BackSales hit as consumer durables firms sort out pricing, taxation issues under GST
Makers of consumer durables are facing trouble selling new stock and passing on new prices to dealers and trade partners after the goods and services tax (GST) took effect
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Mumbai: Makers of consumer durables such as electronics and furniture are facing trouble selling new stock and passing on new prices to dealers and trade partners after the goods and services tax (GST) took effect on 1 July.
Durable makers are unable to sell their goods into the third week after GST’s rollout as dealers are still keeping their inventories lean while figuring out compliance requirements under the new indirect tax regime. Manufacturers are, meanwhile, still waiting for clarity on prices.
“There needs to be some calculations on the transition stock, on the set-offs that different vendors can claim, and the difference in prices of raw material supplied," said Shekhar Bajaj, chairman and managing director of Bajaj Electricals Ltd, a maker of electrical appliances for homes and kitchens. “This will only be clear by August. However, with levies such as excise and octroi gone, there will be room for adjustment (in product margins). We will now have a common market operating price across the country."
Bajaj Electricals has been focusing on building a direct distribution network that it now leveraged to minimize the hit on sales in June, right before the GST was rolled out on 1 July. “Since we are focusing on direct distribution, we asked dealers to take only as much stock as necessary for 10 days versus one month," Bajaj said. “So we did see a small hit, and we will see a hit in sales in July as dealers take 10-15 days to settle and register for GST. However, for the quarter, sales will be positive or at least flat."
Meanwhile, firms that have slashed prices on stocks are trying to make arrangements for changing labels on their current stocks.
“The basic prices in different categories based on the different manufacturing units (where they are produced) have been dropped by 1-11%," said Anil Mathur, chief operating officer of Godrej Interio, which makes home and office furniture.
“With levies like excise gone, the benefit is passed on immediately to the customer. We have advised our dealers to also pass these prices on," he said. The company and its dealers have transition stock that Mathur said should be cleared by August. Re-labelling these with new prices is a challenge.
“We are following the new rules for the labelling of the new MRP (maximum retail price, which the government announced last week)," Mathur said. “It may be difficult to do it at the dealer level, so we are asking them to show the customers the pre-GST and post-GST prices (in a list)."
Godrej Interio has more than 700 dealers and retailers that primarily cater to smaller towns and district headquarters. Its own network of 57 Godrej Interio stores cater to the big cities. Godrej Interio is also making sure customers have access to catalog buying in cases where dealers do not have stocks of a furniture item with them. The company has nearly 20,000 SKUs (stock keeping units). “I don’t think dealers are nervous, we have a very clear strategy with them," Mathur said, adding that the network was maintaining “very optimal working capital."
Meanwhile, smaller dealers of consumer durables say business will be slow this month as they get ready to take stock.
“Business has more or less stopped this month," said an air conditioner dealer in Mumbai, who did not wish to be named. “Companies are not sending in new stocks post-GST, so I expect things will normalize only after this month. For instance, Blue Star (Ltd) will give us its price list only today, stocks will come in after that," the dealer said, adding that AC makers have not changed prices of goods so far.
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