Like many salespeople, Mohammad Rasheed, who works at a leading wholesale store in Saddar, Karachi, is concerned about the massive drop in the commission he received a year ago for brisk home appliance sales.
Steep price increases and unbearably high electricity bills over the last 1.5 years have kept consumers away from electronic devices. A few years ago, in March and April, buyers flocked to the markets especially to buy air conditioners, but this time they are missing the market.
“I was easily making 8,000 to 10,000 rupees a day in commissions selling refrigerators, air conditioners, freezers and other small appliances. Now I hardly earn 2,000-3,500 rupees a day because there are no buyers in the summer season, especially for air conditioners,” he said.
The same situation applies to refrigerators and freezers, as skyrocketing prices combined with high food inflation and high utility bills have resulted in a decline in sales of these appliances.
There is a Rs.5,000-10,000 gap between the wholesale and retail prices for major equipment. Sellers are raking in margins from the “new customers” while showing some resilience to “old buyers”.
In the household appliance industry, there were direct and indirect layoffs of around 10,000 workers due to declining sales and a shortage of imported parts
As a dowry, he said people come to the market with 100,000-150,000 rupees in their pockets to take a small 6cuft fridge, 32-inch LED, juicer/blender, washing machine, iron, etc . After hearing the prices, they prefer to walk away.
A 6 cu ft double door fridge now costs Rs 50,000-55,000 compared to Rs 25,000-30,000 two years ago, while a single tub washing machine now sells for Rs 20,000-24,000 instead of Rs 12,000-15,000.
“Only filthy rich people can afford dowry items or refrigerators because their prices are no longer affordable for many middle and lower-middle class people,” Rasheed said.
A Lahore-based home appliance manufacturer, who asked not to be named, estimates that sales of air conditioners have fallen by 40 percent due to high prices and electricity tariffs.
Weather also plays a crucial role in AC sales as provinces have different sales dynamics. In urban areas, people try not to buy air conditioning even in May and June when the weather remains pleasant. Hot, dry and humid weather boosts sales. However, this year is different as price factors and falling purchasing power have impacted sales of air conditioners and other items.
The industry remains concerned about the restriction on opening letters of credit for importing parts and accessories. In addition to falling demand, production at one of the factories in Karachi has been suspended for the past six months, while two factories in Lahore are meeting market demand, he added.
In the household appliance industry, too, there were direct and indirect layoffs of around 10,000 workers due to declining sales and a shortage of imported parts.
The assembler said declining equipment sales had hampered future investment plans to locate 60 to 70 pieces out of the current 40 pieces over the next three to four years.
Assemblers usually prepare production activities a few months ahead of time to ensure smooth supply from March to August, and also analyze last year’s unsold stocks in the market. However, the declining production trend in the 9th fiscal year 2023 paints a bleak picture.
According to the large-scale production data, production of refrigerators and air conditioners fell to 723,868 and 245,354 units in July-March-FY23, respectively, compared to 1.027 million units and 400,333 units, respectively, in the same period last fiscal year.
Karachi Electronic Dealers Association (KEDA) President Mohammad Rizwan Irfan said: “Compared to last year, only 30 to 40 percent of the work on home appliances has been done as consumers are unable to afford high prices and heavy electricity tariffs pay.”
As demand for freezers tends to increase on Eid ul Azha, he added, “I don’t think a larger number of buyers will show up due to the high prices and cost of living.” Much will be compared to the sales volume of sacrificial animals this year depend on the previous year.”
Because of the cash crisis, people would rather fix their home appliances than buy new goods, he said.
Mr Irfan said appliance prices have risen due to the devaluation of the rupee against the dollar, meaning the private sector is now assembling rather than manufacturing depending on the arrival of imported parts.
When it comes to air conditioners, he found that people are buying a ton instead of 1.5 tons because of the price factor and to make the rooms a little cooler to beat the heat and only run it for a limited time given the rising electricity bills permit.
The consumer price index for May 2023 was 38 percent year-on-year and 1.6 percent month-on-month. Arif Habib Limited states that this is the highest annual inflation since available data, i.e. July 1965.
Sales of Waves home appliances increased to Rs. 8.8 billion in 2022 from Rs. 2.425 billion in 2021, while profit rose to Rs. 48 million from Rs. 37 million. However, January-March 2023 revenue and profit fell to Rs. 1.381 billion and Rs.
Sales of home appliances division of Pak Elektron Limited (PEL) fell to Rs.4.4 billion in January-March 2023 from Rs.9.94 trillion in the same period of last fiscal year due to continued pressure on the demand side. PEL said demand is being held back by the prevailing recessionary regime, which is hurting purchasing power and product cost increases due to local currency weakening, global commodity price hikes and rising inflation. On the supply side, the company saw a low volume of business due to the shortage of imported inputs due to State Bank import restrictions.
Published in Dawn, The Business and Finance Weekly, June 5, 2023
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