Consumer Durables Sales and cash crunch

Sticky loans and a dip in profits had taken their toll on CitiFinancial and GE Money, with both firms deciding to shut down their consumer durables and two wheeler Financing business. Though the company informed leading dealers across the country about their decision and for the Rs 25,000 crore consumer durables industry the timing was all wrong. This shut down of financing despite the fact that consumer durable prices across segments are at their lowest in the country since the past five years.

Let us take a case of ET. ET 30 was in a fix as he wanted to buy a 32 inch LCD TV and was waiting for April to bring it home. He expected that immediately after Budget, he would be able to take advantage of the sops from the government, which would make consumer durables much more affordable. His idea was that the children’s exams would be over by mid April and the entire family could entertain themselves at home. He was ready with down payment and like many other consumers and like scores of other consumers was relying on finance companies for the rest of the money, to be paid back through equated monthly installments over two to three years. Everything was set or so ET thought till he landed up at the neighborhood retailer.

With the closure of two aggressive finance companies, Citi Financial and GE Money, the retailer refused to entertain ET’s request for the LCD TV easy installments demanding full payment upfront. Unable to shell out Rs 45,000 plus of the LCD, ET joined the ranks of consumers who have been left high and dry with the exit of finance firms.

The exit of these financiers has resulted in huge losses for smaller retail firms, which used to depend heavily on CitiFinancial for almost 80% of their sales. Consumer durable majors too been hard it by this for despite the recent hike in input prices, companies have not been able to pass on the hike to consumers due to waning consumer interest. Sales of consumers electronics, especially color television and audio systems, appear to have dipped by over 20%. Holi, the festival of colors, too signaled colorless sales for consumers durables manufacturers. Though the festival falls in March at the time of financial closing, traditionally, consumers pick up new items for their homes during this period. However, consumers durables sales actually fell between 35% and 70% over the three day spring festival weekend according to retailers.

Purchases usually jump over week ends, but though Holi fell over a weekend, many decided to take a trip out of town and enjoy the break. As a result, sales dropped. Holi witnessed a drop of 70% in sales, especially in north and eastern India where the festival is celebrated on a grand scale.

The output of consumer durables declined in January 2008 as also in the first 10 months of the previous financial year. Many firms are worried over the fate of home appliances like ACs and refrigerators this summer and are hoping nationalized banks will chip in with easy financé to surmount the problem. With many consumers defaulting on payment, banks too have insisting on customers furnishing a guarantee for personnel loans. To this end, Samsung has tied up with Bajaj Finance to finance their durables.

Though companies have stepped up promotions and discounts to rev up sales, consumers do not appear to be biting the bait. Some retail firms appear that have found a solution to this. Retail outlets switched credit cards to bail out harassed customers. In January they tied up with Citibank to enable customers with Citibank credit cards take their purchases. Then in February, two more banks were added onto the roster. The new financial year will see more tie-ups with ICICI Bank for their credit card customers and with Bajaj Finance.

Many consumers have purchased air conditioners in late January and February pegged attractively lower at off seasons rates. They swipe their credit cards on making the purchases and the bank conveniently breaks it up into easy installments for the customers, depending on their paying back facility. No need for guarantees and proofs. The hassle has been taken out of customers friendly loans in this manner.

It’s a difficult market and many firms are changing tack to survive. With Citibank canalizing consumer durable finance through credit Cards, the move is also aimed at cutting down costs such as dealer margin, which is as high as 5% in some cases. Most retail outlets would like to pass on the benefit to customers. For consumers like ET, it could also mean cheaper LCD TVs.