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issue: January 2010 APPLIANCE Magazine

Feature: 58th Annual Appliance Industry Forecasts
Ready for Recovery


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Jill Russell, contributing editor

The industry is breathing a cautious sigh of relief as we forge into a new year and see signs of slow improvement.

 You made it, albeit banged, bruised, and battered. 2009 is over, and you’re still accounted for, regardless of whether it’s in the red or black.

The worst economic decline since WWII was heralded by the housing market correction, the subprime mortgage collapse, and the failure of financial institutions. But the appliance industry already felt like it was in a recession, long before the rest of the world came to realize that this was more than a typical, cyclical economic deceleration

APPLIANCE  magazine talked to industry experts to get their take on the 2010 appliance industry. Here’s what they had to say.

Recovery in Sight

There’s one word on everyone’s mind—“recovery.” Followed immediately by “when?”

Fortunately, most experts agree that the economy hit bottom in 2009 and recovery should occur in 2010. The bad news is that this recovery will be long and slow. Industry shipments will be up, but only slightly to the low, single digits.

The big picture looks like most economies are heading in the right direction. The Conference Board’s Leading Economic Index (LEI) for the U.S. increased 0.3% in October, following a 1.0% gain in September, and a 0.4% rise in August. The trend is expected to continue into 2010.

“The data indicates that economic recovery is finally setting in,” Ken Goldstein, economist at The Conference Board, said in a statement. “We can expect slow growth through the first half of 2010. The pace of growth, however, will depend critically on how much demand picks up, and how soon.”

The recovery for the appliance industry is a mixed bag with major and comfort appliances still set to struggle in 2010, while electric housewares inch up due to more people staying at home during these tough times.

Stimulated Sales

According to the Association of Home Appliance Manufacturers (AHAM), its AHAM 6 category of appliances (washers, dryers, dishwashers, refrigerators, freezers, ranges, and ovens) was down nearly 15% as of August 2009 and every month of the year had shown consistent decreases compared with the previous year.

Then, in September, there was a small sign of improvement—the AHAM 6 shipments went positive in September by 1.5%. October was slightly down again (1.7%), but November showed substantial improvement. AHAM 6 shipments for the month jumped up 16.3% compared with the previous November. It was the biggest single-month growth spurt the category has seen in years. The big increase is probably a result of the increase in home sales spurred by U.S. tax incentives (incentives that have now been extended into 2010).

But is it a turning point? Only time will tell.

“Everything is riding on the economy’s continued improvement,” said Brian Wellnitz, marketing manager, Kitchen Ventilation for Broan-NuTone LLC, a ventilation hood manufacturer. “While there is hope that growth is on the uptick for our industry, any small calamity could severely affect the recovery. The fact is the economy is in a very precarious position. An improving housing market is critical. Government support of first-time buyers is an important program that will maintain momentum in the fragile economy.”

Thankfully, the housing market has shown much improvement in the U.S., thanks in part to the First-time Home Buyer Tax Credit. The enticing $8000 credit helped stimulate home sales—and, by extension, stimulated the sales of all those consumer goods that new homeowners typically purchase, like appliances. The tax credit had originally been set to expire in late 2009 but was extended to April 30, 2010.

Other government-supported programs and credits in the U.S. aim to give consumers incentive to buy appliances.

Major Appliances

This includes monies from the 2008 Stimulus Package that states can use for an energy efficiency rebate program on qualified appliance purchases. The funds were awarded last year, but states are just now receiving them, and consumers are set to take advantage of them by the first quarter of 2010.

“As the U.S. prepares to distribute Energy Star appliance rebate funds, efficiency is at the top of many consumers’ minds looking to save both time and money,” said Holger Fietz, director, Strategic Brand and Channel Management, for BSH Home Appliances.

But nose-diving property values at the start of the crisis, and historically high unemployment rates in late 2009 helped created an exceptionally cost-conscious consumer. “This effect will hit every socio-economic class, but will have the most impact on customers who drove the growth just a few years ago—the upscale consumer,” said Wellnitz. “These customers have virtually left the market in favor of preserving their wealth in the face of growing adversity to their lifestyle.”

In fact, according to Bertazzoni, a high-end Italian appliance maker, the high-end cooking category is down 20% in the U.S.

Nonetheless, there will be new homeowners, and there will be repair and remodel consumers with purchasing power—just in smaller numbers than before.

“Consumers have directed their attention to value for their money—they want quality and performance, but they want it for a fair price,” said Paolo Bertazzoni, owner of the company. “The underlying trends of 2009 are still in place: home equity will remain depressed and we don’t expect consumers to return to conspicuous consumption anytime soon, but they cannot put off replacement of old appliances forever and we expect to see moderate growth in the market.”

Others agree: “We see 2010 as a replacement year for consumers,” said Zach Elkin, director, BCD group for BSH Home Appliances. “As products come to the end of their lifecycle, consumers will look to upgrade to efficient appliances and take advantage of the immediate rebate savings and long-term savings associated with energy and water efficiency.”

Haier America LLC believes that although replacements will drive a small 1 to 2% increase next year, the growth will stem from consumers purchasing single replacements, as opposed to an entire suite of new kitchen appliances. “Consumer buying habits have changed and they will now look for value in any appliance purchase,” said Bob Cunningham, senior vice president, Major Appliances for Haier North America. “We expect growth in real GDP in 2010, but expect consumers to be very cautious in their spending habits as there will be more of a bias for saving versus spending.”

Between the fragile economy and the newly frugal consumer, appliance makers have their work cut out for them. Bertazzoni dubbed 2010 the Year of Reckoning. “Consumers will look beyond brands to the real value of the product they want to purchase,” he said. “Manufacturers that have thrived on selling average-quality merchandise at high prices will struggle, while those that deliver the best value will thrive and we’re well prepared for this challenge.”

Comfort Conditioning

With comfort appliances plummeting down 10 to 15% as of October (the most recent data available at press time), according to the Air-Conditioning, Heating and Refrigeration Institute, heating, ventilation and air-conditioning (HVAC) manufacturers have more on their mind than just the economy. They also have the weather to think about, and everyone knows Mother Nature is notorious for being unpredictable.

“We had one of the coldest summers in 16 years for prominent room air-conditioner markets in the Northeast and Midwest regions,” said Lintao Lu, senior vice president, Compacts and Home Comfort Products, Haier America. “It was the third year in a row that we didn’t have hot weather. This, combined with consumers that reduced spending [in response] to the recessionary economy, caused shipments to decline 30% in 2009 compared to 2008. Provided we have normal summer weather in 2010, we expect room air-conditioner shipments to increase substantially by an estimated 15% next year as economic conditions should have improved by then as well.”

The long-term outlook paints a better picture than near-term. Demand for HVAC equipment in 2013 is forecast to increase 4.5% per year to $17 billion, according to market research firm Freedonia. Heat pumps are set to more than double in demand, while unitary air-conditioners will account for 70% of total value demand, the firm predicts. The rise is primarily due to an increase in residential construction, which, in 2008, was at its lowest point since the U.S. government started tracking housing starts in 1959.

Water Heaters

Water heater shipments also cooled considerably, finishing at an estimated 8–9% decline, according to industry experts. As of press time, residential tank type shipments were anticipated to be 7.5 million, down 9% from 8.2 million in 2008.

“We expect residential tank-type industry shipments to improve slightly to 7.6 million units in 2010 and 8.1 million units in 2011,” said Roy Wood, director, Business Analysis and Forecasting, A.O. Smith Water Products Co. “The major drivers of the downturn will turn into the drivers of industry recovery. Housing will only rebound slightly, but remain at almost 40–50% below historical levels. The general economy will exhibit caution, and with it, a dampened and volatile recovery with a minimal positive impact in 2010.”

Chuck Rohde, wholesale market manager, Rheem Water Heating, agrees that any recovery in the segment will only be a slight uptick. “High unemployment, tight credit, and a soft housing market will cause the market to be flat or increase slightly by 1 to 2% in 2010,” Rohde said. “This is in spite of government and utility tax credits and rebates that help consumers upgrade their appliances with more-energy-efficient models.”

The story is no different for the tankless water heater segment, where sales were flat-line, according to Noritz.

Noritz anticipates that the Federal Tax Credit for energy-efficient appliances will spur sales. “The credit will help bring down the overall installation price of tankless water heaters, making it very comparable to a regular tank-type heater,” said Larry Feldman, a company spokesperson. “This, combined with the local energy utility rebates and the continuing popularity in the replacement market, will help sales steadily increase. This will have a huge impact as consumers’ buying power will increase as well.”

Hot Housewares

Like the major and comfort appliance industries, the electric housewares segment is suffering from decreased demand. However, unlike the rest of the appliance product segments, electric housewares are down less than expected. And, the premium market is even seeing a steady increase in sales.

The slight growth is, ironically, attributed to the current economic state. With more people without jobs, with less disposable income, and with higher expenses, people are staying home and consequently are cooking more meals instead of going out to restaurants, doing the ironing instead of running to the dry cleaners, and bringing more personal care tasks in the home instead of visiting a salon.

“People seem to be eating out less,” said Peter Goldman, president, Home, NPD Group, a market research firm, in a statement. “The economy is having a cocooning effect. When you combine this with the celebrity chef effect, it fosters some resiliency to the economic downturn for our industry. If consumers are spending more time at home and they are interested in cooking, this creates an upside for the housewares industry.”

The International Housewares Association (IHA) is predicting that there will be an increase in products that bring a feeling of comfort with use—that help create a feeling of a certain lifestyle at home. “It’s extremely comfort-driven,” Goldman said. “It’s easy to escape to comfort-driven products, to aspire a little bit to be able to create that lifestyle for family and friends.”

It’s this trend of spending more time at home that’s also driving the premium market in electric housewares. Consumers are willing to spend more money on appliances they intend to use every day for years to come, and will hand over extra dollars for added features, design, and technology that will help make their at-home lives easier.

“Considering items like toaster ovens, electric shavers, and canister vacuums, we see a consistent pattern which indicates that innovation, design, and functionality are driving the premium segment, all building on generally need-based purchases,” Goldman said in an IHA newsletter. “A toaster oven is useful for a variety of tasks, from making toast in the morning to heating up leftovers for dinner. With recent design changes, these appliances have really become countertop ovens with much versatility. This helps consumers justify their spending, giving the sense that their dollars are going further.”

According to the IHA Marketwatch report, other categories set for growth in the premium segment include stand mixers, slow cookers, garment care, electric shavers, and canister vacuums.

Not all the premium segments have been so lucky. Wine cellars and specialty cleaning appliances have decreased as most consumers do not consider these products necessities.

“Design and technological evolution,” said Goldman, “as well as consumer education and awareness, have been effective tactics in navigating some products through the current recession, helping to blur the lines between need and price.”

Canadians Look for Value

The price effect has become a prominent driver in the Canadian appliance market too. In fact, flexible pricing has become the key influencer of purchasing power, an NPD study found.

The report, The Major Domestic Appliance Market Monitor, found that the majority of Canadians report purchasing appliances below the listed sales price in most major appliance categories, with half purchasing at sale price and two out of 10 purchasing at a negotiated, reduced price. The study also found a general lack of brand loyalty, with only one in four consumers reporting purchasing the same brand they previously purchased.

“Given that appliances typically represent a major household purchase, it is no surprise that pricing acts as a major retail driver,” said Pam Wood, senior manager, Home, NPD Group, in a statement. “It was interesting to learn, however, just how many people are negotiating a price discount and how little brand differentiation exists in the home appliance category.”

The study found that product features, persuasive sales staff, and online research directly impacted purchasing decisions. In fact, consumers were twice more likely to rely on knowledgeable sales staff than any other information when purchasing an appliance, the study found.

“It’s fair to say that most attention is paid to the new and exciting features and form factors in the higher-priced appliance segments,” Wood said. “That being said, a large majority of Canadian consumers continue to purchases appliances in the low-end value segments, so manufacturers should focus on style and innovation across all price segments, not just their luxury lines.”

 

MAJOR APPLIANCES
(Unit Shipments,
Exports Not Included)

2008 (Actual)

2009
(Projected)

2010
(Forecast)

2011
(Forecast)

2012
(Forecast)

Compactors

74,000

71,000

70,000

71,500

72,000

Dishwashers, Built-In

5,903,000

5,316,000

5,400,000

5,500,000

5,700,000

Dishwashers, Portable

92,000

67,700

65,000

67,000

70,000

Disposers, Food Waste

5,510,000

5,175,000

5,200,000

5,300,000

5,500,000

Dryers, Electric

5,620,000

5,254,000

5,400,000

5,600,000

5,800,000

Dryers, Gas

1,353,000

1,297,500

1,300,000

1,325,000

1,350,000

Freezers, Chest

1,242,000

1,214,000

1,200,000

1,190,000

1,180,000

Freezers, Upright

856,000

826,300

800,000

775,000

750,000

Microwave Ovens, Total

11,340,000

9,800,000

10,225,000

10,700,000

11,500,000

Ranges, Electric, Surface Cooking

433,000

310,000

320,000

330,000

350,000

Ranges, Electric, Total

3,973,000

3,449,000

3,500,000

3,600,000

3,800,000

Ovens, Electric

700,000

542,000

546,000

560,000

570,000

Ranges, Gas, Surface Cooking

387,000

286,000

290,000

295,000

300,000

Ranges, Gas

2,408,400

2,230,400

2,270,000

2,325,000

2,400,000

Ovens, Gas

47,000

43,100

44,000

45,000

46,000

Refrigerators, Standard (6.5 cu ft and over)

9,310,000

8,200,000

8,300,000

8,500,000

8,800,000

Washers, Automatic

8,292,000

7,650,000

7,750,000

8,000,000

8,300,000

Water Heaters, Electric

4,189,450

3,750,000

3,800,000

3,950,000

4,100,000

Water Heaters, Gas

4,000,593

3,700,000

3,650,000

3,780,000

3,910,000

TOTAL

65,730,443

59,182,000

60,130,000

61,913,500

64,498,000

Sources, 2008 (Actual) shipments: Association of Home Appliance Manufacturers (AHAM); Air-Conditioning, Heating and Refrigeration Institute (AHRI)

 

COMFORT CONDITIONING
(Unit Shipments,
exports not included)

2008 (Actual)

2009 (Projected)

2010 (Forecast)

2011 (Forecast)

2012 (Forecast)

Air-Conditioners, Room

9,085,500

5,500,000

6,000,000

6,200,000

6,400,000

Air-Conditioners, Unitary

3,968,044

3,400,000

3,450,000

3,550,000

3,700,000

Dehumidifiers

1,556,300

1,650,000

1,700,000

1,750,000

1,800,000

Furnaces, Warm-Air, Gas

2,300,000

2,150,000

2,200,000

2,275,000

2,350,000

Furnaces, Warm-Air, Oil

59,225

55,000

56,000

57,000

58,000

Heat Pumps

1,865,310

1,600,000

1,650,000

1,720,000

1,820,000

TOTAL

18,834,379

14,355,000

15,056,000

15,552,000

16,128,000

Sources, 2008 (Actual) shipments: Association of Home Appliance Manufacturers (AHAM); Air-Conditioning, Heating and Refrigeration Institute (AHRI)

 

ELECTRIC HOUSEWARES (Unit Shipments,
exports not included)

2008 (Actual)

2009 (Projected)

2010 (Forecast)

2011 (Forecast)

2012 (Forecast)

Blenders, Handheld

1,225,000

1,230,000

1,240,000

1,260,000

1,290,000

Blenders, Stand Type

11,393,910

11,500,000

11,700,000

12,000,000

12,400,000

Breadmakers

379,065

360,000

345,000

335,000

340,000

Can Openers

5,703,390

5,800,000

6,000,000

6,200,000

6,400,000

Coffee Grinders

2,500,704

2,590,000

2,640,000

2,700,000

2,725,000

Coffeemakers, Automatic Drip

28,535,039

29,000,000

30,500,000

31,500,000

32,500,000

Deep Fryers

3,821,000

3,900,000

3,950,000

4,000,000

4,100,000

Espresso Makers

1,098,893

1,125,000

1,160,000

1,190,000

1,200,000

Food Choppers/Mincers

3,379,000

3,450,000

3,520,000

3,550,000

3,600,000

Food Processors

2,090,000

2,150,000

2,200,000

2,250,000

2,300,000

Indoor Grills

6,935,000

7,100,000

7,300,000

7,450,000

7,650,000

Irons, Steam and Spray

13,480,000

13,800,000

14,100,000

14,150,000

14,200,000

Juice Extractors

909,000

930,000

950,000

970,000

990,000

Juicers

780,000

800,000

820,000

840,000

850,000

Mixers, Handheld

5,773,032

5,900,000

6,050,000

6,100,000

6,150,000

Mixers, Stand Type

1,677,902

1,700,000

1,730,000

1,800,000

1,850,000

Rice Cookers/Steamers

3,115,000

3,200,000

3,300,000

3,425,000

3,500,000

Slow Cookers

9,420,000

9,700,000

9,950,000

10,200,000

10,450,000

Toaster Ovens

6,677,000

6,900,000

7,100,000

7,200,000

7,400,000

Toasters

11,800,000

12,000,000

12,500,000

12,800,000

13,100,000

Waffle Irons/Sandwich Grills

2,372,000

2,500,000

2,600,000

2,680,000

2,800,000

TOTAL

123,064,935

125,635,000

129,655,000

132,600,000

135,795,000


FLOOR CARE APPLIANCES
(Unit Shipments,
Exports Not Included)

2008 (Actual)

2009 (Projected)

2010 (Forecast)

2011 (Forecast)

2012 (Forecast)

Vacuums, Canister

1,541,400

1,550,000

1,570,000

1,600,000

1,650,000

Vacuums, Central

185,756

180,000

185,000

190,000

195,000

Vacuums, Handheld, Electric

1,650,000

1,600,000

1,630,000

1,670,000

1,690,000

Vacuums, Handheld, Rechargeable

3,900,000

4,000,000

4,100,000

4,250,000

4,400,000

Vacuums, Stick

4,150,000

4,200,000

4,350,000

4,450,000

4,600,000

Vacuums, Upright

19,000,000

19,500,000

20,300,000

21,000,000

22,000,000

TOTAL

30,427,156

31,030,000

32,135,000

33,160,000

34,535,000


COMMERCIAL APPLIANCES
(Unit Shipments,
Exports Not Included)

2008 (Actual)

2009 (Projected)

2010 (Forecast)

2011 (Forecast)

2012 (Forecast)

Deep Fryers

145,825

130,000

133,000

135,500

139,000

Ice Makers

181,350

163,000

165,000

169,000

173,000

Refrigerated Display Cases

172,129

152,000

156,000

162,000

166,000

Water Heaters, Electric

68,686

55,000

56,000

58,000

60,000

Water Heaters, Gas

88,265

73,500

74,000

75,000

77,000

TOTAL

656,255

573,500

584,000

599,500

615,000

 

 

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