically small stores) contributes the lion’s share at 87 per cent. The balance four to five per cent comes from company-owned outlets.