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Pent-up demand drives SL’s consumer durables sector

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9 October 2020 08:40 am - 0     - {{hitsCtrl.values.hits}}

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  • Defies earlier forecast of taking more than one year to recover
  • However, protracted import controls could weigh on sector prospects

Defying the expectations that consumer durables sector would take more than a year to recover to its pre-pandemic levels, the sector has seen faster than expected recovery, as pent-up demand has kicked in to salvage the industry from the slump seen during the outbreak of the pandemic, although the protracted controls on imports could weigh on the sector’s prospects. 

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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