With the worst behind it, consumer durables’ financing is again growing, the data shows.
Three years before, consumer durables financing was 15 per cent of overall sales. It fell to two-three per cent a year later, remaining there for some time. This was when frontline banks and financial institutions such as ICICI, Citi and GE Money chose to exit the business. That left a handful of players only, including Bajaj, Shriram City Union and Future Money from Kishore Biyani’s Future Group, in the fray.
But this lot is happy now, with consumer durables’ finance having picked up in the past year, standing at six-seven per cent of overall sales, says Rajeev Jain, CEO, Bajaj Finance.
“Growth has definitely been there,” says Rakesh Makkar, CEO, Future Money. “From three per cent last year, the figure is now close to seven per cent. That speaks a lot,” says Jain of Bajaj.
What has aided this growth is the pick-up in white goods’ sales this year. According to Crisil, the consumer durables industry is Rs 25,000 crore in size and growing at 17-18 per cent per annum. “Some categories, however, are growing faster, such as air conditioners and fridges, which have been clocking a growth of 25 per cent per annum,” says K Sriram, vice-president, sales, service and marketing, Onida.
“For categories such as LCDs (liquid crystal display TVs) and LEDs (light-emitting diode TVs),” says Sriram, “The growth has been close to 60 per cent this year.”
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Hence, he says, the need for financing. “As people make purchases, they are bound to ask for easy or flexi-payment schemes that help them both own the product, as well as tide over the fund crunch they may have at the moment of purchase.”
A win-win situation
Adds Makkar of Future Money: “It is this consumer need that is bringing manufacturers, retailers and financiers together. “It is a win-win situation for all — the manufacturer can boost sales with the help of these schemes, retailers get much needed footfalls into their stores and financiers get customers.”
“Typically, these schemes are also heavily advertised by manufacturers and retailers to woo customers,” says Ajit Joshi, managing director and chief executive of Infiniti Retail, which runs Croma Stores, the Tata’s Group’s electronics and durables chain.
Future’s Big Bazaar and e-zone stores, for instance, says the group’s chief executive officer, durables & electronics, Manoj Kumar, has a scheme that allows consumers to own a product by paying an instalment of Rs 999 per month. “The down payment may vary from scheme to scheme,” he says. “But the point is that the interest and processing charges are absorbed by the manufacturer and retailer, respectively. So, what the consumer is paying is only the principal amount over six to eight months. This is why it is so attractive.”
Manufacturers also use schemes to upgrade consumers to premium products. As Kumar of Future Group says, “Finance acts as an enabler.” Says Joshi of Infiniti, “A consumer may walk into a store with a budget to buy a regular colour television. But there could be an attractive scheme running for LCDs, which makes it hard for him to resist. That’s how you migrate customers to high-value products.”
Bajaj, for instance, the leading one in the segment, is focusing on providing finance for high-end products, with the average size of a loan at Rs 24,000 now, from Rs 13,000 earlier. Smaller players such as Sriram and Future Money do provide finance for lower-end products beginning from Rs 7,500, but the trend to provide finance for high-end products is growing, say industry experts.