The recovery in the Sri Lankan economy is happening is reverse. Rural consumers who make up the majority of the population are leading a mini splurge benefiting retail business with an island-wide footprint like consumer durables retailer Singer.

Urban consumers like Shiranthie Wijethunga, a construction business owner, are cautious.

“I’d like to buy a television like this one,” she says pointing to a 40 inch flat screen LCD television at Singer’s store in suburban Mount Lavinia, “maybe I will get it later this year’.

Attitude couldn’t be more at odds with rural consumers who are buoyed by a record April rice crop and growing remittances form family members working overseas. Rural farm incomes are up 40 percent form a year ago.

For multinational Singer’s Sri Lankan unit, with 360 own and franchisee outlets Island-wide, revenue in the March quarter rose 50 percent.

“The rural sector was sustained because of the middle-east remittances, salaries of armed forces and paddy harvest,” says Hemaka Amarasuriya Singer’s Chairman, who gives up his executive role at end June 2010.

“An urban pick up would help, it has dropped quite a bit, and if it comes back then we would have something going.”

Long slump

Singer’s profit record in the last five years has been dismal.

Net margins shrunk consistently from a 6.1 percent high in 2003 to 0.9 percent last year, one of the worst in Singer’s long history in Sri Lanka starting in 1877.

In the last half a decade the top line only grew nine percent, nowhere near the more than doubling of nominal GDP that the Sri Lankan economy witnessed in the same period.

Competition intensified during a period of economic upheaval in the three years form 2007 to 2009. Abans a listed consumer goods retailer launched a multi brand strategy and swanky retail stores. The Softlogic group also entered retailing.

Soon Singer had formidable competition for consumer goods retailing in the city form larger and better located stores.

Net margins were 2.7 percent in 2007 and 1.2 percent in 2008 years. Retailers when

Profit after tax declined consistently over the last five years from 500 million rupees in 2004 to 112 million in 2009.

Despite low margins the company continued expanding and diversifying. It started manufacturing and marketing furniture intending to replicate the successful Swedish collapsible furniture manufacturer Ikea.

New ventures aren’t still contributing to the bottom-line. In the first quarter the furniture business contributed four percent to turnover and the bottom-line.

But overall sales and profitability bounced back in the March quarter.

“In the March quarter most of the products were above 30 percent growth, some of the newer products categories were above grew at 60 percent,” says Nasser Majeed.

March quarter profits soared to 177 million rupees comfortably exceeded the 112 million rupee made during the full year in 2009.

Singer is looking forward to beating its all time high profit 500 million in 2004.

Rural buyers propped up Singer ahead of other electronic retailers like Abans and Softlogic which have a mostly urban base.

While Singer’s wide footprint enabled the turnaround before the rest of the industry but the reach is also at the heart of the challenge.

“I think we will get our biggest improvements through logistics,” says Nasser Majeed, Singer’s Marketing Director discussing the challenge for the next few years.

“I think we have a lot of room to become more efficient in our logistics.”

Turnaround

Bottom line pressure forced Singer to re-evaluate its business last year.

Amarasuriya, who is handing over executive functions this month to his successor, led the change.

“We realized as early as June 2008 there is going to be a downturn. We started chipping away on our inventory, reducing the models available, reducing the obsolete inventory very fast and we halved our interest cost,” says Amarasuriya during an interview at his corner office at Singers headquarters.

Quick action before the downturn paid off, “I’m very proud of that,” says Amarasuriya.

Strong brand loyalty, especially in rural towns where some families own Singer sewing machines, is advantages to the firm that now wants to sell refrigerators, washing machines and furniture to these households.

Brands like Singer which have been around for a long time figure at the top of brand rankings because they are ubiquitous. The firm has over 360 sales outlets.

Amarasuriya says margins are best in rural centric brands. Side-by-side refrigerators and LCD TVs’ that urban consumers aspire for offer lower margins.

During the downturn costs were slashed and staff were encouraged to accept a voluntary retirement package.

“When you start cutting costs you realize there is so much wastage around you. So that goes off without affecting our core business,” says Amarasuriya.

In spite of the turnaround Singer is keen to keep off the costs it shed, while adding to the product lines and growing turnover.

Metamorphosis

Singer had hit a wall twenty years ago having nothing much to offer other than sewing machines during an era when readymade clothes were catching on.

Amarasuriya is a legend as Singer for his visionary transformation of the firm when the future in sewing machines was limited. He widened the Singer network, broadened the product range away form sewing machines and established ‘Mega’ stores when marketers wondered if they were ahead of their time for the tiny Lankan economy.

They weren’t. The first ‘Singer Mega’ store opened in 1998 and an exponential half a decade of growth followed.

“If you manage this model well it’s a very profitable. Lots of people try and follow us and run in to difficulty with the inventory and the hire purchase assets, those two are very difficult to manage unless you are really on the ball,” he says.

An unexpected benefit was the tax reduction on imported goods in June 2010.

Singer’s commercial director Mahesh Wijewardene says retail prices of electronics will decline by 20 percent.

However import taxes on ‘white goods’ like refrigerators and washing machines were not reduced as steeply as for electronic products.

Regnis, a firm that assembles white goods in Sri Lanka where Hemaka Amarasuriya is also executive Chairman, is planning to expand operations.

We are expanding manufacturing anticipating demand in the white goods area, refrigerators, TV, washing machines, freezers, bottle coolers. Certain assembly projects would now become manufacturing projects,” says Amarasuriya.

Singer Sri Lanka’s parent controls Regnis.

The optimism among Sri Lankan consumer is amplified at Singer.

“We are looking at the future positively; we will focus on new categories. Recently we launched the Singer lap top. There is growth opportunity for air conditioning as a new category. Furniture is pretty good too,” claims Nasser Majeed.