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Differences in terms of trade have led LG India to boycott its products at Vijay Sales, one of the largest multi-brand retailers in Western India.
“This is the first time that we have had differences with LG and their products have not been at our stores for more than six months. LG televisions come third in terms of sales after Sony and Samsung. But we are in the process of resolving this conflict,” said Nilesh Gupta, MD, Vijay Sales.
The 45-year-old family-run business of Vijay Sales has presence in Mumbai, Delhi, Gujarat and Pune with a total of 46 stores.
“Margins are thin in durables retailing and when the terms of trade are not acceptable to us, we have to sort it out. We expect LG to come back to us soon. New management changes in a company usually lead to such situations,” added Gupta.
As for LG, it does not fear any drop in its market share as it has the support of 1,000-odd exclusive franchise stores under its name, apart from several other multi-brand outlets in tier 2 and 3 cities. “We do not discuss trade margins,” said L.K. Gupta, Chief Marketing Officer, LG India.
In the past, there have been other durables makers such as Samsung who cut trade margins leading to retailers such as Girias and Next Retail boycotting the brand at their stores.
Unlike the FMCG segment which has created several private brands to de-risk itself from the big and well-known brands, creating private labels in durables is not that easy. As Gupta of Vijay Sales says, “With the dollar fluctuating, import costs have gone up. The cost of manufacturing in China is also increasing. In this scenario, creating private labels in durables is not easy as it is heavily dependent on imported components.”
Besides, margins continue to be wafer thin in durables retailing (estimated between 10 and 12 per cent) compared to other categories such as food and apparel. “Even if we were to consolidate operations with other durables retailers it would not result in improving margins which continue to be low in consumer electronics retailing,” he added.
Meanwhile, it has been a good Diwali for durables brands and retailers. “We grew more than 20 per cent during Diwali while the year has been mixed in terms of sales. The economy has been challenging and consumer sentiment has been down,” said L.K. Gupta of LG. The company is now betting big on its LED TV category to drive sales next year and hopefully by that time it should be back with Vijay Sales.
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