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Seeking silver lining in 2021 and beyond

Although COVID-related restrictions in 2020 led to a dampening of the appliances market, there is still pent-up demand and underlying need for products among consumers in India. As a consequence, positive retail volume growth in 2021 and 2022 is expected to see sales recover to pre-pandemic levels.

Retail volume sales of consumer appliances were severely hit in India in 2020, breaking the steady growth pattern seen in the previous years of the review period. The COVID-19 outbreak, which continues to be a challenge in the country, greatly impacted consumers’ preferences, lifestyle, and purchasing behavior in 2020, affecting demand for consumer appliances.

COVID-19 India impact. India’s lockdown came into effect from March 25, 2020. All forms of movement were restricted for consumers apart from those classified as essential workers, including medical workers, police and grocery shop owners.

Manufacturers response. While most home appliance manufacturers were affected in the first half of 2020 due to lockdown and changed consumer spending patterns, they witnessed acceleration in the sales in the second half because of the festival season. Overall, companies have geared up to meet the growing need for convenience and hygiene among their customers as a consequence of COVID-19 and are offering suitable solutions to boost sales amid consumers’ reluctance to visit brick-and-mortar stores out of social distancing concerns.

Retailing shift. In 2020, consumer appliances, being touch-and-feel products, continued to sell primarily through store-based electronics and appliance specialist retailers and distributors. Major appliances represent a significant investment, and this strengthens consumers’ desire to see and study the products’ features before buying.

Global market
The global revenue in the home appliances segment reached USD 122,055 million and is projected to reach the value of USD 133,618 million in 2021. The segment is expected to show a revenue growth of 9.5 percent in 2021 as against 20.8 percent in 2020. Revenue is expected to show an annual growth rate (CAGR 2021-2025) of 4.4 percent, resulting in a projected market volume of USD 158,803 million by 2025.

The number of users is expected to amount to 2042.2 million by 2025. User penetration will be 16.2 percent in 2021 and is expected to hit 26.2 percent by 2025. The average revenue per user (ARPU) is expected to amount to USD 109.91.

In terms of sales channel, the offline and online contribution percentages stood at 78 percent and 22 percent, respectively, which are further anticipated to reach 77 percent and 23 percent.

Looking back at 1H20
Despite the critical situation of the starting months of 2020, home appliances grew during the first half, especially in the developed countries, where the lockdown created more needs for home evolved devices.

This situation also gave a further contribution to the already dynamic trend of small domestic appliances (SDA), including microwave ovens and water heaters, as GfK confirms. According to its data, in the first half year of 2020, the SDA market experienced a solid performance in the developed countries. This sector grew by +9 percent in Europe (including CIS), while in emerging Asian countries, recorded an increase by +10.9 percent.

The major domestic appliances market, instead, was almost stable at –2 percent in Europe, while in developed Asian countries it grew by +2.7 percent uptick. While affluent countries were able to invest in appliances to makes their life easier in lockdown, this was less feasible in emerging economies due to the immediate impact of the pandemic on income and willingness to spend money. Consequently, the emerging Asian countries experienced a double-digit decline in value, weakening MDA market growth.

A clear demand shift from want to need was evident from the onset of the pandemic. As people stockpiled (frozen) food, the immediate need for more storage capacity fostered sales of freezers. Once the stockpiling moderated, next came a strong drive for food preparation appliances. This characterizes the adapt phase.

The trend to eat at home continued strongly post-lockdown, in what GfK terms the revenge shopping phase. All cooking categories enjoyed positive tractions as a result of this trend.

So, consumers invested in what could make their life easier, allowing to face necessities that people often satisfied out of home. Just as eat-at-home triggered sales for the cooking categories, other challenges clean-at-home trend triggered sales of vacuum cleaners (+10 percent) and dishwashers (+5.6 percent).

During the global lockdowns, consumers were forced to shop more online. E-commerce shares witnessed a steady increase. Many first-time buyers too overcame initial barriers to purchase online.

The global share of online was 29 percent for major domestic appliances and 45 percent for small domestic appliances, and in both sectors it is up by nearly 10 percentage points compared to 2019.

Most notable is the fact that this online growth did not vanish once shops reopened. Strong growth rates continue as consumers continued to avoid crowds and realized the advantages of online shopping.

Consequently, purchase channels become less relevant, and the omnichannel approach even more essential to retailing success. Connecting and promoting online to offline is the key to serving customers the best.

While COVID-19 sent shockwaves reverberating through the whole industry, from consumers to supply chain, the final outcome of a strong in-home focus led to the unexpected strong and fast recovery of markets post-lockdowns.

This revenge shopping phenomenon was particularly strong for home appliances as consumers proved happy to invest in solutions that supported them and saved them time in a busy work- and schooling-from-home environment.

Size definitely matters for consumers in this context and so capacity in major domestic appliances is emerging as a long-term driver due to the pandemic.

Smart appliances in the expansion phase
Advances in technology have rapidly increased in today’s era and it is indicating no sign of slowing down. The technological advancements now are paving several new ways to make homes smarter and more efficient. With this development, there will be more intelligent home appliances including refrigerators, water heaters, and washing machines.

Though most advances will come with devices and technology that are already accessible, their functionality and ease of use will get so much better as consumers will ultimately rely on them as much as smartphones and computers.

Smart home systems have witnessed massive growth and adoption globally in the last 2-3 years. Even in India, there is a tremendous increase in consumers onboarding the smart home revolution.

Revenue in the smart appliances segment is projected to reach USD 2055 million in 2021. The number of active households is expected to amount to 18.9 million by 2025.

Product penetration for smart large appliances will be at 2 percent in 2021. The average revenue per active household in the smart appliances segment is projected to amount to USD 270.66 in 2021.

The smart home and IoT home appliances market is expanding swiftly. Almost all marquee brands have launched IoT and smart home products in the last 2 years.

Multiple categories like lighting, air conditioners, and air purifiers, among others, have been picking up with respect to meaningful IoT use cases.
In the previous 2 years, the demand for smart TV has surpassed the demand for non-smart TVs during festive season.

Google Home and Alexa have been amalgamating the IoT ecosystems by focusing on IoT products that can be controlled via voice assistants.
COVID-19 has accelerated the adoption of IoT in categories where touch-free experience is enabled. There is increased demand among consumers for app and voice assistant operated smart home appliances.

With the increased demand and adoption in the market and sensing that smart home appliances are the future of consumer durables and electronics, manufacturers are now creating a long-term roadmap for IoT in their respective categories.

Localization of IoT technology stack, localization of data, and focus on RoI is what all brands are eyeing now. Hence, on the back of adoption by consumers and reduction of cost, smart home is becoming part of the modern world.

The global single-family smart homes market size has declined from USD 63.4 billion in 2019 to USD 60.8 billion in 2020 at a CAGR of –4.24 percent. The decline is mainly due to the COVID-19 outbreak that has led to restrictive containment measures involving social distancing and remote working, and the closure of industries and other commercial activities. The entire supply chain from production to international trade has been impacted.

The single-family smart homes industry growth is then expected to recover and reach USD 104.20 billion in 2023 at a CAGR of 19.7 percent. North America is the largest region in the single-family smart homes market, while Asia Pacific is expected to be the fastest-growing region.
The increasing number of connected homes and growing implementation of smart home appliances is projected to contribute to the higher demand for single-family smart homes market.

Therefore, this increasing implementation of smart home appliances together with a growing number of connected homes across the globe is anticipated to boost the demand for single-family smart homes market.

In most cases, smart appliances are incremental innovations which add new features to existing products rather than creating totally new devices. The high amount of revenues is generated mainly by relatively high product prices.

Many customers as a first step purchase lower-priced small appliances, whereas people who already own products from other segments are more likely to purchase large, higher-priced appliances like refrigerators. Hence, smart appliances are likely to be adopted rather moderately in Europe and North America, but faster in APAC.

What is shaping the future of home appliances industry?
Although COVID-19-related restrictions in 2020 led to a dampening of the home appliances market, there is still pent-up demand and underlying need for appliances among consumers in India. As a consequence, positive retail volume growth in 2021 and 2022 is expected to see sales recover to pre-pandemic levels.

Following the recent India-China standoff, the clarion call for Aatma Nirbhar Bharat by the Government of India, and Production Linked Incentive (PLI) schemes, domestic manufacturing for household appliance products is expected to provide an impetus in 2021.

Several manufacturers in the home appliances sector have already started to Manufacture in India, limit and/or eliminate imports and produce new products based on localized needs, features or India-specific innovations.

Since the imported commodity price for consumer electronics products is anticipated to increase in 2021, it will further propel the trend of manufacturing domestically.

The pandemic has led consumers to spend more time at home due to restrictions on movement. This has resulted in increased focus on home improvement through higher budgets for cleaning, kitchen, and washing appliances.

The companies expect this robust demand to continue aiding top lines in the near term. Additionally, a spike in demand for air purifiers has been beneficial for the companies in the industry. The pandemic has also driven a shift to consumers’ buying electronics products online.

The companies note that this structural shift in shopping preference is likely to stay in the near term, as online demand continues to rise despite the reopening of stores in several regions.

The whole world turned to online and digital during COVID, and the home appliances sector can obviously be no exception. 2021 will be the year when both big and small-sized companies in this industry will be compelled to focus whole-heartedly on digital-first business strategies.
Even traditional product-based home appliance players may switch entirely from brick-and-mortar stores and shops to e-tail or digital commerce, or will at least try to go phygital.

The companies will also be looking at using digital tools/technologies to engage and interact with consumers (especially tech-savvy millennial customers), market their products, optimize operations, and so on.

In order to stay relevant and ahead-of-the-curve in these uncertain times amid changing consumer behavior(s), home appliance makers are currently feeling the need to diversify product portfolios and innovate purposefully and mindfully.

In today’s age when consumers are increasingly looking for personalized and easy-to-use products and/or experiences, product or technology-based innovation in home appliances must focus on 3Cs, i.e., convenience, connectedness, and customizability to the end-users.

By integrating novel technologies such as IoT or AI into products/solutions, future-forward companies will be looking to aid the lifestyle and solve daily-life household problems/challenges of their potential customers.

The global virus outbreak has not only made us more health-conscious, but also collectively raised our consciousness and commitment toward the environment, and for providing cleaner and greener solutions for planet Earth.

For the Indian home appliance industry, the upcoming year ushers a great opportunity to come up with more environment-friendly products.
Furthermore, a large number of companies building/manufacturing the appliances are expected to re-look and transform their production and distribution value chain (from sourcing, manufacturing to packaging and so on) in a way so that maximum use of clean energy and eco-friendly products or raw materials can be made, and the circular economy concept can be embraced for good.

Increased technological advancements, rapid urbanization, rise in income, improved living standards, change in consumer lifestyle and surge in need for household comfort are the key factors driving the industry. Demand for fast-accessible and remotely monitored home appliances has been consistently rising, thanks to tech-savvy consumers.

This compels the industry players to invest in innovation and R&D to come up with differentiated and handy products. These companies are also committed toward manufacturing appliances that are a one-stop solution for major household tasks.

Additionally, appliance makers are installing smart grids, thermostats, digital inverter compressors, and other monitoring sensors to make devices more energy-efficient.

As a result, household appliances are becoming more high-tech, embedded with smart sensors, and IoT-enabled technology. Such rampant innovation can significantly boost companies’ top lines.

Meanwhile, the industry players are resorting to pricing actions and cost-productivity programs to boost margins and profitability.
Although regular technological upgrade is a major survival strategy in the industry, higher spending on technology and innovation has been eating into companies’ margins and profits.

Freight cost inflation is an added concern. Prices for raw materials like steel and aluminum, which form the base metals for these companies, remain volatile.

Also, volatility in oil, plastic, or other secondary raw material prices is a concern. These expenses have been bumping up operational costs year over year, eroding companies’ profits.

Additionally, the global coronavirus menace has dented demand and supply across all industries and continents. With most home appliances’ manufacturers having operations across the continents, the impact of the outbreak is likely to get reflected in the near-term results.

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