Appliances, Household
SIC 3630
NAICS 3352
The world's appliance manufacturers output an extensive range of consumer household devices. These include electric and non-electric cooking equipment such as stoves, ranges, and ovens (including microwaves); refrigerators and freezers; laundry equipment (such as washing machines, dryers, and ironers); electric housewares for heating (such as electric space heaters, electrically heated bed coverings, and portable humidifiers and dehumidifiers); electric fans; vacuum cleaners; water heaters; dishwashers; food waste disposal units; and sewing machines.
From 2004 to 2007, global demand for major household appliances is projected to enjoy annual increases of nearly 4 percent, according to estimates from the Freedonia Group. This growth is expected to propel demand to 367 million units. Although China had become the largest global supplier of so-called "white goods" by 2004, the world appliances market includes production by numerous nations all over the world and consumption by virtually every country. A unique aspect of this industry is that it offers something to almost every consumer, regardless of lifestyle or income. Within individual segments of the market are many choices and price ranges, making products accessible to almost anyone. The leading segments of the industry are refrigerators, stoves and ranges, washing machines, ovens, and dryers.
Because of maturing markets in the United States and western Europe, appliance manufacturers in these regions chose two avenues to expand sales: developing innovative products with time-and energy-saving features to lure new customers in existing markets, and tapping new markets. The emphasis on energy efficiency is a major consideration for American buyers, so features designed to save utility costs and/or help preserve the environment are popular. As economies in Asia, South America, and eastern Europe expanded, manufacturers strove to capitalize on these areas' increasing disposable incomes and rising standards of living by developing export markets there and by forming joint alliances with manufacturers in these regions.
Waves of consolidation have characterized the U.S. industry, and a similar trend appeared later in Europe. U.S. consolidations left the country with only four major producers: Whirlpool, General Electric, Maytag, and Goodman Holding Company (Amana). In Europe, Electrolux and Bosch-Siemens started to acquire smaller manufacturers in an effort to achieve this kind of dominance and market positioning. Manufacturers in Asia, where appliance production has burgeoned, and elsewhere, are forecast to consolidate or close down operations because of the faltering economy.
Unlike industries with high fixed costs, appliance firms' costs are more variable because they are somewhat vulnerable to price changes in raw materials and parts. Company profits are enhanced by lower borrowing costs, market conditions that tolerate higher prices, and strong sales of high-end merchandise. Higher prices are not easily passed along to customers, especially since industry competition has increased significantly. One result of this heightened competitiveness has been an upsurge in industry consolidation.
Premium appliance models generally carry higher profit margins for industry manufacturers. Conversely, lower-end models have smaller profit margins. Washers, dryers, and refrigerators tend to be more profitable to appliance manufacturers than dishwashers and cooking equipment. The average life span of a major appliance is 10 to 15 years.
According to the Association of Home Appliance Manufacturers (AHAM), demand for household appliances varies from year to year depending on a number of economic and social factors: replacement demand, original purchase demand, saturation levels, state of the economy, and specific product demand.
Replacement demand for a particular type of appliance depends on that appliance's average life span and, to a lesser extent, the rate of technological innovation that distinguishes new models from old. In some countries, replacement demand is a large percentage of total demand for household appliances. Home remodeling activity also influences replacement demand, for changes in a home's layout can often prompt consumers to upgrade from older models to newer ones for the sake of aesthetics and convenience.
Replacement demand tends to be stronger when real appliance prices remain constant over time, only rising at the general rate of inflation. As the costs of acquiring a new machine stay relatively constant, the desire to repair instead of replace the appliance typically decreases. The availability of affordable new appliances thus prompts greater replacement demand when the need to repair arises.
In addition to replacement demand, new residential home construction is an important factor in the demand for household appliances. A typical new home can account for up to six different major units: dishwasher, refrigerator, oven, washer, dryer, and range.
Within each product category, saturation is defined as the presence of at least one unit of that particular appliance per household. In markets like the United States, saturation levels are high, resulting in lower levels of first-time home appliance purchases. In growing economies, such as in Asia and South America, saturation levels are comparatively low, and their markets present greater opportunities to companies seeking to increase their market share.
Appliance sales trends usually mirror national economic growth trends. When an economy is in early recovery, the household appliance industry is one of the first to show signs of improvement. This reflects the crucial role of consumer discretionary income in fueling appliance purchases.
Each type of appliance is affected differently by the cycles of the economy. For instance, range sales depend largely on housing starts because comparatively few are bought during the life of the home. Dishwashers, meanwhile, have shorter life spans and possess the lowest saturation levels. Refrigerators have a medium life expectancy and are less dependent on housing starts.
The modern-day appliance industry traces its beginnings back to 1878 when Thomas Edison invented the light bulb. The Edison Electric Light Company became General Electric in 1892. Edison left the company in 1894 to go into mining, but the company went on to develop electric elevators, toasters, electric ranges, electric motors, various appliances, and light bulbs.
In 1908 W. H. Hoover formed the Electric Suction Sweeper Company to make vacuum cleaners after he saw his wife's cousin, J. Murray Spangler, demonstrate a homemade version of a crude vacuum cleaner that he created to help in his janitorial work. Spangler made the vacuum cleaner out of a fan motor, a broom handle, a soap box, and a pillowcase that collected dirt. Hoover was in the saddlery business at the time, which was being overtaken by the auto industry, but he was wise enough to see that such a product would meet the needs of everyone who cleaned. The vacuum was first sold in hardware stores, but its popularity surged after salesmen turned to home demonstrations. After World War I, the company went back to selling vacuums through dealers because of a change in consumer preferences.
During the course of the twentieth century, appliances...
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