The appliance segment followed up a banner 2020 with an even better 2021, and healthy backlogs could lead to continued strength this year. The pandemic has damaged a number of industries in North America and elsewhere over the past two years. The appliance sector is decidedly not one of them.
Perhaps more than any other manufacturing segment, the makers of equipment for kitchens, laundry and ventilation have reaped the rewards of the unique conditions presented by COVID-19. Stay-at-home orders, followed by stay-at-home decisions, have resulted in a stellar two years for the appliance market.
In 2020, despite the virtual two-month lockdown in the spring, sales of major appliances increased 6.5 percent. The appliance sector followed up that outstanding year with an even better one, with sales climbing 9.8 percent to 54,651.9 units.
“We’ve had a good couple of years due to the pandemic and everyone being at home and not traveling and using their appliances a whole lot more,” says Jill Notini, vice president of communications and marketing for the Association of Home Appliance Manufacturers, Washington. “We’ve seen some benefit from that.”
And it wasn’t just being stuck at home. Pandemic-related stimulus measures did more than just keep some families afloat. For others, they provided a boost of extra cash with not a lot of places to spend it, with travel and other leisure activities restricted. Home Depot and Lowe’s, however, remained open.
An additional COVID factor also worked in the market’s favor. The decade-long trend toward urban living among young professionals reversed course, as young couples saw the benefits of space and sought out homes in the suburbs, exurbs and beyond. Housing starts were up 15.6 percent in 2021 to 1,595 million units, the Commerce Department reported. A strong housing market has always been the best indicator for growth in the appliance sector.
The only issue surrounding the appliance market, and it’s one that every industry has faced, is the ongoing supply chain constraints. Had the appliance manufacturers been able to keep up with demand in 2021, the gains would have been even greater.
“Like everybody, the sector has been constrained to reach its potential,” says Matt Meyer, commercial director for Kloeckner Metals, Roswell, Ga. “A lot of industries are affected by labor and supply chain issues, but it’s really hit appliance hard.”
“The backlogs are strong,” agrees Chris Billman, market research manager for Cleveland’s Majestic Steel. “We’re actually seeing some increased backlogs from our customers who are running short of other products, whether that is insulation or wiring where things have been put on hold.”
Interestingly, while procuring carbon, stainless and aluminum is not the least of their worries, it does rank pretty low among their concerns. The appliance makers are having a much more difficult time obtaining chips and other components than the metals that go into production.
“Relative to the auto sector, the appliance challenges have been minor,” says Evan Barrington, vice president of economic analysis and forecasting for TraQline, Louisville, Ky. “But there are a number of products where chips are necessary and it has played a role.”
The supply chain hiccups also involve labor shortages, and the appliance segment is not immune to that. In fact, it’s particularly acute there, as the pandemic-related growth in sales demands even more workers to assemble and ship those products around the country.
“Labor is a big question mark. It’s difficult for them to say when they’ll be able to staff up,” Meyer says.
Given the appliance market’s global network of suppliers, the troubles overseas play a significant role in how easy it is to manufacture products for the kitchen and laundry room here.
“The international shipping crisis remains a primary threat to our forecast,” says Shaun Lin, product development manager for THOR Kitchen, Chino, Calif. “We have maintained a strong product inventory and have new products ready to transfer. Shipping lead times and costs, however, have doubled, or are even longer, as compared to before the onset of the pandemic.”
Of course, the existence of the strong backlog means much of that demand from 2021 will carry over into 2022, letting the good times run a little longer. That’s what the industry is anticipating. Industry leader Whirlpool is forecasting sales growth of 5 to 6 percent this year, the company claimed in its most recent conference call.
Smaller operations have similar expectations. “We fully expect demand to keep growing in 2022 as we keep raising our brand awareness, educating our consumers and building our infrastructure in the United States,” says Calvin Ruan, co-founder of Hauslane, a San Francisco-based manufacturer of range hoods.
Billman says his customers are projecting more growth in 2022. “Everything still looks favorable to the sector, a lot of it on the back of strong residential construction. And now we’re starting to see a recovery in nonres that kind of came to a halt as the pandemic hit.”
Barrington is a little less optimistic. He’s forecasting a relatively flat year, with some upside if the supply issues are resolved quicker than he anticipates and the backlogs help buoy demand. But he also worries that the backlog situation could be overstated, a condition driven by the severe shortages of 2021. Retailers desperate for product in 2021 may well have placed multiple orders to manufacturers, orders that could be canceled once inventory starts building again.
“I’m a little pessimistic,” he admits. “We’ll make some progress with supply, but I think it will be slow.”
One concern hovering over the industry is inflation, which can be particularly sensitive in a consumer-facing segment such as appliance. Pricing for metals exploded in 2021, and even though there will be some relief on steel this year, other inputs may still be on the upswing. That includes stainless, Meyer says.
“As material becomes tighter, as domestic demand starts shifting toward more foreign to subsidize the limited domestic availability, prices are going to stay high. Our counsel to those customers is that unlike carbon steel products, there will be legs to this high stainless steel pricing until some significant change happens with legislation or capacity comes online in the U.S.”
“The majority of our products are manufactured with 304 stainless, a material that has seen fluctuations in cost. As our material costs have started to rise and put pressure on our team, ROBAM and its peers throughout the industry have raised prices when necessary to offset this increase in the price of materials,” says Elvis Chen, regional director for appliance maker ROBAM.
Fortunately, they should get a break on steel pricing, which has been moving downward for the past five months or so. “We’ve seen a drastic decrease in domestic, and foreign material has plateaued,” says Billman, noting this development will lead to sourcing more material from North American producers.
But metals pricing is only a part of the issue. “We anticipate material costs to rise every year, but the excessive increases during the pandemic were something the industry has never experienced,” says Lin. “Not only did this create longer lead times for production, but it also directly impacted the price of the finished goods. Consumers may have seen a 10 to 15 percent price increase on finished goods because of the significant increase in the cost of raw materials.”
Meyer wonders if this will ultimately influence some material choices. “How is this going to affect design decisions? Is there going to be a resurgence of painted products over stainless steel? I don’t know, I can’t give any insight, but you have to know that’s being looked at as a consideration. It’s purely a cosmetic decision, not a design decision based on fit and function.”
AHAM is keeping a watchful eye on the matter, even if it’s very much outside the association’s control. However, these rising prices make unrelated costs increases, such as those associated with government mandates, even more unpalatable at the moment. “We want to make sure consumers can find appliances, can purchase appliances and that the cost of regulations don’t add to the cost of those products,” says Notini.
In years past, consumers would balk at rising prices, and the appliance makers have not been very good at pushing them through and leaving them there. Often, one maker will back away from industry increases in an effort to claim market share.
But none of those typical responses have been in play yet. There hasn’t been much in the way of discounting, another common industry practice to lure customers. The consumer has simply been willing to eat the increased prices, and the supply issues may keep things that way. “As long as demand exceeds supply, then you’re selling everything you have in the factory and there’s no worry that you need to ratchet back prices,” Barrington says.
Of course, it isn’t just the appliance industry that could react to higher prices. The Fed is likely to increase interest rates this year – perhaps multiple times – in its fight against inflationary conditions.
An increase in interest rates could certainly cool off the housing markets, as higher interest rates lead directly to higher mortgage costs.
On the other hand, Billman notes, if people can’t move, it may make them more likely to do renovations instead, a nice offset for the appliance segment.
Though most in the appliance supply chain remain optimistic, the models for prediction may not be as clear as the industry would like. “One of the struggles we have is they haven’t gotten their head around how to properly forecast out what demand is going to be in the forward months,” Meyer says. “I don’t think they have a clear picture when they’ll be able to dig out of the backlog.”
Caption: GE’s high-end Monogram series employs both stainless and brass. (Photo courtesy GE Appliances)