Mukherjee and Sarah Jacob, The Economic Times
April 24, 2012
More than 750 electronics outlets have either stopped selling
Samsung products or cut back on fresh orders after the Korean
brand slashed dealer margins on its televisions and home appliances
early this year.
Samsung has initiated talks with several retail chains to resolve
the issue, but says the development will not impact its sales.
Videocon-owned Next Retail, the country's largest electronic
retail chain, and large regional chains such as Vijay Sales, Kohinoor,
Girias, Adishwar and Great Eastern all say Samsung's new terms
are unacceptable in an industry that is struggling with high operating
costs and wafer-thin margins.
These chains, which sell more than 500-crore worth of Samsung
products a year, warn that Samsung's move may benefit its rivals,
"There is a strong possibility of rival brands increasing
their share due to the scenario," said KS Raman, director
at Next Retail, which has reduced its order book with Samsung.
But Samsung said its overall business plans are in place and that
besides a couple of channel partners, all key dealers continue
to maintain healthy stocks.
"Given the fact that our business is growing very strongly,
we need to keep evolving and strengthening our channel policies
so that channel partners sustain their healthy growth," Samsung
India VP (Home Appliances) Mahesh Krishnan said. "We are
confident that these couple of channel partners will soon be getting
back on the growth track with Samsung," he added.
A team from the firm's South Korean headquarters visited India
during March-April to draw feedback from its key dealers.
Samsung cut dealer margins by 3-8% early this year after a tough
2011 when soaring raw material prices and depreciating rupee drove
up input and import costs, and sales took a hit. Retailers say they
work on a net margin of 5-7% and face high operating costs from
rentals, promotional expenses and manpower payouts. Samsung's margin
cut has significantly dented their profitability.
"Smaller dealers can survive but big ones with high overheads
are already bleeding and will bleed more due to Samsung,"
said BA Kodandarama Setty, CMD of Vivek's Retail, a Chennai-based
electronic chain with more than 50 outlets.
"We are evaluating the scenario, even though we have not
reduced Samsung business till now," he said.
Adishwar India, which operates a chain of 50 stores across Karnataka
and Andhra Pradesh, and Vijay Sales, which operates 43 stores
across Maharashtra, Gujarat and New Delhi, have stopped fresh
orders from Samsung since February.
Samsung accounted for 120 crore of Vijay Sales' business of around
1,500 crore last fiscal.
Vishal Mewani, director of Kohinoor Televideo, a 12-store chain
in Mumbai, said that although it is not possible to avoid a brand
like Samsung, the retailer has stopped pushing the brand. This
may help rival brands such as market leader LG. The two Korean
firms together control almost 50% of the 38,000-crore Indian consumer
LG India, which lost out to Samsung in overall revenue for two
consecutive years, tempered its margin cuts to 1-2% to take advantage
of the situation, retailers say.
"LG is also undertaking changes in the market system and
talking the same language, but the margin cut is not hurting us
and its much more gradual," Mewani said.
Nitesh Giria, director of Girias, which runs 27 durable stores
in Karnataka and Tamil Nadu, said: "As most product features
are similar across brands, it is not hard to draw customers to
other brands if they are displayed well in a large store."
Giria said his chain is in talks with Samsung and although a
deal is yet to be signed.
Girias stopped stocking Samsung products since January. It raked
in 90 crore worth of business from Samsung in 2011, on a turnover
of 550 crore this fiscal.
Under its new channel policy, Samsung reduced the direct dealer
margin and added norms such as uploading details and serial numbers
of each Samsung product sold, retailers said. The dealer also
has to assure greater in-store display for the brand. If these
norms are met, margins can be increased by 1% for each parameter.
Samsung India's Krishnan says the objective is to ensure healthy
sales momentum and profitable growth for the channel and the company.
"The policies are now more oriented towards driving sales
to end customers and growing the business in a healthy manner
through joint business planning with our channel partners,"
The idea is to increase average sales price, which will benefit
dealers. "If we can increase the average selling price of
the company's products, the margin cuts will be some what compensated,"
said Pulkit Baid, director of Great Eastern, a 13-store chain
based in Kolkata.
This is probably the first time in India that retailers have
joined hands to put pressure on a consumer goods company for better
margins. Earlier, there were some individual cases, like Future
Group boycotting some products. The trend shows the growing importance
of modern trade.
Analysts tracking the sector say there is a possibility that
Samsung may lose some market share. "But it is not clear
whether consumers would trade up to higher-priced brands or trade
down," Devangshu Dutta, CEO of retail consultancy Third Eyesight,