KOLKATA | NEW DELHI: Electronics and consumer durables makers are cutting dealer margins or rolling back schemes for retailers to protect their profitability as costs increase due to higher input prices and weaker rupee - a move that some retailers say will make their business unviable.
While Samsung India has slashed dealer margins by 3-6% across categories, market leader LG India will follow suit within 10 days as makers of televisions and refrigerators stare into a tough year because their sales have slowed and consumer sentiment remains low, two senior industry officials said.
"We have to correct imbalances to stay afloat," one of them said on condition of anonymity.
LG India VP-Marketing L K Gupta and Samsung spokesman refused to comment for the story. The two Korean firms together account for more than 45% of the country's consumer durables market estimated at 40,000-45,000 crore.
Consumer durables and electronic makers are battling rising prices of raw materials such as copper and aluminium as well as higher import costs due to a weakening rupee. They wouldn't want to increase prices further because sales have slumped after Diwali with November-December being the hardest months. Japanese firm Panasonic said it may consider margin cuts if things get worse.
"So far we have not reduced trade partners' margins or rolled back schemes. But if costs go up further, there is a possibility that we might," Panasonic India Director (Sales and Marketing) Manish Sharma said. "We will review everything in the coming fiscal," he added.
Panasonic raised prices by 4-5% last month to deal with higher costs. Other such as Philips India and Hitachi too increased prices in January, but not enough to protect their profitability.
"The overall effect of input costs and the like on the end product has been as much as 15-20% for the companies," said KS Raman, director of India's largest durables retailer Next Retail. "The impact has been loaded onto customers only partially."
RETAILERS WORRIED
A Kolkata-based retailer, on condition of anonymity, claimed that certain companies including Godrej and Whirpool have rolled back certain schemes they offered earlier.
Typically, schemes offered by companies include discounts on bulk buying for dealers, and annual tie-ups wherein dealers or retailers surpassing certain targets get extra discounts.
"If you factor these in, our margins have gone down that way as well. It's just that companies like Samsung have been more direct," said the retailer.
Nitesh Giria, director of South Indian durable chain Girias, which has 25 outlets across Tamil Nadu and Karnataka, said it will be hard to survive if margins are cut.
"We operate on 2-3% net margin and our overheads are high. If this (low margins) continues our business will become unviable," Giria said.
Retailers said brands such as Hitachi and Whirlpool now insist that trade partners can sell their product only at the market operating price, or MOP, which means there is no room for double discounting.
"This seems to be a precursor to margin cuts, since in this way, we can maintain the same profitability levels as before and generate a higher turnover because of the increased product prices," Pulkit Baid, promoter of Kolkata's leading high street durable outlet Great Eastern Technocity, said.
When contacted, however, several companies, including Akai India, Philips India and Godrej, denied margin cuts.
"We are not in favour of cutting trade margins to support profitability...If there is pressure on margins, we operate through lean management or if it is not possible, then we pass it on to customers," said Kamal Nandi, Godrej Appliances vice-president (sales and marketing).
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