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issue: January 2008 APPLIANCE Magazine

Europe Forecast
The Power of Persistence


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by Jill Russell, Contributing Editor

European appliance makers remain optimistic that, despite high tax hikes and increasing material costs, 2008 could be a growth year.

After three years of consecutive growth, the European region was on track for a full recovery in 2006. Throughout the first half of 2007, the region experienced softened growth, but growth nonetheless. As of press time, the International Monetary Fund (IMF) forecast a 2.5% growth rate for real gross domestic product (GDP), while 2008 is expected to come in slightly lower at 2.1%.

According to the London-based market research firm Euromonitor, the region’s five largest markets—England, France, Germany, Italy, and Spain—are benefiting from the recovery, and electric housewares appliances are experiencing strong growth in the region. In fact, France is forecast to beat out Germany in small-appliance sales by 2011.

However, Germany, Spain, and Italy are forecast for a decline in GDP, which will likely result in a decline in the appliance industry.

Meanwhile, Russia, considered one of the four largest emerging economies alongside Brazil, China, and India, has huge growth potential, according to Euromonitor.

While Western Europe is muddling in moderation, Eastern Europe is taking off. The region, according to the IMF, is forecast for 5.8% and 5.2% GDP in 2007 and 2008, respectively, after a 6.3% finish in 2006. The IMF anticipates domestic demand will slow down due to the credit slowdown, but will remain strong because of the region’s strong trade and outsourcing agreements with Western Europe.

Moving East

“There is an accelerated move across all competitors toward low-cost country (LCC) production. The share of LCC across all manufacturers grew from 30% to 40% in approximately the last two years,” says
Giuseppe Geneletti, director of corporate communications for Whirlpool Europe. “The marketplace continues to be extremely competitive. The top four manufacturers represent less than 50% of the total market and have only 25% of the market. There are still 250 active major domestic brands. In this context, with ongoing fuel and material price rises, no player earns even 7% earnings before interest and taxes (EBIT).”

Despite the challenges, appliance makers are experiencing moderate growth in line with the overall economy. On the rosy side of the picture, Indesit forecast a 5% increase in sales, as of press time. Whirlpool, more on the conservative side, is forecasting an increase of 3%.

According to Euromonitor, the largest trends affecting the region —much like other regions around the globe—are an increase in
single-person households and a boom in the housing market. Because of this, compact convenience appliances have experienced strong sales and have pushed product designs in this direction. Additionally, wine coolers and chillers are expected to experience a sharp increase as more people invest in, and consequently entertain in, their homes. An increased interest in health and well-being is also helping to spur the sales of electric housewares such as indoor electric grills, smoothie makers, and microwaves that feature a grilling function.

“Household disposable income is set to grow 10% during the forecast period,” says Fflur Roberts, global appliance research manager for Euromonitor. “While cookers, refrigerators, and washing machines already have high levels of penetration, the growth bodes well for sales of more-discretionary items such as microwaves and dishwashers.”

Unfortunately, the effects felt from increased disposable income are not expected to last long. Several banks are tied to the U.S. housing market, which is at its lowest point in new housing starts in 14 years. According to the IMF, this could tighten credit options, which in turn could negatively affect appliance shipments and sales. Despite a decrease in credit, consumers in the high end of the market are still expected to invest in their home and upgrade their kitchens with
replacement products and built-in appliances.

Refrigeration products, such as wine coolers, as mentioned earlier, are experiencing an increase. Frost-free models are trending up, movement attributed to replacement sales as well as to the energy savings created by higher operating efficiency.

Overall, the European picture is optimistic, with the region in general persevering though a moderate slowdown. After a long streak of growth, collapse, and finally recovery, the region is stabilizing and feeling the effects of a steady economy—and the appliance industry is following along. With concerns rising that high taxes and interest rates might dampen future consumer sentiment and spending, manufacturers will have to creatively absorb costs or simply offer new products that persuade consumers that the price increases are worth the technology.

Not all manufacturers are worried—the economy is stable after all. One such company is Indesit, which, despite increasing costs, is quite optimistic and persistent in its expectations of the next year. “We forecast a flat macroeconomic trend in the first half of the year and a general recovery in the second half,” says Francesco Trovato, continental Europe area director for Indesit. “Raw-material prices always impact the market, but companies have to forecast this and manage it. We are very confident about the future.”

 

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