New Delhi, December 2
In an era where online retailers dominate the market, brick-and-mortar electronic retailers in India continue to report healthy profitability, says a report by Nuvama.
The report highlighted that despite fierce competition, the traditional retail model showed resilience due to their disciplined operations and strong support from original equipment manufacturers (OEMs). OEMs play a crucial role by providing materials, credit facilities, and corrective measures to ensure the sustainability of these retailers.
It said "In the consumer durables landscape, what seems surprising is that despite "killing" competition from online retailers, the profitability of brick -and-mortar electronic retailers remains healthy. We argue this is not accidental. Their success suggests discipline and efficiency in the channel--likely enforced by OEMs, which provide crucial support in the form of materials, credit and corrective actions.".
Interestingly, the report added that the competition in electronics retailing remains highly localized. Once a retailer achieves critical scale in a particular region, it becomes challenging for new entrants to displace them. This localized dominance, combined with strategic operational models, has helped traditional retailers maintain their foothold in the consumer durables market.
However, the report noted that the overall demand outlook for the sector appears muted. Uncertain global economic recovery, weak household incomes, and a slowdown in consumption credit have dampened consumer sentiment.
It said "the demand outlook is dull as global recovery is uncertain, household incomes are weak with consumption credit slowing, and BSE500 capex moderating now"
Additionally, the moderation in capital expenditure among the BSE500 companies adds to the headwinds. While government spending is expected to pick up in the second half of FY25, it may not fully counterbalance these challenges.
Despite these concerns, the consumer durables sector in India has demonstrated remarkable growth, achieving a 10 per cent compound annual growth rate (CAGR) between FY19 and FY24. Several factors have driven this growth, including under-penetration of durable goods, rising affluence, premiumization, and shorter replacement cycles.
The report stated that the rapid technological advancements have also fueled demand for smart appliances, further shortening product lifecycles and encouraging repeat purchases.
Affordability has been another key driver. Loans sanctioned for consumer durables surged from Rs 740 billion in FY20 to Rs 1,165 billion in FY23, making high-end products more accessible to consumers.
Looking ahead, the combination of disciplined retail operations, localized competition, and strong consumer demand for innovative products is likely to support the continued growth of brick-and-mortar electronic retailers, even as they navigate a challenging macroeconomic environment.