Want a TV with your fridge? For developed regions, the appliance industry is developing high-tech products to try to speed consumers’ replacement of older appliances. In developing regions, meanwhile, consumer demand is jumping as many become first-time buyers.

With housing starts in the U.S. in decline (October 2006 was 27.4% below October 2005, the biggest year-over-year decline since 1991), appliance makers are finding ways to promote purchases by people who aren’t buying homes. Mike Deneen, Sr. industry analyst for The Freedonia Group, a market-research firm based in Cleveland, OH, says a slowdown in new home sales is worrisome for appliance makers because a significant part of their annual sales growth is the new home market.

According to the latest (August 2006) report from the Assn. of Home Appliance Manufacturers (AHAM), U.S. appliance industry shipments of major appliances are up in almost all categories, but some only slightly. Electric range shipments YTD were up 4.4% from the same period a year earlier, with 3.9 million units shipped. Refrigerators shipped stood at 7,032,800, up 5.9% from a year ago. Automatic washers shipped YTD stood at 5,908,700 (up 4.9%) with 4,094,100 electric dryers shipped, up only 1.8% from the same period a year earlier. Total home laundry units shipped were actually down by 1.6% YTD in August 2006 from 2005.

The key for the appliance makers, notes Deneen, is shortening the replacement cycle by designing products with new, attractive features such as more electronics, water and energy saving features, and more designer colors. “Many people don’t realize how long these appliances last due to improved reliability,” he says. “If you wait until an appliance breaks to replace it, it’s a long replacement cycle. The goal is not to let you wait that long, but design new products with improved performance and efficiency, which speeds up the replacement cycle. With the housing slowdown this becomes extremely important.” He noted that Whirlpool had their biggest product launch ever last year.

Deneen notes that some Asian suppliers such as LG and Samsung, noted primarily for consumer electronics, are entering the appliance market in a big way. “Increasingly appliances will be seen as electronics items rather than mechanical items,” he says.

For example, LG Electronics last summer introduced its new line of LG Digital Appliances. The company, with North American headquarters in Englewood Cliffs, NJ, introduced a full-kitchen array of ranges, refrigerators, and microwave ovens, along with laundry innovations, including the world’s first steam washing machine.

“This year has been filled with many achievements for LG in the appliance category. Much of that is attributed to our commitment to identifying the latest trends and technologies in order to create new, exciting and highly designed products, with advanced features and options,” said Soon Kwon, president of Digital Appliances for LG Electronics USA Inc. For example, the company’s cable-ready TV Refrigerator with Weather & Info Center includes weather forecasts on a 4-inch LCD display located above the ice dispenser. It also includes a recipe bank with 100 preloaded recipes, and other novelties. The price tag for such nifty gadgets is high, starting at about $3500.

LG has targeted high-end consumers and already claims a 14.1% share of the market for washers priced above $1100. A recent report shows that LG is giving rival Whirlpool a run for its money, with LG’s profit margin of 5.9% beating Whirlpool’s 5.5%. LG is working to have 10% of the U.S. market in both washing machines and refrigerators by 2010, and to do that the company plans to keep rolling out innovative products.

The top six major household appliance producers—Whirlpool, Electrolux, Matsushita, Haier, BSH, and General Electric—accounted for 45% of global market share in 2004, and all are multi-line manufacturers competing in a number of different product segments. Most of the major appliance manufacturers are eyeing the Asian Pacific region for their real demand growth, notes Deneen. “Asia, particularly India and China, is virgin territory and represents a true growth market where many people are buying their first appliances,” he notes. “Whirlpool put a big investment in India with product launches. A growing middle class in both India and China will drive this growth.” Appliance demand is expected to grow by 2.8%/yr in the U.S. market, but annual demand in India is expected to grow by 5.3% and at a 4.5% pace in China. China has grown into the world’s largest supplier of appliances, more than tripling production from 1994 to 2004. For example, Haier, which first started manufacturing and marketing refrigerators in the U.S. in 2000, now has a full line of appliances available throughout the country.

In North America, plenty of change

The North American appliance industry has seen some major shifts over the past year, including the closing of Whirlpool’s purchase of rival Maytag, with the subsequent consolidation of their businesses with some plant closings. Whirlpool, headquartered in Benton Harbor, MI, announced on Oct. 3, 2006, changes at several North American manufacturing facilities as a part of the company’s ongoing initiative to optimize production capacity and adjust its workforce levels to optimize production levels and take advantage of its expanded manufacturing footprint through its Maytag acquisition.

“The workforce adjustments include the expansion of the company’s Ohio-based laundry manufacturing operations to support innovation and capacity requirements for additional brands,” said David L. Swift, president, Whirlpool North America. This expansion will create 1100 jobs in Ohio split between plants in Clyde and Marion, with production starting late last year.

Lower demand for freezers prompted Whirlpool to adjust production levels at its Evansville, IN, freezer refrigeration products facility in 2007, resulting in a layoff of about 500 employees. However, a production expansion is underway at the company’s side-by-side refrigeration products facility in Ramos Arizpe, Mexico. Once that expansion is complete, approximately 700 employees at the Whirlpool facility in Fort Smith, AR, are expected to be laid off during the first half of 2008, as additional models currently manufactured in Fort Smith will move to Mexico. The company completed a voluntary layoff of about 940 employees at the Ft. Smith facility in September 2006 by transferring production of some models to Ramos Arizpe.

One of Whirlpool’s longtime suppliers of molded components, Moll Industries (Dallas, TX), recently shut facilities in La Vergne, TN and New Braunfels, TX, both of which were dedicated to manufacturing appliance parts primarily for Whirlpool. Just two years ago, Moll received the Whirlpool Supplier Performance Award. However, Moll says it couldn’t come to an agreement on pricing for Whirlpool’s parts. Moll’s Ft. Smith, AR facility, which had molded parts for Whirlpool side-by-side refrigerators, was scheduled for closure but was acquired last month by River Bend Industries, a newly formed entity run by Ron Embree, Moll president from 2003 to 2005 and the former plant manager at the Ft. Smith facility. At press time there was no word on whether the Ft. Smith facility would continue to mold for Whirlpool.—[email protected]