Retail Observer

MARCH 2014 RETAILOBSERVER.COM 51 V olume is up, market-pricing volatility has leveled, and dealers are selling in packages again. Who would have thought it possible?! Since our high water mark of 47M core units in 2005, we have had a steady decline in industry volume to a low of 35.8M in 2012 (a 23.8% decrease). The end to this volume deterioration was the biggest change in 2013. Not only did we see an end to this decline, but a turn around. Depending on what numbers you look at, the core appliance business in 2013 was up around 9.4% in units*. This number is slightly inflated, as it includes the builder/contract business, which had a strong turn around year-over-year. If we back out that business, we end up with a retail appliance volume at about 3% up for the year. So, as an industry, we were able to reverse a trend that was seven years in the making. The future looks bright. Rebate redemption on multiple item purchases are on the rise and the average sale price (ASP) of each unit has increased. This means bigger tickets with multiple units. Most of this is driven by both the "replacement cycle" of product and consumer confidence. The higher consumer confidence is, the shorter the window for replacing a faulty unit. If consumer confidence is low, they tend to hold onto their current product longer - through service and maintenance. If we look at the combination of higher consumer confidence and the pending increase in products entering the "replacement cycle", the forecast is positive. The graph below shows the industry units since 2000. On average, an appliance lasts 10-12 years, with some as low as 6-8 years. As you will see, that means we are just entering the "replacement cycle" for the largest shipment years in our industry. Now, couple that information with a changing marketplace. Sears, the 800 lb gorilla in the appliance industry, continues to falter. Their demographic continues to age. Their business model and locations are antiquated. With their demise springs opportunity. The added benefit for independent retailers is that a Sears customer has similar shopping experience expectations as their current customer base. They want to be waited on; they rely on the salesperson for a professional assessment of options. They expect a trained sales staff and a clean show floor with a significant breadth of assortment. This gives the independent a distinct advantage over big box stores. All of this equals good news for independent appliance retailers, but the work is only just beginning. We need to have "top of mind" awareness of consumers when their appliance needs arise. We need to continue to remain relevant in our markets everyday. We need to embrace the "new" marketing techniques in today's world. Social media, including Twitter, Facebook, Pintrest, etc., are now "must haves" in the quest to remain in the conscience of consumers. This is a dynamic change from where a majority of independents spend their time, money and efforts. If you are approaching your advertising the same way you have for the last thirty years, stop. You need to reassess your approach. I am not suggesting that your current means are bad, but chances are they need to be complimented with additional routes to market. This is all in an effort to extend your reach. As more consumers enter the market, we need to ensure they are aware of your location and story. Most of these newer routes to market also cater to a younger demographic. This is an important ingredient in the recipe for success and sustainability. Another dynamic change over the last few years in the appliance industry is the depth and duration of holiday promotions. Manufacturers, consumer and big box stores have created a frenzy during these times. The period that these promotions are running have slowly extended over the last few years. For example, Black Friday was initially an electronics promotion that lasted for a few hours on the day after Thanksgiving. It has now become a month long promotion that includes all categories. This has become true for all major holidays. These changes have made it paramount for independents to re-address their approach to holidays. In the past, it was easy to say, "I don't want to sell at such crazy prices" and close your door for the day. Today that has become more difficult. These promotions are here to stay and we need to figure out how to preform and remain profitable throughout the year. It is essential that independents look at the entire period and not merely the promotional dates. By that, I mean, we need to look at the entire blended margin through the course of the month and not simply focus on the margins at hand for the actual holiday promotion dates. The other key to remember is that ~65% of appliance purchases happen outside of these promotional windows. So it is important to manage your inventories, take advantage of vendor buy-in windows, and be in position to maximize margin opportunities when they arise. It's important to take advantage of the changing times. The forecast for 2014 with regard to the appliance business has a positive outlook. Are you maximizing all opportunities to grab a hold of your market share? *Stephenson NPD; Global Insights Patrick Maloney is an appliance writer for The Retail Observer. He will be sharing his insights and expertise with you throughout the year. Patrick is the Vice President of Appliances for Nationwide Marketing Group, a leading buying and marketing organization for independent retailers. To learn more about new ways to grow your appliance business or the many benefits of joining Nationwide Marketing Group, go to www.nationwidemarketinggroup.org. RO

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