Consumer companies cut output due to inventory problems
Consumer companies cut output due to inventory problems
The companies were pursuing a full-steam-ahead production schedule until May in the hopes that demand would rebound with the upturn in moods versus decelerating inflation and an all-around favourable macroeconomic picture.
According to The Economic Times, corporations have reduced production by as much as 50% in June to clear shelf space before the holiday shopping frenzy with the elimination of accumulating stocks top of mind for marketers. Following a full-steam-ahead production programme until May that the companies were pursuing in the hope that demand will return with the rising of spirits against decelerating inflation rates and an all-around positive macroeconomic picture, the output cuts this month are in line with that schedule.
Inventory had been building up in stores practically all throughout the country due to the lacklustre demand over several months, and businesses responded by using traditional tactics like flash sales and deep discounts. Over the course of six to seven months, weak demand hurt the brands, leaving many with unsold inventory.
Record inventory levels have been placed on a variety of products, including electronic goods, mobile phones, clothing, footwear, and fashion accessories.
Electronics and smartphone manufacturers reduced output and shipment to shops by up to 50% in June to avoid further inventory buildup.
Due to the cooler-than-average summer this year, makers of electronic consumer goods had weak demand for air conditioners, refrigerators, and coolers. As a result, they responded by reducing production by 50%. Prior to this, just 30% of output cuts were anticipated.
According to Kamal Nandi, business head at Godrej Appliances, “most companies were running production at peak capacity up until last month, hoping demand would pick up, which didn’t happen.” In addition, he said that since the prime holiday of Diwali falls on November 12 this year, production for the season will begin around August-September instead of the customary July-August schedule.
Pardeep Jain, managing director of the Jaina Group, also acknowledged that since sales of mobile phones were 30% lower, mobile firms have altered manufacturing to allow for the clearance of unsold inventories. In addition to producing handsets under its own Karbonn brand, the Jaina Group serves as a contract producer for a few other brands.
A group of analysts recently heard Ashish Dikshit, managing director of Aditya Birla Fashion and Retail, say that several planned purchases were postponed because of low offtake. Although the lower end of the market was originally more affected, the refusal to spend quickly spread to other tiers of the pyramid.
The well-known underwear brand Jockey experienced record inventory levels of 120 days. According to V S Ganesh, managing director of Page Industries, which owns the brand, it was 92 days at the same time last year. Ganesh said that the addition of new stocks has been slowed down to make room for the removal of existing ones.
The industry veterans have attributed the accumulation of unsold inventories to a slowdown in consumer spending, which they deemed “inessential” in the context of rising inflation. This suggests that consumers may have been cautious in their discretionary spending due to increasing prices of goods and services.
The unforeseen decline in consumer spending caught companies off guard, indicating that they were unable to anticipate the sudden change in market dynamics. This lack of foresight may have resulted in excessive production and inventory buildup, leaving businesses with a surplus of unsold goods.
However, the situation seems to be shifting as businesses are now expressing confidence in higher demand for the upcoming holiday season compared to the previous year. This optimism could stem from various factors. For instance, companies may have adjusted their production levels and inventory management strategies based on market trends and consumer behavior. They might also be anticipating an improvement in consumer sentiment and spending patterns.
The increased confidence in higher demand implies that businesses expect consumers to be more willing to make discretionary purchases during the holiday season, despite the ongoing concerns about inflation. This positive outlook could be driven by a variety of factors, such as improving economic conditions, favorable consumer sentiment, targeted marketing campaigns, or the availability of attractive discounts and offers.
However, it’s important to note that consumer behavior and market conditions can be influenced by multiple factors, and predictions are subject to uncertainty. While businesses may anticipate higher demand, the actual outcome may vary depending on various economic, social, and external factors. Market volatility, changing consumer preferences, and unforeseen events can still impact consumer spending patterns and overall demand.
To navigate these uncertainties, businesses may need to adopt agile strategies, closely monitor market trends, stay responsive to consumer needs, and maintain effective inventory management practices. Additionally, conducting market research, analyzing consumer insights, and leveraging data-driven decision-making can help companies better align their production and marketing strategies with changing consumer demands.
Overall, the anticipated increase in demand for the upcoming holiday season indicates a positive outlook from industry veterans. However, businesses should remain adaptable and vigilant in their approach to effectively respond to any market fluctuations or shifts in consumer behavior.
