Consumer Durables to sustain in 2009

The consumer durable sector is showing signs of considerable resilience. The last quarter of 2008 experienced double digit growth. Spends on television and home appliances are expected to spill over into the New Year 2009. Auto majors are also revving up to introduce cheeky models in 2009.

Yearning for a LCD plasma TV on your living room wall? Go right ahead. The New Year 2009 is expected to bring in truck loads of bargains and discounts. Whether it is gaming which is already becoming another accepted form of entertainment for the middle class youth, or the auto sector bringing in nifty, new models during the year one thing is inescapable: the decline in retail interest rates, higher liquidity and more money in the wallet of government employees is likely to add to the overall positive tone of higher demand.

It is an upswing all the way. The last ball has not yet been bowled for the durables sector. Though at this point of time, 2009 looks uncertain, there are several arguments to support the fact that the new year would continue to see positive growth. The logic is based on India’s demographic dividend: a young working population in the urban areas which will continue to spend and upgrade. In addition, many of them have already bought houses and they will now need appliances for these residential properties.

There are two other factors. One, employees of central and state governments, public sector units and defense units have seen a significant increase in their income. Their ability to spend is stronger. Second, the rural economy has not yet been affected by the meltdown, and it is still relying on the positive stimulus in this year’s budget. The growth story has been strong in 2008, including the last three months. And, sector wise, appliance penetration is still very low in India. As aspirations grow and lifestyle becomes busy this will continue to receive support.

We have seen that in metros, while consumers are making technological upgrades to LCDs, plasmas and large screen flat TVs. In non-metros consumers are maturing to flat and slim TVs. This is expected to continue well into the new year. Customers are likely to upgrade to better, improved and energy efficient models in the new year.

Production innovation is expected to fuel growth. Like an energy efficient frost free refrigerator that can withstand voltage fluctuations, the bane of most households.

Take the sales of LCDs, TVs which grew by a whopping 153.5% to 4.6 lakh units during the first 10 months of the year while that of plasma televisions crossed 90.1% at 26,700 units, during the same period ORG – GFK numbers for the January to October 2008 period also register the volume growth story, across a wide range of products, including flat TVs, refrigerators, washing machines, air conditioners and microwaves. True the base was small and that some people were still enjoying the tail effect of the boom period. But, industry watchers actually attribute the growth story to the non-metros, where consumer electronics and durables are no longer considered a high ticket item. The shrinking replacement market, whereby consumers are migrating to newer and latest models much earlier, has also worked in favor of companies like Samsung, LG, Sony, Carrier, Voltas and Whirlpool.

At the start of 2008, it was thought AC sales would be below expectations but sales have been reasonably healthy. Since consumer sentiment is linked to the economy we expect the economy to look better in the coming months which in turn will lead to improved sales. Durables majors say that unlike the automobiles industry, the consumer durables sector is increasingly becoming less dependent on financing schemes. People prefer to make direct cash payments for the sub-15,000 priced products. Only 13-15% of all sales are made with a loan. We expect a nominal growth for smaller products, though the high end market for most durables would be dented.

Needless to say, while double income, no kids families will continue to splurge on slightly premium models or even upgrade to premium models of an LCD or split air conditioner, families with children are sure to be bombarded with a host of features from the gaming industry. Indian gaming has finally come of age and 2009 will ensure that India, which has been missing most of the action this year, gets onto the world map. This is going to be possible with the availability of games with Indian themes and price points that are suitable for the Indian market.

Customers are also likely to be spoilt for choice in the auto sector. Apart from the much awaited Nano launch in 2009, there will be Splash from the Maruti Suzuki stable and the Jazz from Honda. Despite the troubles at home, GM has also lined up two new launched in the Cruze sedan and an all new small car. Italian car-marker Fiat would be launching the Linea sedan and the Grande Punto while Mahindra is to launch the Xylo. All new models may be made available at new and perhaps attractive prices. Here too, bargains and discounts are likely to continue for the major part of the new year as companies would be forced to offer lucrative deals to pull in customers.