E-commerce dampener

Influx of cheap electrical goods weighing on Pensonic

THE influx of cheap electrical items, spurred by the boom in e-commerce, is dampening the sales of manufacturers based in Malaysia.

Companies like Penang-based Pensonic Holdings Bhd are feeling the pinch, as the entry of these cross-border products – largely from China – increasingly capture local market share.

While Pensonic also sells its items on popular e-commerce platforms like Lazada and Shopee, the group’s MD Vincent Chew (pic) says the company is not competing on a level playing field.

Local manufacturers are required to fork out hundreds of thousands of ringgit each year in order to adhere to these safety standards before they can sell to consumers.

They also incur import-related costs, and have to pay sales tax to the government.

The cross-border items purchased by consumers on e-commerce platforms, however, are not required to adhere to local safety standards, which means they can be produced at a much lower cost.

Chew says Pensonic spends at least RM400,000 each year on safety tests and certification-related costs. “We do not mind spending this as it is to adhere to safety standards – but it is no longer a level playing field,” he tells Starbizweek.

Every product that is manufactured locally or even imported by local companies must be certified and approved by Sirim and the Energy Commission (EC). The process involves obtaining a Certificate of Approval (COA) from the EC, safety tests, purchase of stickers to be placed on each product, certification and factory audit fees.

Pensonic is also the local distributor for Morphy Richards and Belling products from the United Kingdom as well as Gaggia coffee machines from Italy – which also have to go through the same safety compliance procedures once imported.

Otherwise, they face penalties from the industry regulator, the Energy Commission.

Companies found selling non-compliant items are issued a warning and have their products confiscated. Items already sold would have to be recalled. If it involves imported products, the importer risks having its import license revoked. On average, Chew says, the cost incurred to comply with the local safety standards could make up between 1% to 3% of their product costs.

But there is also a more worrying issue at play- the safety risks posed by these cheap electrical products, to local consumers.

While safety standards are in place to protect local consumers, Chew says the loophole created by cross-border products sold via online platforms means unsafe, poor quality electrical items still make their way into the homes of consumers.

And the cheap prices of these items, compared to those produced by more established brands, make them highly attractive to deal-seeking online shoppers.

E-commerce, on platforms like Alibaba’s South-east Asian e-commerce business, Lazada have become hugely popular of late, with local consumers purchasing everything from clothing to small electrical appliances online.

Lazada, during its highly anticipated 11/11 sales event (held on Nov 11, each year) last week, reportedly sold over one million items within the first hour of the sale.

The online retail giant said it also broke last year’s 11.11 sales record in just 13 hours.

Shopee, on the other hand, which is popular in Southeast Asia and Taiwan, said it had set new record with 70 million items sold in a single day on Nov 11.

An investigation conducted in June last year by Electrical Safety First (ESF) found that hugely-popular e-commerce sites like Amazon and ebay were being misused by third party sellers to exploit online shoppers and expose them to fake and potentially dangerous electrical items.

According to a report in The Guardian, the ESF found that one in three UK consumers – about 18 million people – had unknowingly bought a counterfeit electrical item online.

“They were led to believe that the product was genuine, only to find it was a knockoff item at risk of causing an electric shock or even a fire,” the report read.

It said products found to have serious safety flaws ranged from large household appliances such as tumble dryers, to kettles, travel adaptors and hair straighteners.

In Western Australia, two years ago, there was an incident whereby two consumers reported receiving electric shocks after using unsafe international adaptors, resulting in the local regulator issuing an immediate public alert about it.

Raising awareness

Chew, who is the second son of Pensonic founder Datuk Seri Chew Weng Khak, notes that the government could be hesitant to clamp down and regulate online purchases as it wants to encourage e-commerce in Malaysia.

What urgently needs to be done, he says, is raise awareness among consumers.

In view of this, Pensonic, together with other major brands including Samsung and Panasonic, came together to launch a campaign last month with Sirim and the EC.

The campaign, which runs until May next year, is being run on social media platforms as well as on certain television channels.

Retailers are playing the campaign video in their outlets, while Sirim has also lent several of its billboards for the purpose.

Deputy Minister of International Trade and Industry Ong Kian Ming, in launching the campaign, had said the campaign aimed to ensure that uncertified appliances do not make it into consumers’ homes.

Chew, who is also chairman of the Malaysian Electrical Appliances Distributors Association (MEADA) said while it is difficult to quantify the impact of the influx of these cross-border appliances on the local industry – companies were already feeling the pinch.

For Pensonic, he says, the most affected segment is the small domestic appliances (SDA), as these lighter and easier to ship internationally.

An example of cross-border items that are not Sirim certified, he says, can be seen in the electrical plugs on the electrical appliances sold online. “Our electrical plugs in Malaysia are required to be either three-pin or two roundpins in order to get Sirim certification.

“If you see two flat pins on your electrical item, you can tell that these are not supposed to be sold in Malaysia at all – but all these are flooding the local market,” he says, adding that merchants often throw in an international adaptor with these non-compliant items.

While Pensonic has its own flagship stores on Lazada and Shopee, sales from these stores currently contribute only about 1% of its total sales.

Including the sales of its products by other online merchants, sales from e-commerce platforms amounts to only about 3% of Pensonic’s total sales, Chew says.

However, sales from the online platforms are steadily increasing.

Chew notes that the impact to Pensonic’s sales is not purely due to the challenges posed by e-commerce platforms.

He says overall weakening consumer spending has impacted demand for its products.

“When consumers have less cash to spend, they inevitably begin looking for cheaper things,” he says.

For the first quarter ended May 31, 2019, Pensonic recorded a net loss of Rm1,14mil, compared to a net profit of Rm1.75mil during the same period last year.

Its revenue for the period was also 25% lower at Rm69.3mil. In its filing to the stock exchange, the company had said that it expects the Group’s outlook for the year to remain challenging in view of a slowdown in consumer demand and price competition.

It added that Pensonic would focus on growing and expanding its international business.

The group’s export currently account for about 30% of its revenue including original equipment manufacturer (OEM) products.

Its biggest market is the Southeast Asian region, and it has recently set up offices in Indonesia, Cambodia and Myanmar to further strengthen its presence.

With weaker demand for its products and challenges arising from e-commerce platforms, Chew says the year ahead will continue to be tough. However, the company is looking forward to improved sales during the year-end holiday and Christmas period, as well as the Chinese New Year season.

It is also hoping for a better financial perfomance next year, with the company’s new focus on Internet of Things (IOT) appliances.

In order to reinvent itself amid intensifying competition, Pensonic recently launched its new line of IOT appliances, becoming the among the first local companies to embark on this route.

“We have been a home appliance-maker for so many years, selling blenders, fans and other low-tech items.

“We are now finally coming out of this frame we have been in for so long, and moving to become an IOT player - this the future of Pensonic,” he says.

Chew adds that the group’s customer base is getting younger, with a large number of them millennials. Chew says the response to the new line, however, has been moderate over the past three months since the launch, mainly due to the higher price point on these appliances.

The first batch of products, which include robot vacuums, air conditioners and water heaters, all retail at above RM1000.

“IOT appliances are relatively new to Malaysian consumers, so they are bit hesitant to spend so much to try to it.

“Our next batch of items will be smaller, and in the more affordable range such as sensors, infra red controllers, and IP cameras. This will enable consumers to try IOT appliances at a lower entry point,” he says.

The IOT appliances allow consumers to not only control the appliances via their mobile phone, it also allows the appliances to provide feedback on energy and water consumption, among others.

It can also provide information about the quality of the water, and display reminders for its users to clean the filter or service the appliance. “Today if we don’t engage with customers, we will lose them - there are so many brands in the market. Brand loyalty is decreasing. People are looking at price points and nice pictures of the items online to make decisions,” he says.

Chew says the company is also in talks with property developers to sell units equipped with their IOT appliances and technology, with the homes to be marketed as “smart homes”.

They are looking to incorporate smart elements such as appliances, switches and locks that can be controlled via mobile phones.

“We are in talks for upcoming developments in Penang as well as in the Klang Valley,” he says.

Looking ahead, Pensonic is hopeful that its push towards the future, with IOT innovations, and its efforts to curb the flooding of the local market with non-compliant electrical items, will create a level playing field and enable it to forge ahead in the current competitive environment.