Wednesday, November 30, 2016

Consumer durable retailers go slow on fresh inventory

Nilesh Gupta, Managing Partner at Vijay Sales in Mumbai has stopped giving orders to consumer durable companies for the past few weeks and is unsure about when he will resume filling up his inventory. Demonetisation has taken a toll on the sales of the Mumbai headquartered retailer along with others like Croma, eZone and Next Retail, all of whom are now tightening their budgets when it comes to buying fresh inventory from companies such as LG, Samsung, Godrej and Voltas.
“We have stopped giving orders to durable brands since the time demonetisation was announced and suspect that even durable companies have reduced their production in the current scenario. It is a million-dollar question as to when we will start giving orders again to these companies since sales are down by 50 per cent at our stores,’’ says Gupta.
Videocon Group-owned Next Retail is also adopting a similar approach to controlling inventory in times of slow offtake in the durable category.
“We have stopped buying all the categories of consumer durables except mobile phones and the annual budgets of buying the durable brands are being reworked since we do not want to take risks.
“Sales have derailed despite us trying to push EMI schemes and it will become a serious issue for the high-end durable brands who might also have to shut down production,’’ observes Sanjay Karwa, CEO, Techno Kart, a Videocon Group company, which owns the 120 stores of Next Retail.
In fact, mobile phones is the only category which seems to be selling faster than the rest of the consumer durable categories today.
As Rajan Malhotra, President- Retail Strategy, Future Group, CEO, eZone, said: “Mobile phones is the only category which has momentum. We are tightening our budgets by nearly 40 per cent when it comes to buying other durable categories till the year end as we need to have a cautious approach.’’
Tatas-owned Infiniti Retail, which owns Croma retail stores, is witnessing healthier growth rates for the mobile phone category compared to the rest. “Smartphones is growing the fastest at more than 30 per cent even post demonetisation at our stores,’’ said Avijit Mitra, CEO, Infinity Retail.
As for consumer durable companies, it may be a matter of time some of them are forced to scale down production targets.
According to industry sources, MNC players like Samsung are believed to have halted production in certain categories and have prolonged their maintenance period at their factories when they are supposed to refurbish and repair their machinery by exceeding a week, as they do not want to undertake any production at this stage.
Others like LG are being cautious and would try and practice ‘just in time’ inventory control. “While we are not taking up our growth targets, at the same time, we are taking some precautionary measures. For instance, in the case of imports, we will try to keep a month’s balance and not stretch it beyond 30 days,’’ said Niladri Dutta, Head of Corporate Marketing, LG. Domestic players like Godrej and Voltas are also mulling cutting down on production in some of their categories.
Kamal Nandi, Business Head & Executive Vice-President, Godrej Appliances, said: “Since demand has dropped by nearly 40 per cent, we have decided to cut down production across all our categories like air-conditioners, washing machines and refrigerators by almost 20 per cent.’’
Market leader in air-conditioners, Voltas is waiting to see how demand pans out for the category. Pradeep Bakshi, President &COO, Voltas, said, “In the last 15-20 days , sales have dropped by 50 per cent. If this trend continues in the long run, we may have to cut down on production.’’
An analyst at brokerage firm MK Global said, “Most durable companies would be forced to scale back on production as they do not want to be stuck with unsold inventories since most retailers have stopped buying from them. Durable sales were not that great during Diwali and it should be a matter of time before durable manufacturers take a call on production.’’

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