Already this year China’s domestic white-goods market has suffered from flat unit growth in January and a decline in February. Shipments of room air-conditioners grew by just 4 percent in January, but shrank 8 percent the following month. Warm winter weather reduced the sales volume of heating air conditioners in the South China region, which resulted in higher-than-normal sales-channel inventory levels in March. The market for refrigerators was also soft in February, and washing machine unit shipments also declined.
China’s white-goods makers and re-sellers implemented sales promotions before the Chinese New Year, in order to retain sales volumes; however, unit shipments were still lower-than-expected in February. Consumers showed little interested in the sales promotions, mainly because similar promotions had being running every month, since September 2014. The sales season began on National Day in September and continued into early October, followed by aggressive online-retailer sales promotions in November. All China white-goods makers undertook promotional activities in December, to reach their annual sales targets.
Figure: China domestic white-goods markets yearly unit growth ratio, Jan-Feb 2015
Note: February numbers are estimates, based on shipments in the first half month.
Factories usually close only one week during the Chinese New Year holidays; however, due to higher inventory levels this year, certain factories took two weeks of vacation. White-goods makers and re-sellers continued their sales promotions well into the middle of March. While the average retail prices of white-goods were discounted by up to 10 percent, air-conditioners were cut even further. As the leading white-goods markets are reliant on these promotional activities to achieve their first quarter sales targets, manufacturers are taking steps to ship more goods to sales channels in March. IHS forecast that year-over-year unit shipments of domestic air-conditioners and washing machines will grow slightly in March..
Based on information from IHS Technology’s Home Appliance Intelligence Service, white-goods market volume is forecast to grow in the second quarter. In fact, white-goods makers and re-sellers are expected to implement another round of promotions, from late April to early May. These promotions will be focused on the air-conditioner and refrigerator markets, as the weather is warmer in the second quarter.
As China’s domestic white-goods market matures, appliance manufacturers are finding it difficult to boost unit shipments. In response, they are investing more resources in high-end or diversified segments, in order to maintain sales growth. Over the next five years, unit growth for inverter air-conditioners, high-capacity refrigerators and front-loading washing machines will remain stable. These high-end products tend to push average selling prices (ASPs) upward; however, due to intense market-share competition, ASPs for high-end products are actually expected to decline. Prices for low-cost products will remain stable, due to limited profit margins.
Leading home appliance makers are currently re-developing their strategies, to further differentiate themselves beyond price alone. While these companies once planned to expand their scales, in order to establish a cost advantage, they are now losing that advantage, due to increases in overall sales, manufacturing and labor costs. They are now trying to improve their profit margins, by focusing on high-end and diversified products. They have begun to invest more resources on product design, unlike the strategy adopted in past five years, where the focus was on expanding production capacity. These manufacturers’ are shifting from production of low-end products, which provide slim profits, to establishing new production capacity for high-end and diversified products. Chinese domestic appliance makers are expected continue to dominate the local white-goods market, due to their stronger in-house design capabilities, broader product sectors, more extensive sales and distribution channels, and better brand reputations among domestic consumers.
According to Dinesh Kithany, senior analyst for home appliance research at IHS, “appliance makers in China should start to aggressively look for further growth opportunities in other Asian and Western markets, especially through mergers, acquisitions and joint ventures. But they will only achieve greater success, if they improve the quality and design of their products, while keeping in mind the needs of consumers in those markets. In fact, top Chinese appliance companies are already positioning their products more in terms of quality, than on lower prices.