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issue: January 2005 APPLIANCE Magazine

53rd Annual Appliance Industry Forecasts
North America - Major Appliance Issues


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by Jill Russell, Associate Editor

As anticipated, the U.S. major appliance industry reported healthy shipments in 2004, and optimism continues to dominate the segment, as shipments are forecast to increase yet again in 2005.

The Association of Home Appliance Manufacturers (AHAM) anticipates an estimated 76.7 million unit shipments to cap off 2004, a 4-percent increase over 2003. The “AHAM 6,” which includes washers, dryers, dishwashers, refrigerators, freezers, and free-standing and built-in ranges, is forecast to end 2004 with a 6.2-percent increase. Still set for growth, although very slight, shipments (including all AHAM product segments) for 2005 are forecast to total 76.9 million units, up only 0.8 percent from 2004. In AHAM’s most recent report available, October shipments totaled 65.1 million units, up 3.7 percent from 2003, a strong indication 2004 will end on a positive note.

Manufacturers and analysts alike agree that the major appliance segment will post growth in 2005. Jay McIntosh, the America’s director of retailing consumer products for Ernst & Young, said that although 2004 was a strong year for appliances, 2005 will introduce new trends and company focus points centered on design and price points. “People are not paying just for the product itself, but they’re paying for the design,” he told APPLIANCE. “Consumers are not going to be nearly as price sensitive as they would be if they were just buying a more generic type of product.” Mr. McIntosh attributes this to the level of innovation manufacturers have presented throughout 2004 and believes this level of enthusiasm to take the product to the “next level” will continue in 2005.

This, in conjunction with higher energy prices, is what will push manufacturers to present premium product lines and raise sales in the high-end segment, according to Aaron Smith, associate economist for independent research firm Economy.com. “With high energy and gas prices, it disproportionately affects lower income households because energy takes up a larger share of their total expenditures from their income,” he explained. Additionally, Mr. Smith attributed future growth in the segment to the pricing power behind premium product lines that incorporate high-tech features. “The reason to devote more research and start premium lines is because manufacturers can pass higher costs to achieve higher profitability,” Mr. Smith said. “To be on the leading edge, to have the next best thing, to have the most knowledge in that end of the market, cannot be a bad thing.”

For the most part, it seems that U.S. manufacturers agree. The desire to offer consumers innovation, combined with rising material costs, has appliance makers looking toward premium product segments in order to regain positive results that were seen throughout the first-half of 2004.

A Plan of Action

After posting record second-quarter results, Whirlpool Corporation announced a loss in the third-quarter 2004 with net earnings of $101 million, compared to $105 million in same period in 2003. However, net sales increased 6.6 percent from 2003, reaching $3.32 billion. Whirlpool North America reported sales of $2.1 billion for the quarter, an increase of 1.8 percent from the same period in 2003. The company said that U.S. industry shipments increased 5.4 percent from the same period in 2003. As of press time, Whirlpool said its full-year shipments were expected to increase by approximately 8 percent, in line with the AHAM 6 forecast.

The company also announced some North American restructurings and investments. Starting in January 2004, Whirlpool announced it was moving its production line for refrigerator ice makers from Fort Smith, AR, U.S. to China. The company later reversed its decision in December, citing it had decided to work with suppliers to reduce component costs in lieu of moving. In February, the company closed its Montmagny, Quebec, Canada plant, which employed 500 workers. Later in May, Whirlpool announced plans to invest an estimated $180 million, of which $100 million was said to fund initiatives to strengthen its North American manufacturing facilities.

With the release of the company’s third-quarter earnings, Whirlpool said the increasing costs of raw materials were beginning to impact overall operations, despite having curbed the price increase in the first and second quarters. “Our quarterly operating results were negatively impacted by raw material cost increases and record high oil prices,” Jeff Fettig, chairman and CEO of Whirlpool, said in an Oct. 20 statement. “The magnitude of these cost increases could not be offset by our record level of productivity and overall business spending controls.” In response, the company plans to offset the high costs by continuing to improve productivity, implement price increases, and accelerate the pace of new product launches across all brands in 2005 (see “Best Practices” sidebar on page 37).

Maytag also experienced mixed results as of the third quarter. The company reported third-quarter consolidated sales of $1.19 billion, down 3 percent from sales of $1.22 billion compared to the same period in 2003. Net income for the 2004 quarter was $7.5 million compared to that of $36.6 million in the third quarter of 2003. Included in the financial results were restructuring charges due to the company’s “One Company” initiative, announced in June, which integrated Maytag Appliances, Hoover floor care, and Maytag’s corporate headquarters. In an Oct. 21 statement, Ralph F. Hake, Maytag chairman and CEO, said that the initiative is on track to offer $150 million in annual savings and lowered costs.

However, due to sluggish sales of the Hoover Elite vacuum, Maytag started off 2004 by announcing it was cutting 330 jobs and closing one of two production lines in North Canton, OH, U.S. In June, Maytag laid off 600 workers at its laundry plant in Searcy, AR, U.S. and planned to lay off an additional 500 workers at the Hoover factory in North Canton, OH, U.S.

Despite overall declines, Maytag’s appliance segment did report positive changes for its 9-month financial results. Home appliance sales for the period increased slightly from $3.28 billion in 2003 to $3.35 billion in 2004. Releasing several new products in 2004, including Maytag®, Amana®, and Jenn-Air® French door bottom-freezer refrigerators, the SkyBox™ personal beverage vending machine, and the Rookie™ mini-refrigerators with customizable front panels, Maytag says it will continue to innovate in 2005. Set to launch are Jenn-Air glass front refrigerators and dishwashers, Jade™ residential cooking products and refrigeration, Jenn-Air small appliances, additions to the SkyBox line, and Hoover® hard surface cleaners and vacuums. The company said it expects its 2005 unit sales to increase 1 to 2 percent.

In September, Electrolux reduced its profit forecast for the rest of 2004, citing rising steel prices. The company said its operating income for the second half of 2004 was expected to decrease and its costs for materials and components were expected to increase by an estimated $163 million by the end of 2004. Third-quarter profit declined 12 percent with earnings of $93.4 million, down 11.7 percent compared to the same period in 2003. However, North American appliance sales showed improvement. The company reported third-quarter shipments increased 4 percent compared to that of 2003 and says the outlook for 2005 is expected to show growth.

As other major industry players announced restructurings, Electrolux announced it was discontinuing the production of floorcare products at its El Paso, TX, U.S. plant. Additionally, the company stopped production of refrigerators at the company’s Greenville, MI, U.S. factory to move it to a new factory in Ciudad Juarez, Mexico. In November, the company announced its freezer factory in St. Cloud, MN, U.S. could see layoffs as some production planned to move to China. There are plans, however, to add 400 jobs to its gas and electric range plant in Springfield, TN, U.S.

Electrolux recently hopped on the premium bandwagon when it announced that it was introducing a new line of kitchen appliances to the North American market. The Electrolux ICON™ appliances feature a stainless-steel design and include convection wall ovens, a warmer drawer, gas and electric cooktops, a refrigerator, a dishwasher, and a line of range hoods. The company, according to Keith McLoughlin, president of Electrolux Home Product for North America, plans to triple the line in 2005. The company also said it will introduce several new products under the Frigidaire line, including products in the refrigeration segment.

Additionally, Mr. McLoughlin said Frigidaire will introduce a new line of stainless steel outdoor grills and kitchen equipment that will come 95 percent pre-assembled. “I feel like we’ve done our homework, and it relates to all the innovation and all the new products that we’re bringing [into the market],” Mr. McLoughlin told APPLIANCE. “It really is a result of extensive consumer insight work, and not just the standard focus groups. We’ve performed ethnographic research where anthropologists live with people in their home observing how they interact with their appliances. We are quite confident of these products being received well. This is what the consumers told us they wanted.”

Already known for its “savvy” appliances, LG Electronics introduced several new products in 2004, including its new line of front-load laundry products, combination microwaves with coffee makers and toasters, and its TV refrigerator. According to Daniel Lee, director of Marketing, LG’s, innovation is going to continue on a premium level. “As we enter 2005, we will continue to leverage LG’s technology and core resources to introduce new products within the appliance categories,” he told APPLIANCE. The company is planning to release additional combination microwave products, a refrigerator that expands on linear compressor technology already featured in other LG products, and both an integrated and semi-integrated dishwasher line.

LG reported its U.S. appliances sales were up 15 percent in the third quarter. Mr. Lee says the company is growing by leaps and bounds, and that working closely with retailers has helped it gain a position in the North American market. “[The appliance industry] has typically been a category where you have the traditional brands,” Mr. Lee said. “At LG, the products really speak for themselves. We work closely with our retail partners to ensure that our product portfolio meets the needs of consumers.”

53rd Annual Appliance Industry Forecast
 
North America
 
Europe
 
Latin America
 
Asia
 
APPLIANCE Best Practices®
Whirlpool's Best Practices For Curbing Materials Costs

 

 

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