Electronic and home appliance players hit by low demand and consumer loan freeze

Newsroom 23/03/2009 | 16:06

“As early as last year retailers began to be confronted with cash-flow problems, and were compelled to drastically reduce costs and even close down some smaller, unprofitable stores,” Jiri Rizek, CEO of Flamingo International, tells BR. He says the market is unstable, as the currency exchange rate changes from one day to the next, and purchasing power will decrease as a result. Naturally, this will make consumers less eager to spend, which will also affect the revenues that the industry is grossing.
According to data from producer Arctic, over the last two months of 2008, the home appliance market in Romania shrank by 20 percent. Broken down by segment, refrigerator sales dropped by 26 percent, washing machine sales 11 percent and cooker sales 12 percent.
“We were able to notice a slowdown in consumer demand as early as the last quarter of last year, when we posted an 18 percent drop in the total sales of electronics, home appliances and IT&C products, compared to the same period of 2007,” says Rizek.
LCD and plasma TVs have been the best sold products in the Flanco and Flamingo stores, a trend that has been going strong since last year. “Unfortunately, we cannot say the same about home appliances, where there has been a sharper drop in demand,” added Rizek.
Apart from a fall in demand for electronic products and home appliances, there has been a shift in the sales balance, explains Iuliana Marcu, PR manager at Altex Romania. In the Altex stores, for instance, there was growth on the segment of entertainment products and home appliances, but on the other hand a reduction for electronic products.
Retailers and producers alike hope access to consumer credit will be eased over the course of this year. “Prohibitive loan conditions have greatly slowed down the development rate of the consumer goods sector and have influenced consumer behavior, generating a pronounced drop in demand,” Monica Iavorschi, general manager of Arctic Romania, tells BR. “Restrictive lending conditions are, from our point of view, the main cause for the decrease in demand for home appliances, especially since 70 percent of these acquisitions were made through loans,” she says.
Romanians are definitely more dependent on consumer loans than their counterparts in countries such as Germany, but in fact you don't even have to go that far: shoppers in Poland, the Czech Republic and Hungary also tend to rely less on consumer credit. “The main reasons for this are strictly related to regulation norms and also the proportion of loans in EUR that are confronted with the high risk of currency exchange fluctuation,” says Rizek.
In 2008, Altex sales via loans granted through Credex represented approximately 25 percent of total sales, but this figure is going to change for the worse this year. Altex Romania controls the Altex retail network of approximately 60 stores and the Media Galaxy network, which consists of 14 large shops. “Our development plans will continue in 2009 but they will depend on the evolution of our partners' projects,” says Marcu. The next store to be opened by the firm is a Media Galaxy store of approximately 3,000 sqm in Militari Shopping Center.
Meanwhile, at Flamingo International 20 percent of sales on the local market were generated by consumer loans through Cetelem. Flamingo drafted a plan to minimize the effects of the crisis, which includes a strict financial control program for cost efficiency and preventing unforeseen and counter-productive expenses, with an equally strict stock management. “Moreover, we have taken measures as far as the acquisition policy is concerned, aiming to reduce operational costs. We have cut them by 25 percent,” says Rizek.
Flamingo International will slow down the rhythm of expansion that it had set initially for its chains of stores. “Expansion plans will probably be delayed by a year or two depending on to what extent the market and consumption are affected by the crisis.” Currently, Flamingo International has 114 Flanco, Flanco World and Flamingo Computers stores. “Given the current economic situation, we estimate this will be a more difficult financial year than 2008, but we still wish to maintain our retail performance and end the year with positive results,” says Rizek.
Meanwhile, Arctic is contemplating two different scenarios for 2009: under the pessimistic one the business would post 10 percent falls; the optimistic one sees growth of up to 5 percent. The company's investment budget amounts to EUR 5 million, the same as last year. “However, we decided to postpone the investments that were not absolutely necessary until the second half of the year in order to have a clearer view of the evolution of the market this year. We will continue to invest in product launches and in any case we will strive to reach cost efficiency,” says Iavorschi.
One important measure that the company has taken to safeguard itself against the crisis was to re-negotiate contracts with suppliers in RON, to ensure the firm is protected from fluctuations in the currency exchange rate. Secondly, the producer is paying much more attention to enhancing partnerships with distributors and retailers. “We're monitoring the evolution of sales and orders attentively so as to avoid stock blockages.”
Moreover, for the sake of efficiency and lower costs, Arctic has restructured some processes, such as logistics. “We have proposed to evaluate production periodically and adjust it based on the volume and structure of the orders we receive,” says Iavorschi. The target is to continue to export 70 percent of the local production in 2009, not on new markets which could be “more difficult in these conditions” but to consolidate on the markets where the company has already established a presence by focusing mainly on the countries that will be least affected by the crisis.
Arctic increased its market share in Romania by 3 percent, to 31.5 percent in 2008. Sales of the Beko brand represented 25 percent of the firm's total sales on the local market, and Beko doubled its market share last year to 4.8 percent.
Still, Arctic sales fell over the last two months of 2008 by 16 percent compared to the same period last year. The company managed to sell 734,000 units last year, 3,000 more than in 2007. “2008 was the first year that Arctic posted a slight decrease in its turnover, amounting to 5 percent, since it was taken over by the Turkish group Arcelik,” says Iavorschi.
In 2008, Arctic produced 1.2 million refrigerators, almost a third of which were sold on the local market. In total, it sold 1.5 million units last year. The firm has 2,200 employees in Romania. “Making staff redundant is a measure that we do not wish to take, since it is the last resort. For now, we do not need to make such a decision,” says Iavorschi.

By Otilia Haraga

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