How Changing Preferences increasing the share of Consumer durable?

The Consumer Durable industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, air conditioners and washing machines as well as kitchen appliances.

It includes all those goods which are durable i.e. products whose life expectancy is at least 3 years and cannot be used up at once.

Segmentation of Consumer Durable Industry:

The Indian consumer durable segment can be classified into two categories:

Market Overview:

• India is one of the largest growing electronics market in the world and is geared up to become the 5^th largest global player. In the recent past it has been on a high growth trajectory and is expected to grow at 9% CAGR to reach Rs 3.15 trillion by 2022.
• The consumer durable index under the Index of Industrial Production (IIP) grew by 8.6% in FY18 (Apr-Feb) compared to 0.1% growth during the same period last year.
• Global corporations view India as one of the key markets from where future growth is likely to emerge and is attracting marketers from across the world. The sector attracted foreign direct investment (FDI) worth US$ 1.97 billion between April 2000 and June 2018.
• In FY18 the country reported an export of US$ 362.12 million and import of US$ 53 billion. Majority of the products are exported to UAE and SAARC nations while imports are heavily from Japan, Indonesia, Malaysia, and Taiwan.
• The country became the second largest global smart phone market with 40.1 million units shipped between July-September 2018 and is expected to have 829 million smart phone users by 2022.
• Reduction in GST rates from 28% to 18% will boost demand across all segments.

Growth Drivers:

The following are the growth drivers affecting the Indian consumer durable industry:

• Rise in Disposable Income- The Indian economy is witnessing rise in double income in families, working women population and a trend of nuclear families. All these have lead to a rise in the disposable income which acts as a triggering factor for purchase of various consumer durable products.
•  Rise in the share of organized retail-This will streamline the supply chain and facilitate increased demand, particularly for high-end and branded products. Organized retail industry is expected to cover a market share of 15%–18%, by 2020.
• Growing use of plastic money & easy-availability of consumer financing- The growing use of ‘plastic money’ i.e. credit and debit cards which provide incentives such as cash-back offer or discounts on selected sales linked to the plastic money have resulted in an increased spending amongst the consumers thereby fueling the demand in the durable sector. Moreover, retailers have partnered with banks and NBFCs to provide easy financing options to the consumers, making expensive products affordable mainly for the lower and middle income group.
• Existing potential in semi urban and rural markets-There is a strong growth opportunity from the semi- urban and rural areas which is hugely untapped and unexplored. The rural durable market has been growing by nearly 30% annually, mainly due to the growing affordability of products, transmission network augmentation, electric supply channels that have been able to cover the previously un served regions as well as the general growth in the economy.
• Digital influence- As digital access becomes more and more affordable there is rapid growth in digital penetration. This helped in increasing product awareness and boosted consumer spending on electronics and home appliances, which could see strong growth in the next five years.
• Consumer Preferences-The shift in demographic structure, increased awareness about global trends, need for new and innovative products and focus on healthier living are expected to transform the consumer durable and electronics market in India. Consumers are continuously improving their homes and lifestyles through global brands.

Challenges for Consumer Durable:

• Cheap imports from Asian countries-The cheap imports of consumer durable products from countries like China, Singapore etc is a major concern for the Industry.
• Increasing competition-The sector has large number of players(both global and international) in its each segments leading to high competition. This drives price reduction across various segments and higher spending in marketing activities.
• Raw material prices-The major raw materials for the sector are copper, steel, aluminum and plastic, whose price movements are volatile. So, any fluctuation in the raw material prices impacts the margins.
• Rapid changes in technology-Technological obsolescence is one of the biggest concern of this sector. The companies have to spend heavily on constant innovation and launching new products (or existing products with new features) to remain in the market and survive cut throat competition faced by the companies.
• Exchange rate –Depreciation in rupee have pulled down the profits of the sector, making it necessary for the industry to raise prices or shift to domestic manufacturing. Electronics are the second largest import material and thus any fluctuation in the rupee impacts the industry greatly.

Recent Investments:

• Flipkart launched its private label ‘Marq’ for selling large appliances in India.
• Panasonic started its first refrigerator plant with an annual production capacity of 500,000 units with an investment of Rs 115 crore
• Samsung has announced an investment of Rs 5,000 crore for expansion of manufacturing capacity from 68 million to 120 million devices at its Noida plant.
• Xiaomi has entered the white goods segment while Transsion Holdings will launch entire range of consumer durables in the country.
• Intex Technologies to invest around Rs 60 crore in technology software and IoT (Internet of Things)startups.
• British technology company Dyson to invest around Rs 1,300 crore in the Indian consumer durable sector by 2023.
• Hero Electronix, part of the Hero Group made announcement of entering consumer goods and expects to launch 10 artificial intelligence (AI) products in the next five years

Government support to the sector:

• Implementation of GST (at 18%) has reduced the cost of supply chain, end product pricing and improved internal governance in the sector.
• The government of India has allowed 100% FDI in the electronics hardware-manufacturing sector under the automatic route along with 51% in multi-brand would further boost the growth in this sector.
• Modified special incentive package scheme (M-SIPS) has also been introduced for growth of consumer durable industry.
• National Policy on Electronics formulated for electronics systems and design manufacturing industry has set an target of creating $400 billion electronics manufacturing industry by 2025.
• Other government initiatives like ‘Housing for All’, rural electrification and ‘Power For All’ are other key drivers for the growth in the consumer durable industry.

Major companies in Consumer Durable segment are:

Bajaj Electricals Limited-The company is a part of “Bajaj Group”and is engaged in engineering and projects; power distribution, illumination and consumer durables businesses.Its consumer products ranges from room heaters, air coolers, fans, induction, microwave oven and other domestic appliances.

Whirlpool of India Limited-The company is one of the leading manufacturer and marketers of home appliances. The Company is primarily engaged in manufacturing and trading of Refrigerators, Washing Machines, Air Conditioners, Microwave Ovens, water purifiers and small appliances and caters to both domestic and international markets.

Voltas Limited-The comapny specialises in air conditioning and cooling technology and is the largest player in the Air Conditioning segment.Voltas has also entered into a joint venture with Turkey-based Ardutch (a subsidiary of Arçelik, part of the Koç Group making the Beko brand of home appliances). It began producing refrigerators, washing machines and kitchen appliances under the name of Voltas Beko and the company expects to capture 20% market share in home appliance segment by 2025.

Havells India Limited– It is a Fast Moving Electrical Goods (FMEG) Company with an extremely strong global presence.The company owns brands like Havells, LLoyd, Crabtree, Standard Electric, and Promptech. The company’s consumer durable segment includes products ranging from home and kitchen appliances, lighting , LED lighting, fans,water heaters,water purifiers,air coolers and personal grooming products among others.

Crompton Greaves Consumer Electricals Limited-The company has been the market leader in fans, domestic pumps and street lighting segment.It manufactures and markets a wide range of consumer products ranging from fans, light sources and luminaires, pumps and household appliances, such as geysers,air coolers, mixer grinders, toasters and irons among others.

Bottomline:

The future of this sector depends greatly upon growth and innovation. As the nation becomes more urban, industrialized the demand for consumer durable is expected to grow. Moreover, growing awareness, rise in disposable income, easy availability of finance, fall in prices due to increased competition, growth of media have significantly boosted the sector. The present government’s initiative “Make in India’ could act as a greatest opportunity for this sector. Overall, the growth trajectory and the future prospect of the consumer durable industry looks promising which is expected to grow by 9% CAGR and reach Rs 3.15 trillion (US$ 48.37 billion) in 2022.

Happy Learning!