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9, December 2006 Pragati Maidan, New Delhi.
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Mukesh Ambani-led Reliance Retail is in a deadlock with some of India’s largest consumer durables companies over margins on products it intends to source from the domestic market. Reliance Retail has sought margins in the region of 30%, but majors like LG, Godrej, Samsung, Whirlpool, Onida and Electrolux say they will not yield anything more than 13-14% — exactly what they give to retail associates now. Sources at leading consumer durables companies confirmed that no deal had been struck by these companies with Reliance Retail yet. With this tussle, for the first time the domestic durables majors are getting a taste of organised retail where volumes come for substantially thin margins. Though Videocon is believed to have agreed to supply colour television sets, glass shells and colour picture tubes to Reliance Retail, the company has not given the details of the margins it is yielding to Ambani’s retail project. Currently, organised retail is just 3% of India’s Rs 30,000-crore durables market and it is projected to grow to 12% by the end of fiscal 2007-08. Reliance Retail’s durables business, headed by Ajai Baijal, is insisting on higher margins on grounds that it is rolling out a network of thousands of stores. Durables companies say they cannot agree to this unless they see the rollout. They say the Tata-Woolworths venture for consumer durables, Infiniti Retail, too, gets a 14% margin, at par with what they have been giving to retailers. “For the 3% organised retail, we cannot afford to ignore our traditional retailers, which make up 97% of the market. To avoid direct confrontation between both modern retail and our traditional traders, we are providing separate models in a particular category,” CM Singh, CEO of Chinese durables manufacturer TCL Ltd, said to a leading financial daily. Sources say Reliance Retail’s former head of consumer electronics business business for eight months Rajeev Karwal had quit two months back due to his inability to source products at a desirable price. Consumer durables is one of the most difficult retailing segments for two reasons: One, the industry works on very thin margins. Two, the shelf-life of products is getting shorter due to more advanced and upgraded versions arriving quicker than before. Also, manpower skills need constant upgrading with every new product, adding to costs of marketing and running operations. Industry experts also feel that weaning customers away from traditional retailers is not going to be easy as it is less time-consuming to purchase from a neighbourhood store than from a consumer durables outlet.
Date: 17-Jan-2007
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