Lockdown 2.0 keeps tension simmering for white goods makers and retailers

Lockdown 2.0 keeps tension simmering for white goods makers and retailers

2020 was a watershed year – never before has a catastrophe impacted the entire world so quickly and so completely. The COVID-19 pandemic brought industries everywhere to a grinding halt and changed the way the world lives and does business. Consumers, consumer durable manufacturers, and retailers have had to cope and adapt in multiple ways.

Lockdown 2.0 and its implications
Restrictions, curfews, and partial lockdowns in various states amid the second-wave surge have plunged retailers and consumer durable manufacturers into despondency. Besides, challenges emerging from low industrial oxygen supplies has forced durable makers to temporarily halt manufacturing activity. Compressor-based products such as refrigerators, air conditioners, and freezers require industrial oxygen for welding and brazing. These activities will suffer, impacting production. Companies are also facing an acute migrant crisis.

The timing could not be worse. April is a crucial month in the consumer durable annual calendar since it kicks off their summer season sales. Almost 10-15 percent of durable sales in the June quarter are contributed by April alone. Moreover, the industry has already been dealing with challenges such as input cost-led price hikes.

There was a positive momentum in the market between January and March, as COVID cases were low and people were stepping out to shop. As the cases picked up in April, localized lockdowns have grown, hurting demand.

However, certain appliance segments such as dishwashers, air conditioners, and washing machines are also seeing an uptake. Footfalls at retail stores have got impacted but some companies continue to see strong demand trends in Northern and Southern regions due to high summer temperatures for air conditioners and refrigerators. Customers who need to buy these products are buying, so sales are happening to a limited extent.

While larger companies appear better prepared this time around with adequate stocks and alternative plans, it is the small and medium-size companies that are bearing the brunt as they are yet to recover from the impact of last year’s lockdown. Generally, what is done is that companies carry one month of finished goods inventory, which are there at the branch warehouses and hubs. So, they would be able to feed the market for these 15-20 days when the plants are shut.

Many small dealers have exhausted their savings and capital in dealing with the lockdown of last year and have no more capacity to borrow even to meet day-to-day payment obligations.

Seeking a place on the list of essential items
The number of companies wanting to be classified as essential products’ firms is growing by the day. After manufacturers of smartphones, laptops and desktops petitioned state governments to be tagged as essential category, consumer durable manufacturers feel they should not be left out.

Consumer durable manufacturers argue that in a lockdown situation, when offline stores are shut, allowing their delivery home via online channels will help in business continuity. Currently, much of this is being prevented by states, where food, grocery, and medical supplies are only permitted to be delivered at home.

In the last one year, many offline retailers have built their online and home delivery capabilities, given the digital adoption by people. If their stores are shut due to lockdown curbs, these retailers should be permitted to deliver products to people’s homes. E-commerce players have also made a similar point of expanding coverage. The point is to allow channels, both online and offline, to safely deliver products to people.

At the same time, after-sales service also acquires importance. In a lockdown, TV, laptop or AC servicemen are not permitted to enter people’s homes, making it difficult for consumers to operate smoothly at home.

Consumer durables update – March 2021
The Indian consumer durables industry witnessed sharp contraction in demand in Q1FY21 on account of the ongoing outbreak. However, with subsequent stages of unlock in the country, consumer demand showed hints of improvement on a quarterly basis in FY21, according to CARE Ratings.

Consumer durables goods registered a double-digit growth in production on a yearly basis in Q3FY21. Continuance of work from home culture and lectures/classes being conducted online supported the demand of goods that enhance convenience at home such as refrigerators, electric cooking appliances, washing machines and ACs. It is believed that as people spent more time at home, they focused on upgrading their current TV sets for bigger screens.

Production of consumer durable goods in Q3FY20 and Q3FY21

Type of goods Q3FY20 (in lakh) Q3FY21 (in lakh) YoY change (%)
Televisions 5.1 6.5 27.5
Air conditioners 8.3 9.2 12.7
Washing/laundry machines 14.4 19.8 37.5
Refrigerators for domestic use 23.0 28.1 22.2
Electric cooking appliances 7.6 9.5 25.0

The net sales of players in the consumer electronics and appliances industry grew by 23.5 percent YoY in Q3FY21 to Rs 14.2 thousand crore from Rs 11.5 thousand crore during the same period last year. Further, the net sales of players in this industry improved on a yearly basis from a decline of 54.7 percent in Q1FY21 to a growth of 23.5 percent in Q3FY21. This growth was primarily driven by pent up demand and festive season in Q3FY21 in particular aided the growth.

According to business surveys conducted by Retailers Association of India (RAI), consumer durables and electronics category recorded yearly sales growth of 10 percent and 15 percent in the months of January 2021 and February 2021 respectively. This data is based on sample set of 63 retailers. The growth momentum recorded in Q3 is expected to continue in Q4FY21 too.

Also, the top players in the industry are expecting double-digit growth in sales the upcoming summer season for cooling products such as ACs, refrigerators, air coolers, and air purifiers which could in a way help them offset the adverse impact they recorded in consumer demand during the last summer season due to the outbreak of COVID-19. However, the recent spike in COVID-19 cases have started to hamper the consumer demand.

COVID has redefined retail
The pandemic has accelerated the e-commerce industry in India by a decade, revolutionizing the way brands operate, run, and grow their businesses, as well as how consumers choose to shop and pay.

As per Nielsen India’s e-commerce consumer panel, there was a double rapid increase in average spend of online shoppers for various categories. The number of first-time online users has witnessed an increase across segments, including consumer durables, along with an increase in online activity from Tier-II and Tier-III cities. Small merchants across cities are now adopting mobile channels, implementing online payments and exploring collaborations with technology-driven start-ups.

Impact of COVID on the electronics and appliances sector

Vertical Growth since FY18 COVID impact
Electronics and accessories 39%
Mobile and accessories 12%
Appliances such as TV and refrigerators 9%

The rapid increase in the number of internet users has attracted a number of new budding entrepreneurs to set up establishments by flooding the market with innovative pricing and stocking practices (marketplace vs inventory) while traditional players (brick-and-mortar stores) are catching up. Availability of numerous choices in terms of brands, discount offers, reduced delivery time, cash on delivery, digital payment infrastructure, and easy returns have been major factors for development of the B2C e-commerce.

Hence, the industry is in the midst of a gravitational shift as the consumer electronics and appliances segment continues to evolve and expand, and the trend of shoppers choosing online modes to shop moves from the outer boundaries to center stage.

Through its Digital India campaign, the Government of India is aiming to create a trillion-dollar online economy by 2025. India e-commerce is expected to reach USD 99 billion by 2024, growing at a 27 percent CAGR over 2019-24. Online penetration of retail is expected to reach 10.7 percent by 2024, versus 4.7 percent in 2019, while online shoppers in India are expected to reach 220 million by 2025.

Way forward or circling back to 2020?
The impact of lockdown 2.0 is expected be far worse than the previous one and will deliver multiple blows. This year, the period of Ramzan began on April 14. Ram Navami fell on April 21. But consumer durable manufacturers have been barely able to take advantage of any of these occasions, since lockdown restrictions have been stringent across the country. Hence, players are already redrawing their plans, pushing key launches into forthcoming quarters as they struggle to tide over the June quarter.

With no sales in April, retailers will not be able to pay for the goods supplied in March for the summer season. This will lead to inventory pile-up as repeat orders are being cancelled. This will upset the payment cycle in the entire chain — from raw material suppliers to retailers.

Bigger companies are, however, better prepared having learnt from the 2020 lockdown. Consumer durable companies are tiding over the lockdown through initiatives like maintaining higher inventories, digitization of after-sales services, reactivation of rapid task forces as well as measures to ensure de-risking of logistics, production, supplies, and inventory levels.

Consumer engagement on digital platforms is here to stay. The accelerated digital adoption and the growing importance of online in the browse-to-buy purchase path of the consumer makes it critical for brands to cater to this space.

Long story short, the consumer durables industry was just coming out of a tough phase, triggered by the first wave of the COVID-19 pandemic. At the same time, challenges such as price hikes due to commodity inflation were there. Now, more challenges are arising on the back of localized lockdowns and low industrial oxygen supplies. The industry, hence, is subjected to undergo a new series of setbacks in 2021, which threatens to nip the most anticipated recovery in the bud.

Share this:

Leave a Reply

Stay Updated on TV Veopar Journal.
Receive our Daily Newsletter.