Auto, consumer durables approach festive season with maximum caution, minimum stocks
Ajita Shashidhar & Sumant Banerji September 11, 2019
Given a continuous decline in sales and slump in consumer spending, Indian companies in the consumer durables and automobile sectors are not bullish on demand this festive season. The October-December festive quarter is very critical for a revival in demand that would halt the slowdown of the past four months.
Generally in festive season, these companies ramp up inventory, plan new launches and offer deals to meet higher sales target. However, this season is different and expectations are low as compared to last festive season.
The auto companies are approaching the season like a regular period, without ramping up stocks. According to Pawan Goenka, managing director, Mahindra & Mahindra, Pawan Goenka, it is difficult to forecast how the festive season will be this year. We have stopped forecasting anything beyond four hours, he said.
"The industry will not make the mistake of overestimating demand as in the last festive season, which led to a huge inventory pile-up at the dealers."
Also Read: Auto crisis: No festive cheer in industry this season amid concerns over slowdown, BS-VI norms
The automobile firms, which normally carry a month's inventory, ramp up stocks for 2-3 months months during the festive period. "It is not uncommon for an entire month's stock to get liquidated within the week of Diwali when retail sales are at an all-time high," says Puneet Gupta, associate director, HIS Markit, a leading market research and sales forecasting firm.
CONSUMER DURABLE FIRMS TO OPT FOR CAUTIOUS APPROACH
Consumer durable companies too have witnessed its share of slump. With Indian consumers tightening their purse string, these companies are approaching festive season with caution. Generally, cconsumer durable firms rely heavily on Diwali which is the most auspicious time to buy televisions, refrigerators, air conditioners and washing machines. They leave no stone unturned to woo consumers as they ramp up inventory 10 to 15%.
However, the last one year has been difficult for most consumer durable companies, with sales dipping upwards of 15-20% in categories such as television. While sales of air-conditioners and refrigerators were good during the months of May and June because of temperatures soaring high across the country, they too have dipped since then.
Washing machine sales usually see a spike during the monsoon months, but they too have grown in low single digits only so far. "We are cautious as we don't want to end up in a situation where we will have high inventories post Diwali," says Manish Sharma, MD, Panasonic India.
Bosch India too is approaching the season with caution. "We will definitely be thoughtful about our inventory this time," says Neeraj Bahl, MD and CEO, Bosch Home Appliances India.
Arvind Singhal, Chairman, Technopak, says that consumer durable manufacturers prefer to keep their inventory low at all times due to the liquidity crisis. "All of them are working on a tight supply chain. However, the moment they get an indication of an uptake in sales they are equipped to increase production by 10%-20%."
ALL IS NOT LOST FOR SOME
But firms such as Voltas and Godrej do not believe all is lost this season. Kamal Nandi, Business Head and EVP, Godrej Appliances, takes comfort in the fact that the good Onam sales in the last one week could be a positive indicator of trends.
"We are launching new models and new products this year as per plan," he says. Nandi hasn't cut inventory this festive season. Neither has Pradip Bakshi, MD & CEO, Voltas. "We expect traction to build up during this festive season, as a pent-up demand, especially for home appliances," he says.
AUTO INDUSTRY FACES WORST SLUMP
Slowdown appears to have impacted the automobile sector the most as passenger vehicle sales have fallen more than 20% in 2019-20, declining in 13 of the past 14 months. About 300 auto dealerships have been forced to shut shop in the past 18 months, while 3.5 lakh people have been laid off across dealerships, auto companies and component makers. Another 10 lakh jobs are on the line.