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Appliance Outlook

Home is Where The Freezer Is

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MCN Editor Dan Markham Stay-at-home orders in response to the pandemic created a boom market for appliances in 2020. 
How long will the good times last this year?


For going on a full year now, many Americans remain largely home-bound, kept from vacations and shopping sprees and simple trips out to dinner. The ongoing coronavirus pandemic has nearly imprisoned us in our houses and apartments. 

That may be bad news for the travel sector, the entertainment space and for our mental health. But there is one segment of the economy that has enjoyed the undeniable upside of the various shelter-in-place orders: the appliance market.
 
It turns out rooting through an overstuffed refrigerator throughout the day or struggling with the one balky burner on the stovetop at another meal are a lot more noticeable when residents are spending a lot more time in the home. 

Like most sectors, the appliance segment took an immediate hit at the onset of the pandemic, as manufacturers curtailed production and consumers were only shopping for the bare essentials. Many companies immediately halted assembly to reconfigure their factory floors to ensure safer working conditions in the time of an easily transmissible virus. 

But as the days of captivity turned into weeks and then months for consumers, the appliance sector took off at a rate not often seen. 

According to the Washington, D.C.-based Association of Home Appliance Manufacturers, overall appliance sales were up 3.9 percent in 2020 to 78.5 million units, and the six major appliance categories were up 6.5 percent to 49.8 million units. But a deeper dive into the numbers shows even greater strength. 

The sector was down for the first three pre-pandemic months, then gathered steam over the course of the year. In the fourth quarter, appliance sales were up 20 percent from the prior year. “That was big,” says Jill Notini, vice president of communications and marketing for AHAM. “And people are still looking at their appliances and trying to be sure they have everything they need in their homes as the pandemic continues.”

The biggest gainer among the major appliance categories in 2020 was refrigerator/freezer, where shipments were up 15 percent to 14.5 million units. The growth was even more robust with the chest-high freezer subsegment, up a staggering 171 percent from 2020. The pandemic led many Americans to buy second freezers for additional storage, either to keep themselves from going out as often or as a hedge against various product shortages that took place at times in 2020.

“The last time that freezers saw such a sizable uptick was after 9/11, when people were hunkering down,” says Notini. 

While cold storage experienced the most growth, all of the major segments gained ground in 2020, including ranges/ovens, washer/dryers and dishwashers/disposals. 

Many factors contributed to the banner year. Obviously, it starts with COVID-19, as spending more time at home leads to the determination that more needs to be done inside the home. On top of that, existing appliances were being used more than ever before. 

According to Louisville, Ky.-based GE Appliances, during the pandemic people were opening their refrigerators 40 percent more often than normal, washer and dryer usage was up 22 percent and dishwasher usage was up 41 percent.

Additionally, while the average American family was cooking three to five times per week before the pandemic, they began cooking two to three times per day when COVID hit. 

“The increased usage began to test the durability and efficiency of their appliances, so consumers began looking for upgraded products with professional features and functionality that would offer convenience while also taking meals to the next level,” says Shaun Lin, product development manager for THOR Kitchen, Chino, Calif. 

Moreover, though the coronavirus sent the overall economy into an immediate tailspin, the effects were wildly unbalanced. Many service workers, hospitality industry employees and small business owners suffered tremendous setbacks as a result of the pandemic. But those who could work from home endured nary a hardship. Suddenly, that group had additional money on its hands. 

“People are not spending time going to Disney World or going on a cruise or just going out to the movies like they used to. If they still had their jobs, they had extra money. Tie that in with spending so much time at home, and it’s a good time to think on upgrading where you live,” says Evan Barrington, vice president of economic analysis for The Stevenson Company, Louisville, Ky. 

The stimulus checks only added to that, and another round will continue to be distributed to both the struggling and the flush. The cash-strapped obviously won’t be using the money on appliances, but fully employed Americans will get another infusion of cash with few places to spend it, says Barrington, who tracks the appliance industry. 

But the gains weren’t driven exclusively by replacement purchases due to home remodeling. The new appliance market was also given a shot in the arm with the strong residential housing market in place. 

The Federal Reserve’s decision to lower interest rates to goose the economy in mid-2020 created a strong demand for housing. According to the National Association of Home Builders, housing starts were up 7 percent in 2020 to 1.38 million units. Single-family homes were the driver, up 11.7 percent to 991,000 units. Again, the pandemic was at play, as roomy homes in the suburbs became more attractive than tiny apartments in the city centers. 

Interestingly, the strength of the market in the back half of 2020 was not static. In Whirlpool’s year-end conference call, Marc Bitzer said the initial surge in purchases were more need-driven, with consumers replacing refrigerators and microwaves that had given out due to increased usage. But as time wore on, the mix shifted to more discretionary purchases from home remodelers looking at an upgrade in the appliance’s capabilities, a trend that drives the pursuit of more high-ticket items. “The quality of demand has changed in a positive way,” said Bitzer, chairman and CEO of the Benton Harbor, Mich.-based appliance manufacturer. “Beyond the numbers of the volume, we’re really pleased with the mix that comes with that increased volume.” 

To Jim Clancy, the nice thing about the demand growth in 2020 was that it was essentially organic. During the last recession, the Obama administration tried to jump-start the auto industry by introducing the Cash for Clunkers program, which incentivized trading in older vehicles for newer models. It worked, but largely by pulling demand forward. 

“This is not like we saw in the last economic downturn,” says Clancy, assistant vice president of Toyota Tsusho America, Union, Ky. “It seems to be steady, consistent demand across the board for the material for the appliance industry.”

Many of the factors that contributed to the strength in 2020 remain in play right now. Americans continue to be largely sheltering at home, and will stay that way until the vaccinations are further along. Another round of stimulus payments will continue to put extra cash into the hands of people without any other places to spend it. And the low-interest conditions and rediscovery of the appeal of the suburbs will continue to spur housing demand. Realtor.com projects single-family housing will grow another 9 percent in 2021. 

Experts anticipate this will drive growth, at least in the first half.

“In 2021, we are anticipating a flat to slightly positive industry (1 to 2 percent growth) for the year, with a stronger first half as a result of carryover from the end of 2020,” says Rich Wrightington, executive director, sourcing for GE Appliances.

Whirlpool is even more optimistic about the year to come. “Some uncertainty remains as we continue to operate in a COVID environment. However, we do believe increased disposable income, investment in the home and a favorable housing shift are here to stay and will drive strong demand. We expect global industry growth of 4 percent,” Bitzer told analysts. 

Barrington agrees with both of them. While people who remodeled the kitchen in 2020 won’t be looking to do it again this year, the other factors should be enough to drive another solid year. Yet he expects to see the strength concentrated in the first half of the year, as the pent-up demand for travel and other excursions may be able to be met under more favorable coronavirus conditions in the third and fourth quarters. 

Beyond that, there could be some slowdown. “I foresee a slight contraction starting in 2022, as a consequence of the remodeling market normalizing. However, I am confident that the new volume will be higher than before COVID-19 because our homes will maintain this new and central role in our lives after the pandemic,” says Marco Guerzoni, director of marketing and product development at Forza, an Italy-based appliance maker with a growing U.S. presence. 

Outside of consumer demand, there is still some pull-through effect of supply shortages that characterized much of 2020. The industry was faced with a considerable back-order situation that fed into the start of the new year, as the manufacturers had supply chain issues. 

While this condition will drive some replacement of inventory levels at the dealer level, Barrington says it can come with caveats. With significant back orders throughout the industry, some dealers may order product from multiple manufacturers and cancel orders when one of those manufacturers is able to fulfill the request. “How much of that is going on or will happen is hard to know,” he says. 

The interesting dynamics presented by the coronavirus pandemic, with some suppliers shutting down lines at the outset, and then other portions of the supply chain snarled by local outbreaks, kept AHAM busy. The group initially fought, successfully, to have the industry classified as essential. Later, when the material disruptions became more worrisome, AHAM found itself working across country lines with Mexico’s appliance trade group to ensure the North American supply chain was working at optimal levels. 

Oddly, those issues with raw materials weren’t related to the carbon or stainless steel that goes into the product, despite the idling of flat-rolled mills in response to the pandemic and supply constraints that have been present ever since. Rather, the appliance makers found more difficulty sourcing some of the component parts. 

“We haven’t had any challenges or issues,” says Craig Mathiason, president and COO of Jemison Metals, Birmingham, Ala., which is a major supplier to a growing appliance maker. “They’ve had bigger challenges on the big-ticket items, the electronics and some of the other things that go into the guts of what they’re making.”

His company certainly wasn’t caught off guard. “We’re so focused on being contractual, we started creating a buffer stock in November-December 2019. Not that we saw all of this coming, but we saw some of it and we knew we had to up the buffer stock for these guys.”

Being able to meet the needs of its appliance customers is the top priority of Toyota Tsusho America, a flat-rolled specialist. “We’ve done very well, but it’s something we have to be constantly focused on,” says Clancy. “We have to make sure the mill deliveries are reasonable, which is difficult, but also the pipeline is full as well. We’re constantly in contact with suppliers and working on the forecast with the customers to make sure we do everything we can to keep the pipeline flowing.”

That kind of attitude is what GE is looking for. “Given the dynamic environment this year, we have had to make a number of pivots. We have to move from a make-to-stock to a make-to-order business,” says Wrightington. “This means our suppliers will need to be more agile in the years ahead.”

Thus far, the spiraling price of hot-rolled coil has not been an issue with the appliance makers, as the contractual nature of the business and employment of hedging by most manufacturers mitigates that risk. That’s not to say the price is a non-issue, as the manufacturers ultimately have to pass that cost onto the consumers. Forza’s Guerzoni says raw materials remain his company’s primary concern, both in terms of rising costs and availability. He’s not anticipating a normalization of the raw material supply chain until the summer. 

Jemison’s Mathiason agrees the industry could hit a tipping point when it comes to metals pricing. “I do think we’ll reach a point where the end user is going to say, ‘We’re not going to pay that for the product.’”

Clancy, however, echoes a sentiment heard throughout the flat-rolled supply chain. “Availability is a bigger issue as opposed to pricing. The main concern is the continued supply. That’s the focus for everybody in the metals business right now.”

On the material front, two trends continue to dominate, further calling into question the usefulness of the term  “white goods.” Stainless steel’s appeal has not let up after more than a decade of growth, with some of its strongest competition coming from painted steels.

“Stainless steel usage continues to be very strong,” says Barrington. “There’s no downturn in popularity. It’s not a change; it’s an ongoing trend that defies historical norms.”

Appliance maker THOR Kitchen remains a believer. “Stainless steel remains the top choice for consumers, particularly for large appliances. The material offers the durability needed for appliances to endure the wear and tear of daily use, and seamlessly fits into design aesthetic,” says Lin. “Furthermore, stainless steel resists smudges and fingerprints, making it easy to maintain, and can withstand harsh weather and rust, making it ideal for use in an outdoor kitchen.”

But the appliance makers have also been expanding the palette of available colors for all appliances. “This trend started about five years ago when consumers were looking to branch out from stainless steel and show more personality through their appliance,” says Julie Wood, senior director of corporate communications for GE Appliances. “They also became popular as people were designing more open-concept homes and wanted their kitchens to better match other areas of the home.”

Another major trend in the industry, which will be felt by copper makers and other metals segments, is the push toward connected appliances. Almost all of GE’s newest product releases incorporate smart technology in some form, for instance. 

AHAM says this trend comes with considerable challenges for the industry at large, with three components of the smart appliance grabbing the interest of federal bodies: safety, cybersecurity and privacy. “Those are the three areas of connectivity we’re working on,” says Notini, whose group works extensively with agencies such as the Department of Energy on new standards. 

The industry hopes the continued expansion of technology remains a driver of demand even when the fundamentals aren’t as neatly lined up as they are heading into 2021. And, overall, even if the market starts to tail off in the second half of the year as Americans are finally liberated from their homes, many experts believe the long-term health of the appliance segment is sound. 

“Across the industry, consumers have reshaped how they interact with their appliances, which has had a wide and lasting impact on the market,” says THOR’s Lin.