Assets Freeze To Shelf-Death

THE financial year gone by has left scars on most durables manufacturers and marketers which may take a while to heal. After a few indifferent years, refrigerator and television marketers had started to heave a sigh of relief when 1994-95 and 1995-96 had shown promise by recording a healthy annual volume growth of 20 to 25 per cent. For these two years the marketers bombarded consumers with improved product variations, attractive pricing and a host of freebies. Fattened advertising and promotion budgets had finally convinced consumers to think of upgrading and changing their white and electronic goods which were till the other day regarded as once-in-a-lifetime buy.

But the instability of the market in the past year has undone most of this uphill work. The results have been singeing to downright lethal. V.H. Munshi, managing director, Voltas Ltd, has resigned, taking personal responsibility for the company's miserable performance. Whirlpool and Electrolux, new entrants in the refrigerator market, are reportedly looking at declaring largish losses for 1996-97. Industry sources estimate that while Electrolux's cumulative losses tot up to about Rs 25 crore, Whirlpool's overall losses could run closer to Rs 250 crore. However, the parent companies are accepting these losses as establishment cost and the investment necessary to enter a new market. A leading refrigerator company would have lost about Rs 30 crore of its profits this year.

In the colour television (CTV) market, only leader BPL has grown by over 25,000 units, but at the cost of a radically hiked advertising budget. Onida's sales are down from 3.25 lakh units last year to 2.75 units this year. According to reliable market sources, the company requires a 3.5 lakh unit sale to just break even. With two bad years now among other problems, it is on the verge of a shutdown. Videocon CTVs are down by nearly 25,000 units to 4.2 lakh. Philips, till recently the fourth largest CTV seller, hasn't grown at all this year. In spite of Sachin Tendulkar.

Overall industry performance? From 21 lakh fridges sold in 1995-96, volumes in 1996-97 have hovered around 22 lakh, three lakh below projections. Seventeen lakh colour TVs sold this year, making for a rather dismal 8 per cent growth. Total air-conditioner volumes stagnated around 3.5 lakh units, with the organised sector growing by an unexciting 5 per cent.

The damage has been further compounded because in the past two to four years, durable prices have either stayed steady or decreased, largely because of marketers forfeiting their profit margins. Over the last five years, margins for white goods have decreased by 20 per cent. Today most marketers are working at a 2.5 to 3 per cent mark-up. "Refrigerators have been selling at prices valid five years ago," quips Munshi. This applies to all fridges below the 200-litre capacity, which account for 80 per cent of total volumes. The 165-litre models, for instance, has been priced at around Rs 7,000 for about three years now.

CTV prices have decreased by Rs 1,000 to Rs 2,000 per unit. Of this, nearly 70 per cent has been grafted out of the marketer's profit margin. The average industry margin on a 21-inch CTV, for instance, is down from Rs 2,200 to Rs 1,500. Only Akai claims to have improved its sourcing to keep its profits despite price-offs. Overall washing machine volumes increased by 25 per cent to 6.5 lakh units but at considerably reduced prices. Raw material costs, on the other hand, have been escalating by 10 per cent every year. With low volumes, companies have hardly managed to cover overheads. After two good years, the industry's hopes had soared. A hat-trick this year would have given it enough confidence to hike prices by about 10 per cent and improve its margins. No hope of that now.

Further, money has been blocked in investments made for anticipated growth. Voltas expanded manufacturing capacity by 1.5 lakh fridges. Godrej-GE has put up a new plant at the cost of Rs 120 crore. Almost every transnational entrant in the CTV market, including Samsung and Daewoo, had spoken of putting up a manufacturing capacity of 2 million or so. Already about 4 million unit capacity has been added and another 8 million is estimated to come in this year.

Advertising and promotion budgets have continued to stay large even if the tilt was more towards trade promotions to lure the retailer to push particular brands. Industry estimates that Voltas spent about Rs 5 crore, and Whirlpool close to Rs 20 crore. Onida pumped in as much as Rs 40 crore, Videocon an estimated Rs 60 crore and the BPL group over Rs 80 crore, reveal sources.

 Says Vijay Crishna, managing director, Godrej-GE Appliances: "Intensified competition for a diminished pie has led to the adoption of different sales tactics to somehow make up for inaccurate sales projections including pumping in stocks into the inventory pipeline, very lax commercial terms to the trade and hectic offering of promotions to try and revive the market."

Whirlpool, for instance, claims to have sold as many fridges as leader Godrej-GE, accounting for nearly 35 per cent of the market. But the industry believes that the company moved the volumes from its factories to record desired sales before it had to return the Kelvinator brand to its original owner, Electrolux, in December 1996, after owning it for 18 months. Reportedly over 80,000 units are clogging distribution channels countrywide without any buyers. Overall, about 2 lakh units, including that of other brands, are jamming the trade channels.

Several dealers have therefore had to hire new warehousing facilities to stock the surplus. In return, they are taking longer credit periods, damaging the marketers' margins even further. From 30 days, dealers are taking 60 to even 90 days to pay up. In a bid to expedite payments, Videocon is reportedly giving the dealers a 6 to 7 per cent discount on immediate payment. TNCs had entered the CTV market with strict terms of cash on delivery. Even they had to eventually give in to 15-day margins. Today, say dealers, Panasonic allows almost unlimited credit time, Samsung gives up to 20 days credit with a cash discount of 2 to 3 per cent to dealers. Onida has apparently increased its credit period from 15 to 21 days. "There can be further delays if sales don't catch up," warns Munshi.

TO boost sales, marketers continue to put money in trying to please the trade. This year, Godrej-GE, Whirlpool, Videocon and Onida took their big dealers abroad. Videocon is said to have rewarded its leading dealers with Mercedes cars. While consumers continued to get gifts like watches from Godrej-GE and suitcases from Voltas, some companies went to unexpected extents to woo them. Akai gave huge price-offs ranging from Rs 4,000 to Rs 10,000 to establish a foothold in the CTV market. In its Scratch-a-Gift scheme, Whirlpool announced gifts ranging from electric irons to flats in Delhi. "These kinds of baits for consumers are ludicrous," says a marketing professional. "They harm the entire industry's bottomline." Sure enough, for the first time ever, Godrej-GE went to the Monopolies and Restrictive Trade Practices Commission to look into Whirlpool's scheme. The scheme got a stay order.

With the panic that was triggered off, marketers have jostled each other clumsily to get ahead, only to end up going around in circles. Few, therefore, have managed to hold ground. Akai, apparently, has improved its sourcing and technology to lower its costs and pass the benefits to the consumer. Godrej-GE, according to Crishna, has employed "highly flexible manufacturing techniques and cycles within its business" to control inventory at "world class level". So while a few like Crishna claim to look at the current financial year just as any other, most others are hoping to barely save their skin. The industry is waiting for the pent-up demand to bob up in 1997-98 if the Finance Bill goes through untampered-with and some degree of stability is achieved. But this will still take five to six months. Until then everyone has their fingers crossed tightly.