Offline firms seek to beat e-tailers in discounts game amid rising costs
Consumer firms scramble to match promotional offers of online retailers despite taking a hit on margins
Mumbai: Consumers will be spoilt for choice this festive season. As online retailers, such as Flipkart and Amazon, roll out aggressive festive promotional offers, consumer durable manufacturers will be left with little choice, but to match the offers, despite their margins taking a hit from rising costs, said experts.
“In Diwali everyone has to sell if they want to survive. The momentum for promotions and discounts is being set by the e-tailers and brand marketers will have to follow suit with offline discounts and promotions even if it means taking a hit on their margins,” said Arjuun Bajaj, founder and chief executive officer, Videotex International Pvt. Ltd, which owns the Daiwa television brand, and is also a contract manufacturer for some national brands.
“There will be a lot of promotions and discounts this festive period,” said Sunil Advani, chairman of air conditioning and commercial refrigeration company Blue Star Ltd, adding that since inflation is creeping up, this will be one way to get consumers to spend.
The company also has some piled-up inventory in air conditioners due to a short summer, which it would like to exhaust this year.
The companies have taken a hit from a number of recent developments. In September, the government doubled the import duty on consumer durables such as air conditioners, household refrigerators and washing machines of less than 10kg to 20%. Customs duty on compressors and speakers was raised from 7.5% and 10% to 10% and 15%, respectively.
Imported goods account for nearly 20% of the refrigerator and washing machine segments, and 30% of total domestic market for air conditioners.
Additionally, the industry is also grappling with increased input costs due to the depreciating rupee. Manufacturers such as Godrej Appliances had already taken one round of price increases of 3-4% in early September, while others have been absorbing increased costs and putting off the price increases till the end of the third quarter, or festive quarter.
“Offering the discounts will come at a steep cost. It’s akin to committing suicide in this environment with the dollar breaching 74 and increased import duties,” said Vijay Mansukhani, managing director, Mirc Electronics Ltd, which owns the Onida brand. According to Mansukhani, manufacturers will be forced to increase prices and this will cause the market to shrink as demand will taper.
According to a September report by Edelweiss Investment Research, if consumer durable products get dearer, it can have a negative impact on demand in the near-future.
Despite the headwinds, online retailers are gearing up for a bumper festive season.
Mint had reported in August that Flipkart was targeting sales of $1.5-1.7 billion in its annual Big Billion Days sale, nearly double the amount it did last year. Together, Flipkart and Amazon are expected to record sales of $2.5-3 billion during the five-day festivities, according to estimates by RedSeer Management Consulting, a market research and consulting firm.
“When it comes to impromptu purchase, online has dominated offline channels. Of the 100 million-plus online consumers, there are 30-40 million consumers who are very active shoppers who contribute significantly to the overall pie. These shoppers have the ability to swing the festive from muted to a good one for retailers depending on how and where they choose to spend their money,” said Sreedhar Prasad, partner and head, consumer markets and e-commerce, KPMG India.
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