OVERVIEW OF CONSUMER DURABLES MARKET

Growth of the consumer durables sector is poised for growth as disposable incomes grow. Also, increasing electrification of rural areas would augment demand. This sector attracted significant investments even during global recession. Rural markets is expected to grow at a compound annual growth rate (CAGR) of 25 per cent from US$ 2.1 billion in FY10 to US$ 6.4 billion in FY15.

100% FDI allowed in the electronics hardware-manufacturing sector under the automatic route. The consumer durables market recorded revenues of US$ 7.3 billion in FY11. During FY03FY11, the industry expanded at a CAGR of 12.2 per cent.

Urban markets account for the major share (65 per cent) of total revenues in the consumer durables sector in India. Demand in urban markets is likely to increase for nonessential products such as LED TVs, laptops, split ACs and, beauty and wellness products. In rural markets, durables like refrigerators as well as consumer electronic goods are likely to witness growing demand in the coming years. The consumer durables mrkt is dividd int tw sgmnts cnsumr lctrnics, ls knwn s th brwn gds (tlvisin, digitl cmr, udi-vid systms, cmputrs, lctrnic ccssris, tc) nd cnsumr pplincs r th whit gds (ir cnditinrs, rfrigrtrs, micrwv vns, thr hushld pplincs, tc.). In its initil yrs, th sctr rlid grtly n mdi nd dvrtising fr cnsumr pntrtin. Librlistin f mrkts in lt 1990s sw th ntry f glbl plyrs lik Smsung nd LG nd shift in focus towards product innvtin. ccssibility t high-nd prducts ws, hwvr, lw till mid 2000s. Lst fw yrs hs sn high nd nd spirtinl prducts lik ir cnditinrs nd High Dfinitin TVs gin strnghld in th mrkt. Th industry siz fr cnsumr durbls stnds t Rs 350 billin (s n Mrch 2012). Th sctr rids nd rlis n th stt f th cuntrys cnmy. With hushld incms in tp 20 citis crss Indi xpctd t grw t 10 prcnt nnully vr th nxt ight yrs, nd cncpts f sy lns, qutd mnthly instlmnt

(MI) chrgs, vilbility f crdit, tc., bcm cmmnplc, th Indin cnsumr is likly t spnd mr n bth utility nd luxury cnsumr gds. Th cnsumr durbls sctr is mrkd by stiff cmptitin btwn mrkt plyrs t lunch nwr mdls nd vrsins f prducts, discunts nd schms. Th ky plyrs in th cnsumr durbls sctr r MNCs lik LG, Smsung, Blu Str, Dikin, Hitchi, Sny, tc. LG nd Smsung ccunt fr th lrgst shrs f th mrkt, nd it is stimtd tht Indis shr in thir glbl rvnus will dubl t 12 pr cnt in FY15 frm 6 pr cnt in FY10 nd similrly frm 2.5 pr cnt t 5 pr cnt rspctivly. Mrkt trnds fr th futur stimts prvidd by Crprt Ctlyst Indi (CCI) indict tht th cnsumr durbls mrkt is xpctd t dubl t 14.8 pr cnt CGR t USD12.5 billin in FY15 frm USD6.3 billin in FY10. Furthr, dmnd frm rurl nd smi-urbn rs is xpctd t xpnd t CGR f 25 pr cnt t USD6.4 billin in FY15 frm USD2.1 billin in FY10. ll mjr cmpnis in this sctr hv lbrt xpnsin plns fr th nr futur. Jpns Pnsnic plns t invst USD208 millin by 2014 by stting up mnufcturing units nd n dvncd R&D cntr. Smsung plns t invst USD94 millin t xpnd cpcity by 2012. Mrkt ldr LG hs utlind rund USD292 millin fr nhncing prductin cpcity nd strngthning its LG brnd shp ntwrk by 2012. Fctrs tht will driv grwth in this sctr

Incrsd dispsbl incms nd grtr ccssibility t crdit is grwing th cnsumr bs, spcilly in th middl nd uppr sctins f th ppultin.

Rlxtin f triffs nd incrsd librlistin mid fvurbl FDI nvirnmnt is lding t xpnsin in Indi, incrsd invstmnts nd grtr R&D. Ky plyrs lik Whirpl, Hitchi, nd Pnsnic nnuncd hug invstmnt plns in th yr 2011

Summary Th sector is chrctrisd by strng grwth trnds in ll dmins frm ris in ffrdbility fctr f Indian ppultin, incrsd pntrtin nd xpnntil grwth f rurl mrkts, plicy supprt in trms f FDI, t lrg scl invstmnt plns by crprt. Th cnsumr durbls sctr is st fr n upwrd grph with numrus pprtunitis fr ths invlvd in it. Th Cnsumr Durbls industry cnsists f durbl gds nd pplincs fr dmstic us such s tlvisins, rfrigrtrs, ir cnditinrs nd wshing mchins. Instrumnts such s kitchn pplincs (micrwv vns, grindrs tc) r ls includd in this ctgry. This industry includs ll ths gds which r durbl i.. prducts whs lif xpctncy is t lst 3 yrs. Ths prducts r hrd gds tht cnnt b usd up t nc. ccrding t rcnt industry rprts, th stdily grwing mrkt fr cnsumr durbls is stimtd t Rs. 300 billin.

Sgmnttin f th Cnsumr Durbls Industry: Th cnsumr durbls industry cn b brdly clssifid int 2 sgmnts: Cnsumr lctrnics nd Cnsumr pplincs. Cnsumr pplincs cn b furthr ctgrizd int Brwn Gds nd Whit Gds. Th ky prduct lins undr ch sgmnt r s fllws:

MARKET ANALYSIS

Industry sales were US$ 4.5 billion in value in 2006-07 and more than 7 million units in volume terms.

Plasma display panels and liquid crystal display TVs have registered an average growth of more than 250% 2006-07 and the trend is expected to continue.

Split ACs have been growing at a much faster rate than window ACs- growth of 97% in the year 2006-07 and the trend is expected to continue.

Mobile phone production is expected to grow at a compound annual growth rate of 28.3% from 31 million units in 2006 to 107 million units in 2001

The sectors which have recorded excellent growth rates of more than 20 per cent in terms of quantity produced are Air Conditioners (25 per cent), Split Air Conditioners (42.6 per cent) Micro Wave Woven (27.3 per cent), DVDS (25 per cent) VCD/MP3 (20 per cent), Color Picture Tube (23 per cent,).

The sectors which have recorded high growth rates between 10 and 20 per cent in April-March 2004-05 over the corresponding previous period are Color Television (12%), Window Air Conditioners (18.8 per cent), Washing Machines (18.1 per cent Watch (10%), Frost Free Refrigerators (13.8%),

Some sectors which have recorded moderate growth of 0 to 10 per cent are refrigerators (5 per cent),), clock (8 per cent), Direct Cool Refrigerator (2.8 per cent)

The sector recording negative growth is B&W TV (- 16.7%)

The Refrigeration Industry has reached 3.9 million units in 2004-05 from 3.7 million units in the last year with a growth of 5 per cent.

The Air-Conditioners Industry has reached at 1.2 million units during 2011-12 with a growth of 40 per cent from.

Washing Machines is estimated to have grown by 28.1 per cent in 2011-12.

Microwave ovens has grown by 27.3 per cent growth with 3.5 lakh units compared to 2.75 lakh units in 2003-04.

The Indian Colour Television industry has grown by 12.1 per cent in 2004-05 by reaching 9.25 million units in 2004-05 from 8.25 million units in 2003-04.

The B&W TV has recorded a negative growth of 16.7 per cent from 3 million units in 2003-04 to 2.5 million units in 2004-05.

Watch and clock have registered growth of 10 per cent and 8 per cent from 20.6 mn units and 26.3 million units in 2003-04 to 22.6 mn units and 28.4 mn units in 2004-05.

KEY GROWTH DRIVERS FOR CONSUMER DURABLES

Rise in disposable income: The demand for consumer electronics has been rising with the increase in disposable income coupled with more and more consumers falling under the double income families. The growing Indian middle class is an attraction for companies who are out there to woo them.

Availability of newer variants of a product: Consumers are spoilt for choice when it comes to choosing products. Newer variants of a product will help a company in getting the attention of consumers who look for innovation in products.

Product pricing: The consumer durables industry is highly price sensitive, making price the determining factor in increasing volumes, at least for lower range consumers. For middle and upper range consumers, it is the brand name, technology and product features that are important.

Availability of financing schemes: Availability of credit and the structure of the loan determine the affordability of the product. Sale of a particular product is determined by the cost of credit as much as the flexibility of the scheme.

Rise in the share of organized retail: Rise in organized retail will set the growth pace of the Indian consumer durables industry. According to a working paper released by the Indian Council for Research on International Economic Relations (ICRIER), organized retail which constituted a mere four percent of the retail sector in FY07 is likely to grow at 45-50% per annum and quadruple its share in the total retail pie 16% by 2011-2012. The share will grow with bigger players entering the market.

Innovative advertising and brand promotion: Sales promotion measures such as discounts, free gifts and exchange offers help a company in distinguishing itself from others.

Festive season sales: Demand for color TVs usually pick up during the festive seasons. As a result most companies come out with offers during this period to cash in on the festive mood. This period will continue to be the growth driver for consumer durable companies.

Porters Five Forces Model

Although the Indian Consumer electronics market is highly competitive, the high growth rates that it promises make it a good industry to enter.

Threat of New Entrants Low to Moderate

Bargaining Power of Suppliers Low

Rivalry Amongst Existing Firms Moderate

Bargaining Power of Customers Moderate to High

Threat of Substitutes Low

Threat of New Entrants Capital Requirements and Economies of Scale: In the case of retail stores, there is lack of good distribution network and lack of knowledge of consumer buying patterns which calls for large investment in distribution channels and research to improve the reach. Economies of scale is required in as there are large fixed costs associated with setting up a manufacturing plant as there are problems of under-developed infrastructure, erratic supply of water and electricity in many areas, a high cost of capital and continuous up gradation of technical and managerial skills. Supply Chain Issues:

The existence of too many intermediaries in the supply chain coupled with issues in logistics, management of POS data, pilferage and distribution and inventory management, eats away the profits of the retailer, making it unattractive for new entrants.

Product Differentiation: Though the awareness is increasing amongst the Indian consumers, retailers and manufacturers are unable to increase brand loyalty. The Indian consumer is very price sensitive and hence he keeps hoping from one place to another, hunting for good deals. Switching costs vary amongst the electronic categories. For instance, the switching costs in mobile phones are high, as consumers who are used to one brand find it difficult to use another brand. However, for televisions, cameras, and even laptops, consumers are ready to try new brands based on price for features offered and service quality or reputation of the brand. Government Policy: By encouraging manufacturing zones and improving the infrastructure, the government is developing the entire manufacturing sector, which will help in boosting the electronics production in India, which has traditionally been a very small slice of the overall manufacturing segment. While the government is trying to encourage the growth of the retail and manufacturing industries in India, there are some policies which need to be looked at. The duty structure for electronics adds up to 30% which is a significant amount. This is mainly due to the multiple tax structure which consists of 12% VAT, 8% excise, 4% Goods and Service Tax, 2% Central Sales Tax and Local taxes. The FDI policy limits to 51% stake for foreign investors, which forces foreign retailers to use franchise arrangements, and in the manufacturing sector, the FDI is 100% favouring foreign investors. Existence of the grey market due to poor government regulations to keep counterfeits at bay coupled with the lack of consumer knowledge and legal recourse encourages manufacturers to churn out spurious products which can lead to lost sales of the tune of 10-15%. Red tapes and bribery in the Indian government system is also a stumbling block for new retailers or manufacturers. Taking into consideration the positives and negatives, India still offers a good chance for new entrants and hence the threat is considered to be low to moderate.

Bargaining Power of Buyers With the emergence of new channels like the internet, auction sites like rediff.com, the general consumer (buyers) who usually purchase electronic goods from electronic retailers, hypermarts, music and book stores, can easily compare prices and go for the best deals in town. Though the better brands can command a higher price, buyers are constantly comparing prices, service quality and product features and hence commands a moderate to high power in this industry. Large chain stores like Tata Croma, E-Zone have distinct advantage over the smaller stand alone stores as they can demand good discounts suppliers. As brands play an important role in the electronics market, the retailers find it difficult to integrate backwards to produce their own electronic goods as in the case of private food labels. Considering the market dynamics and the size of the market, the buyers have moderate to high power in the consumer electronics industry.

Bargaining power of suppliers The biggest threat is the trend of large suppliers integrating forward as in the case of Dell, Apple, Nokia, by setting up their own retail outlets. However, in the Indian electronic context, there are a large number of suppliers in the market who face overcapacities, poor distribution, large duties, and declining margins and hence the bargaining power for suppliers is less and competitive pricing comes into play. With more companies setting up the manufacturing plants in India, like Nokia in the south, the bargaining power of suppliers is definitely low to medium. Product differentiation is more and more difficult in the consumer electronics industry and the existence of cheap Chinese suppliers also adds woes to the suppliers.

Intensity of Rivalry amongst existing players There are few key players in the consumer electronic market, but as they are part of big Indian business groups, they have a lot of muscle power and hence the intensity of rivalry can be placed at a mid level. Though factors such as high transport and storage costs, lack of differentiation, large investments, and low switching costs tend to intensify the rivalry, the

fact that the market is only at the nascent stage with promises of high growth rates of 16% coupled with the diverse needs of customer groups, and an untapped rural market; the existing players seem to be enjoying a relatively low rivalry. Threat of Substitutes The threat of substitutes for the manufacturers of these electronic goods is medium to high unlike the case of white goods. As new technology enters the market at increasing pace, the manufacturers and retailers need to understand the consumer needs. For instance the VCR was replaced by the DVD player which will soon be replaced by a Blue Ray Player. The incorporation of camera in the mobile phones is definitely a threat to the camera market. Hence product innovations in this segment are very high and players in this industry need to mindful of this.