Daily Mirror (Sri Lanka)

Pent-up de­mand...

- Business · Finance · Consumer Goods · Infectious Diseases · Health Conditions · Fitch Group · Sri Lanka

At the height of the pan­demic-in­duced lock­downs in April, Fitch Rat­ings said the con­sumer durables sec­tor could take be­tween 12 to 18 months be­fore sales re­cover to pre-pan­demic lev­els, as it would take time for con­sumer foot­fall and con­sumer dis­cre­tionary spend­ing to nor­malise, due to the per­sis­tent eco­nomic hard­ships from the pan­demic, even if the lock­downs are lifted.

Some sec­tor an­a­lysts even listed the con­sumer durables sec­tor among the worst-hit sec­tors from the pan­demic, as the na­ture of the sec­tor is such that it takes longer than the rest to make a re­cov­ery from an eco­nomic slump.

“The con­sumer durable in­dus­try is gen­er­ally ex­pected to per­form well when the dis­pos­able in­come lev­els in a coun­try in­crease. Nev­er­the­less, this sec­tor has per­formed rel­a­tively well in the POST-COVID-19 pan­demic, ow­ing to the in­duced de­mands for con­sumer durables/ ITC prod­ucts dur­ing the lock­down pe­riod,” said ICRA Lanka in a re­cent re­port.

The in­terim re­port for the April-june quar­ter at Singer Sri Lanka PLC, Sri Lanka’s largest con­sumer durables re­tailer, showed the com­pany has in fact man­aged to record a one per­cent in­crease in rev­enues to Rs.14.03 bil­lion from the com­pa­ra­ble pe­riod in 2019.

The mar­ket leader in prod­uct seg­ments such as sewing ma­chines, re­frig­er­a­tors, smart­phones among other elec­tronic equip­ment, re­ported 98 cents a share or Rs.367 mil­lion, com­pared to just 7 cents a share or Rs.27.3 mil­lion in the cor­re­spond­ing pe­riod last year.

Nei­ther Fitch nor the com­pany ex­pected the re­bound to come sooner, as the for­mer ex­pected Singer’s sales to fall by as much as 60 per­cent in the three months to June 30 (1Q21) while the lat­ter ex­pected the pan­demic’s neg­a­tive ef­fects to per­sist un­til the end of the Septem­ber quar­ter (2Q21), due to dis­rup­tions to hire pur­chase and lease col­lec­tions.

Due to its sheer mar­ket dom­i­nance, Singer pro­vides a close proxy for the health of the con­sumer durables seg­ment in Sri Lanka. The ro­bust agri­cul­tural sec­tor per­for­mance could also be one of the main rea­sons that aides the de­mand for con­sumer durables, as the ru­ral agri­cul­tural com­mu­nity re­mains the big­gest con­sumer seg­ment for the sec­tor.

Hence, the per­for­mance of the agri­cul­tural sec­tor is pos­i­tively cor­re­lated with the per­for­mance of the coun­try’s con­sumer durables sec­tor per­for­mance. This was aptly re­flected in 2016, 2017 and 2018, when the coun­try’s main cul­ti­va­tion re­gions were af­fected by both floods and droughts, hav­ing a bear­ing on the con­sumer durables seg­ment. While the sec­tor op­er­ates with ad­e­quate stocks at the mo­ment, which could sus­tain its growth mo­men­tum for a few more months, the pro­tracted curbs on the im­por­ta­tion of con­sumer durables could how­ever weigh on the re­cov­ery.

“Con­sumer durables de­mand has re­cov­ered since move­ment re­stric­tions were re­laxed in May, but this could be partly due to the tem­po­rary pent-up de­mand. A fur­ther tight­en­ing of re­stric­tions on con­sumer durables im­ports could also di­min­ish re­cov­ery prospects for the sec­tor,” Fitch Rat­ings said re­cently.

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