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Early festivities to pare down lockdown losses

Consumer durable manufacturers are luring consumers online to light up their sales by advancing festive schemes by a month in July. Demand for consumer durables has been strong recently as the second wave has receded and companies see this trend persisting.

The development comes after the government has imposed a ban on flash sales which is likely to hit the sales of Flipkart, Amazon, and other e-tailers. White goods and smartphones are on sale throughout the month of July as manufacturers aim to boost their sales figure.

Traditionally, the festive season begins with Onam in Kerela, which will fall in August this year, followed by Ganesh Chaturthi in Maharashtra, Navratri all across the country, Durga Puja in North India and West Bengal, and ends with Diwali in November 2021.

Companies, therefore, are scaling up their production to full capacity, especially of refrigerators, washing machines, and televisions, and that of premium products. Even though the industry is still facing shortage of components, manufactures have placed orders in advance to ensure consistent supplies. Banks are continuing to be aggressive with their cashback schemes, because of which, the growth prospect of premium products is expected to remain strong.

Manufactures are of the opinion that the market will witness an upsurge during this period, surpassing last year’s record sales, as consumer sentiment has improved, buoyed by greater vaccination coverage and no major layoffs or salary cuts this year during to the second COVID wave.

Most white goods and electronics companies had stopped domestic production in May for a few days due to curbs that were almost nationwide but resumed operations in June. Production has been raised to 50-60 percent of pre-pandemic levels in the past 3 weeks, which is a much faster ramp-up as compared with the aftermath of the first wave as there is no shortage of migrant labor this time.

Product prices are set to rise
The price trend is seeing a steep rise and it is not an exception. It has become pretty much the rule. With the steady rise in consumer inflation across sectors, companies which were holding on to the cost hits are slowly passing it on to customers.

According to the India Strategy Report of Motilal Oswal Financial Service, global commodity prices have seen a surge in 2021 with the CoreCommodity CRB Index rising 70 percent on a YoY basis in April 2021. As lockdown was again imposed across India, sale of non-essential items had been temporarily suspended in April and May, while commodity prices continued to surge.

Usually, price hike in the market is implemented at the beginning of the calendar year. However, 2021 was in stark contrast, with price rise being implemented multiple times. Before this could be realized properly, another wave of COVID-19 hit the country and hampered the season sales, especially the AC market. Most brands have had to increase their prices by 3-7 percent.

Moreover, material shortages were reported in conjunction with the rise in raw material prices, particularly in the case of resins, steel, aluminum, copper, glass, paper and chemicals, among others. Aluminum is up between 7 percent and 13 percent in 3 months and between 5 percent and 55 percent in 6 months. Copper, on the other hand, has been flat over the past 3 months; but even this, if taken over 6 months, is up 14 percent.

Manufacturers are again planning to increase prices from July of refrigerators, washing machines, and television sets by 3-4 percent. Though price hikes were taken earlier this calendar year in tranches to the extent of 10-12 percent, they do not seem enough. Brands are taking price hikes in a phased manner and that the remaining gap of 7-8 percent could be taken in two or three tranches.

Hence, the increasing prices of the products may create more of sales, as the increase in purchasing power may lead to more sales. Consumers are going for a buying spree after the pandemic infused lockdown is over.

Tightening of e-commerce rules to provide further impetus
New Indian e-commerce rules are expected to raise costs for all online retailers but particularly Amazon and Flipkart as they may have to review their business structures. The week of June 21 began with the government proposing a slew of changes in the consumer protection rules that, besides protecting the interest of consumers, aim to make e-commerce companies more accountable and responsible. The rules have created quite a stir among companies, with some anticipating a change in their business structure if these are implemented.

The Ministry of Consumer Affairs has outlined plans which include limiting flash sales by online retailers, reining in a private label push, compelling them to appoint compliance officers and impose a fallback liability if a seller is negligent. These are hugely popular during festive season, but have faced anger among offline sellers who say they cannot compete with the deep discounts online.

Hence, the rules have come amid complaints by brick-and-mortar retailers that foreign e-commerce players bypass Indian laws by using complex business structures. However, Amazon and Flipkart claim that they comply with all Indian laws.

Under the stricter proposals, e-commerce companies should not hold flash sales in India. They must also ensure that none of their related parties and associated enterprises are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform.

The changes could impact used by large platforms in the fast-growing Indian e-commerce market. The new rules are expected to have an impact on the business structures of these platforms and the e-retail market India forecasts will be worth USD 200 billion by 2026.

A Reuters investigation in February 2020 showed Amazon had given preferential treatment to a small group of sellers for years. Amazon holds an indirect stake in two of the top sellers on its website, but says it does not give any preferential treatment.

Amazon and Flipkart are also regulated under India’s foreign investment rules for e-commerce, and it is not clear if the proposed consumer ministry rules will supersede them or not. The proposal, which is applicable to both Indian and foreign players, is open for public consultation until July 6, 2020.

Is this good for consumers? Seemingly, yes. Many of the new proposals go against what happens in the offline world. A flash sale, for example. Offline retail stores often have select previews and better discounts for their loyalty program customers. If the argument is to have a level playing field — offline retailers have for long said they cannot compete with the deep discounts online stores offer in such flash sales — the field is not the same in the offline world either. Paying loyalty program members, after all, do get priority over regular customers.

Even as 60-70 percent of sales in 1QFY22 witnessed a washout due to pandemic-induced regional lockdowns and restrictions, recoveries seem to be happening in markets that have re-opened. Consumer durables like refrigerators and washing machines are driving demand, while summer items like air coolers and air conditioners witness slow off-take.

Nearly 40 percent of the markets pan-India have opened up now — either fully or with some restrictions — with better footfalls and higher conversion rates. A June 2020 versus June 2021 comparison across markets which have opened up indicates better recoveries, mostly for large appliances.

By the second half of June, most markets resumed fully, with recovery in sales likely to kick in by 2Q onward. However, peak demand is expected to play out in 3Q and 4Q of the fiscal. In FY21, recoveries happened primarily in the festival season of October to December, with January-March sales being hit by a price rise of 12-13 percent, across the board, due to a rise in commodity costs.

The early offer in the name of festive discounts by e-commerce players is expected to boost the economy. There are further speculations that there may be no third wave of the pandemic. In case the third wave does come, it is anticipated that the impact on consumers’ discretionary spending would be lesser on the back of ongoing vaccination drive across the country.

Moreover, amid all the e-commerce mayhem, the consumer may turn out to be the biggest beneficiary as because if the flash sales will get over more of discount will be provided by e-commerce companies during festive season and various other malpractices may also get curbed. But still, the government has to look further toward the bigger benefit for consumers as well as e-commerce companies to tilt the balance toward its favor for assuring best sales and less of consumer complains.

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