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issue: January 2006 APPLIANCE Magazine

54th Annual Appliance Industry Forecasts
2006 Brings Optimism for Housewares Amid Continuing Challenges

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by Philip Brandl, president, International Housewares Association (IHA)

Heading into 2006, housewares executives are encouraged that even in the face of the many financial challenges, including rising energy prices and transportation costs, consumers still seem to be focused on spending for their homes.

According to the International Housewares Association (IHA) State of the Industry (SOI) Report, U.S. consumers spent $65.2 billion on housewares at retail in 2004, up from $62.2 billion in 2003. In the electrics category, household electrics accounted for 15.6 percent of all U.S. housewares sales; kitchen electrics, 19.1 percent and personal care products, 2.1 percent. Those figures clearly reflect a robust market for small appliances.

As a result, the housewares industry remained on an even keel well into the fourth quarter of 2005. Although national polls of consumer confidence have consistently shown that consumers could be in a better mood about the economy, spending surveys find that consumers are buying, belying the poll results.

Small appliance manufacturers have found strong niches for innovative products in the fourth quarter of 2005, according to Linda Graebner, president of Jarden Direct and chairman of IHA's board of directors. "Retailers are increasingly bullish about a strong holiday selling period," Graebner says.

She adds that small appliance sales are being driven by "consumers' lack of time and wanting easy solutions for food and meal preparation." Appliances that prove their worth to the consumer in terms of quick and easy use will be successful, she says.

For small appliance companies, caution behind the optimism in the 2006 forecast lies in the continued pressure of increased costs of raw materials, according to the chairman of a small electrics company. "In addition, the consumer appears to be balking at higher retails for opening price point items, which may reduce demand for those items as their retails increase," he says.

For example, a microwave at an opening price point of $39.99 might have to be sold now at $49.99 due to raw materials price increases, which could drop the demand for the product by up to
40 percent in some cases.

Some time-honored companies and their nameplate brands, which have been ubiquitous in kitchens for decades, are disappearing from the shelves and being replaced by either house brands or better-known brands in the industry.

"A shakeout in the industry will continue as more consolidation will be the key driver in 2006," the housewares executive says, noting that the merger of Sunbeam and Rival, for instance, is showing new strength in marketing new small appliance products.

On a more upbeat note, a consensus of experts predicts that certain items will lead the field in the fourth quarter of 2005. Those include products such as contact grills with replaceable grill plates, single-serve coffee makers, vacuum cleaners, and certain kitchen stand mixers.

"Where there has been some strength (in the small appliances category generally) there are the instances of thoughtful new products with good design and execution," agrees Mark Bissell, CEO of Bissell Homecare, Inc. "Single-serve coffee makers and pod designs have brought some life back to the category. They offer simple execution. You push a button and boom."

Bissell notes that, often, higher price points work for consumers if they see added value in the product. "They are willing to step up if they see a reason," he says. "Retailers are making shelf space available for higher price points."

"Retailers are looking for good value, not necessarily the lowest price," agrees Graebner. "They can be convinced to support a 'good value' product, with advertising and trade support, if they have a compelling story."

That huge swath of U.S. baby boomers, however, continues to provide openings for small appliance companies at the retail level as their discretionary income increases with the flight of their children from the nest.

"The mid-40s to mid-50s groups will continue to drive the economy in the next several years and then the challenge will be to appeal to the generation behind them," says Paul Mayer president of Chaney Instrument Co. He cites his daughter with three young children as an example of today's time-pressed consumer. "Her microwave, stove and pots and pans aren’t getting used. Am I ever going to sell her a cooking thermometer? Probably not," he says.

Another factor driving the small appliance market, at least in the kitchen, Graebner adds, is "counterworthiness," or whether a kitchen electric fits into a notable trend toward kitchen remodeling and sleek design. Especially attractive are kitchen electrics that can perform the functions of commercial machines and look good doing it. Cleaning and coffee making top that list.

"Boomers want things they can use, that save time and allow more time for recreation. With the kids grown and away, they have more time for entertaining with adults and displaying products with high design."

The continued expansion of the housing market and low interest rates have allowed consumers to convert wealth in their homes into near-term buying power, Graebner notes, but interest rates are on the rise again and the housing bubble is slowing, while not yet showing signs of actually bursting. Such future unknowns may help explain the "disconnect" between consumer polls that show a lack of confidence in the economy and robust consumer spending at the same time.

Still to come, say company executives, is the full impact of skyrocketing energy costs. With estimates in some parts of the country that homeowners, retailers and manufacturers could pay at least three to four times as much this winter to heat their buildings, and with no guarantees that gasoline prices will remain below the $3-a-gallon level following a recent welcome dip, cautious optimism should carry well into 2006, Bissell says.

Yet, given the historic pattern of consistent consumer spending on home goods, we expect our industry to do quite well even during a time of financial challenges that might be difficult to overcome in other categories.


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