Durables firms can lift profits 15% backing organised chains: study

The Rs 45,000 crore consumer durables industry can improve its profitability by 15 per cent by supporting the emergence of organised retailer chains in the sector, said a recent study by the retail consultancy KSA Technopak.

"So far manufacturers have been treating the upcoming retail chains as 'necessary evils' and have reacted in a very ad-hoc manner. Companies need to comprehend the fact that the emergence of organised retailing formats is not merely an operational issue, and instead, must be analyzed in terms of its strategic implications for their businesses," said Anil Rajpal, head (retail practice), KSA Technopak.

The study claimed that the retailer's volumes can be enhanced with the manufacturer's investment and support in effective promotions better display windows and category management.

"Joint efforts by manufacturers and retailers can lead to reduced stock-outs and lower operating costs for the retailer. The benefits of this alone can be as huge as 4-6 % increase in profitability," said the study.

Further, manufacturers can collaborate with retailers to keep on-line track of product sold at various retail outlets and thereby ensuring quick and efficient replenishment reducing the cost of carrying the inventory.

Despite the fact that durables is one of the fastest growing categories in the country along with apparel, there are not many large organised retailers in the category.

Viveks which has 50 outlets in Tamilnadu and Karnataka with sales of more than Rs 210 crore is the largest appliances retailer in the country. Vijay Sales, which has about 10 stores in Mumbai, is the second biggest player in the category.

"Organised retailers with their better organised processes and trained manpower can deliver better value to both manufacturers and consumers. Gross margins will improve as the sales volumes and quality of sales goes up," said Kodandarama Setty, managing director, Viveks.

Margins for the consumer durables industry have been under pressure over the last few years due to cut-throat a cut-throat pricing competition in the market. Despite volume growth in excess of 10 per cent, margins fell 2-3 per cent for most CTV and refrigerator manufacturers.

According to Setty the better in-shop experience provided by the organised retailers will also help to push high-value products.

"Organised chains act as a one touch window for all appliances. Brands can be developed in a more uniform fashion through the retail chains. When high volumes are generated through a lesser number of stores it is a win-win situation for both retailers and manufacturers," said Salil Kapoor, head (marketing) LG India.