Small-ticket consumer credit schemes have become a major driver of sales in the consumer durables segment. In the case of room air conditioners, such finance schemes now drive over one-fourth of total sales in the market, according to sales information disclosed by major AC-makers.
In the case of home-grown refrigeration major Blue Star, over one-third of its room AC sales now come through consumer finance teams. For rival Voltas, the number stood at around one-fourth of total room AC sales as of September 2019.
“In line with the trend observed in the first two quarters, demand continues to be there for the affordable range of models (during the third quarter)… close to 36 per cent of sales was through consumer finance teams,” Blue Star CFO Neeraj Basur told analysts last month.
Market experts note that the increase in consumer lending as major contributor of sales is a trend being witnessed across segments. “It is also a factor of the changing age profile of customers. Millennial customers are more open to buying consumer durables and home appliances on credit, either through credit cards or EMI options,” noted a senior sales executive with an appliances major.
According to a report released by fintech firm CASHe on millennial borrowing habits, over 26 per cent identify white goods purchases as a key reason for borrowing (37 per cent quoted medical emergencies, 20 per cent loan foreclosures and 17 per cent holidays).
With competition in the room AC segment and pricing pressure steadily ramping up, industry executives say that consumer lending will continue gaining traction and companies will leverage the channel to attract sales. Samsung, for instance, launched a large new range of room ACs last week with offers of zero down payment EMI options.
RBI data for last few quarters also shows that while credit offtake has been poor in most segments, consumer loans have kept their momentum. Observations by company executives also indicate similar trends, with Basur pointing out in November 2019 that institutions that extend such credit have continued to do so. “Availability of financing for consumer is continuing to be normal in this quarter too… NBFCs financing consumer appliances, electrical appliances, etc, continue to do so,” he said, adding, credit card usage, which form a significant part of online sales, also continued.
Raison d’etre
The increase in consumer lending as a major contributor of sales is a trend being seen across segments. Also, millennial customers are more open to buying consumer durables and home appliances on credit, either via credit cards or EMI options.