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issue: January 2005 APPLIANCE Magazine

Appliance Industry Association Forecasts - International Housewares Association
Raw Material Hikes Make Innovation a “Must” in 2005

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

The year 2004 looked to be on solid ground mid-way through the fourth quarter, and the mood for 2005 is conservatively optimistic among IHA’s small appliance members.

Philip Brandl

“We are looking for a generally strong fourth quarter—not over the top, but strong,” says Linda Graebner, president and CEO of Tilia, Inc.

There is activity in opening price points and plenty of advertising spending, according to Ms. Graebner and other top housewares executives. There is also a lot of follow-through at the upper end, where consumers are trading up for innovation and features. The middle price points are steady but not showing the same growth, notes Ms. Graebner, citing an ongoing trend.
According to Mark Bissell, president and CEO of Bissell Homecare Inc., “Business is doing great. We’re having a barn-burner of a year, a record year on the heels of what was a very good 2003. Though the industry itself is pretty flat in dollars, it is up a bit in units.”

For Leon Dreimann, CEO of Salton, Inc., 2004 represents a tale of two halves. “The first half economy was not good, but in the second half and into 2005, the economy is improving, the election is over, and the consumer is more comfortable,” he says.

Michael Kramm, president of Capresso, believes his company will have “a pretty good year, because we’re a market niche company. We have very expensive, high-end, specialty coffeemakers.” Capresso tends to be a little more independent of upswings and downswings, in part because when people need coffeemakers, they often buy them as replacements and in doing so, they trade up.

Impact of Material Costs

Raw materials price hikes, steel shortages, and supply chain management will provide the overriding challenges in 2005 for small appliance makers. Shipping and transportation costs have been soaring for some time, then came steel increases, and now there will be hikes in the price of plastic resin.

Mr. Dreimann of Salton, who does not recall ever seeing prices go up, considers these cost increases a real challenge for 2005. For the last 50 years, he says, the small appliance business has continued to reduce price points. For example, a toaster that sold for U.S. $50 about 50 years ago is now selling for $6.99. But with raw material increases and shortages, huge increases in oil prices—which relates to the cost of plastic, aluminum, steel, and stainless steel, which have all doubled over the last 12 to 18 months—you have substantial price increases that are being passed through to the consumer, he says. “And it’s going to be interesting to see what that really does (to the still strong trend to stainless steel appliances),” he adds.

Mr. Dreimann believes the price hikes are healthy signs, noting that prices have gone to a level where consumers could no longer expect a very high quality product. “The reality is, we’re no longer getting oil for $20 a barrel…we’re talking $40, $50, $60 a barrel,” he says. “If you’re buying a plastic bucket, you can’t really change it much in terms of features. In a toaster, you have steel that not only has doubled in price over the last 12 to 14 months, but is in shortage worldwide as a result of building and construction all over China in preparation for the Olympics, and the general economic health. Not only is the situation unlikely to retrench, but we may see increases of another 50 percent in 2005.”

Ms. Graebner of Tilia echoes Mr. Dreimann’s comments, noting that as the economy improves, there is a lot of pressure on raw materials and basic costs. “It’s been steel, but now with the oil run-up and insatiable demand, there will be a lot of plastic hikes as well. Most basic raw materials will be affected,” she says. Shipping and transportation price hikes are a given, she adds.

To counter these higher overseas shipping costs, IHA recently formed the International Housewares Shippers Association to help its 1,700 members aggregate container freight, negotiate better prices, and help reduce costs. For domestic shipping, IHA’s 4-year-old land freight program through Transportation Programs for Associations (TPA) offers discounted freight terms on LTL (less than truckload) shipments, and FedEx also provides discounts on a variety of its services.

Advertising, Promotion, and Cross-Marketing

Michael Kramm of Capresso does not think that overall unit volume in coffeemaker sales is going to change a lot because the market is saturated, but if people have a $50 coffeemaker and replace it with a $100 coffeemaker, the dollar volume will be up. People are willing to trade up, he says, but manufacturers will have to come up with more than gimmicks.
Mr. Kramm also sees an increase in dollar volume attributed to cross merchandising. This past fall, he says, three or four large consumer companies such as Kraft and Sara Lee teamed with small appliance manufacturers to promote pod coffeemakers. And they are investing heavily in advertising.

High End, Low End Have Battle Plans Ready

Small appliance makers producing opening price points and those marketing luxury goods have their battle plans ready, although we expect to see further industry consolidation—particularly at the supplier level—due to retail consolidation and other internal and external pressures. Innovation and creativity are mandatory this time around, say executives, if a company wants to survive. A low-priced company retailing commoditized products may by challenged.
Bissell has developed some new products in new, high-growth categories such as bare floors and a new line of deep cleaners. “We came up with Bissell To Go, a $10 deep cleaner,” says Bissell, noting that, “it’s a fun, creative way to grow the business.”

Innovation in both design and merchandising will help small appliances makers weather the challenges of the coming year.


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