With manufacturers pushing dealers to buy more, friction has emerged in the trade channels.
High inventory levels, shorter credit periods, stricter credit norms from manufacturers and low offtake from consumers is making dealers of white goods a worried lot these days.
Many dealers in New Delhi and Mumbai, on the condition of anonymity, admitted that durable firms have decreased their credit time apart from pushing them to meet monthly sales targets. It varies between Rs 50 lakh and Rs 1 crore. “In this difficult time, we almost dread the mid-month and month-end closures when we have to pay the companies,” rued a Mumbai-based dealer adding: “ We have a huge pile up of unsold stocks and demand has been slow.”
With manufacturers pushing dealers to buy more, friction has emerged in the trade channels but dealers are reluctant to lock horns with companies fearing tighter credit norms.
The problem has become acute since given the lower rate of growth the durables industry witnessed in 2008, manufacturers of consumer electronics have been tightening strings on the trade route to manage their working capital better, explain analysts.
For instance, Korean company LG, which already has a shorter credit period, is further pushing its cash-and-carry trade approach for stable cash flow. Philips Electronics too is working towards better inventory management. Vivek Sharma, chief marketing officer of Philips, says the company is trying to reduce the working capital and manage its inventory levels better given the liquidity crunch.
Moreover, even as most of the companies decided to pass on the recent CENVAT cut of 4 per cent to the consumers, the offtake remains low. Industry observers note that most of the companies extended the price cut to fast sellers such as LCDs and Plasmas only. The range of the cut varies between Rs 500 and Rs 6,000 depending on the product model.
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Companies like Samsung, LG, Sony and Godrej argue they have supported the dealers and distributors by either re-calling the old stock circulated before the excise duty cut or by waiting for them to liquidate inventory before issuing fresh stock.
“Given the economic situation it is natural that companies go slow on production and align manufacturing with trade,” says Godrej Appliances Chief Operating Officer George Menezes. It has also lowered its inventory level from 45 days to 30 days now. “We wait for the distributors to liquidate the stock before dispatching the new stock,” he adds.