2001: A Major Appliance Odyssey

By Alan Wolf On Dec 17 2001 - 8:00am




Major appliances, a once staid category, was anything but in 2001.

Despite the most somber of Septembers, the industry finally entered a positive spin cycle, breaking a nearly yearlong pattern of successive monthly declines in factory shipments. Along the way, Maytag subsumed Amana; manufacturers completed their massive, if problem-plagued changeover to a new generation of energy efficient refrigerators, sparking a temporary shortage; and Whirlpool's Mike Todman was briefly elevated to the top U.S. operations spot before being tapped to run the business in Europe.

On the retail front, the prior year's departures of Circuit City from appliances, and Montgomery Ward from existence, led to over-capacity issues that prompted steep promotions, as top white goods dogs Sears, Lowe's, Best Buy and Home Depot jockeyed for market share. Amid the fracas, however, the nation's buying groups and independent minions successfully increased their sales clout as well-heeled consumers took the high road — paved, as it was, with pricey, stainless steel appointments.

The year in appliances officially began, as it traditionally does, in Chicago, where new microwave introductions heated up the show floor at the International Housewares Show. As in model years past, convenience reigned supreme as the show's theme, which translated into bigger, faster-cooking, feature-laden units designed with time-pressed, two-income households in mind.

By contrast, the industry's follow-up February event, the International Builders Show in Atlanta, was short on new product launches and even majap attendees, but big on waving the brand flag before the home builders trade. The one exception: GE, which used the forum to unveil some 50 new products, including its overhauled, Department of Energy-compliant refrigeration line, which, at a cost of $800 million, represented the largest launch in company history. The new flagship refrigerator: the Profile Arctica side-by-side, touted as "the most comprehensive refrigeration system" ever offered by the company.

The show also marked the return of Bill Beer to his former post as president of Maytag's majap division after a five-month absence, following the ouster of CEO Lloyd Ward.

Meanwhile, the tougher energy usage standards that precluded the industry's refrigeration overhaul will soon be applied to washers. In February, the DOE gave manufacturers until Jan. 1, 2004 to up the minimum efficiency of their machines by 22 percent, while a further 35-percent improvement over current water and energy consumption standards will go into effect by 2007. The net result: higher prices for washing machines, but a reduction of some 5 quadrillion Btu of energy by 2030 and a savings of 11 trillion gallons of water.

As the calendar moved into March, Viking moved into Lowe's. After expanding its higher-end white goods offerings in 2000 by adding Whirlpool's top-of-the-line KitchenAid brand to its majap mix, the nation's No. 2 home improvement chain and second-place white goods merchant began testing the premium line in its Las Vegas stores.

At the same time, Best Buy was busy readying plans to move its major appliance business to an inventory-free model, mirroring elements of GE's arrangements with The Home Depot and Wal-Mart. Speaking at a conference sponsored by investment bank Deutche Banc Alex. Brown, Best Buy retail store president Allen Lenzmeier explained, "We're going to be working with our major vendors on the back end in terms of rationalizing the distribution system and eventually going to a just-in-time inventory, where we hope to do away with a lot of our distribution infrastructure and really improve the inventory turns."

In April, members of the majap maker's trade association, the Association of Home Appliance Manufacturers (AHAM), convened for their annual spring meeting. Amid a backdrop of slumping sales, attendees were further alarmed by warnings from AHAM's governmental affairs crew that a coming regulatory battle may be brewing over stricter environmental controls at the state and global levels.

The good news, they said, was that DOE standards had "reached mature levels," and that the appliance industry has been successful in reducing carbon dioxide emissions and developing products that will realize significant energy and water savings.

Springtime also brought a renewal of sorts to GE, where longtime president/CEO Larry Johnston moved on to assume the top slot at Albertson's, the nation's second-largest supermarket and drugstore chain. Succeeding him was Johnston's No. 2 man, Jim Campbell, who, like his predecessor, is a well-known industry figure particularly popular among merchants.

Campbell's appointment came just in time for the Kitchen/Bath Industry Show, the industry's key platform for launching new products. Despite lackluster wholesale sales, attendees were optimistic that the innovative, high-end cooking, refrigeration, dishwasher and laundry lines introduced there would spur the consumer to a want-in, rather than a wear-out, purchasing cycle, and that their margin-nurturing features will win out over cutthroat pricing.

Despite the good cheer, April proved to be the cruelest month for American Appliance. The largest independent brown and white goods dealer in the mid-Atlantic market suddenly shuttered its 30 stores and dismissed its employees after a major creditor called in a loan that underwrote some 70 percent of its inventory.

American's troubles were representative of an industry in a sales slide. According to TWICE's Major Appliance Registry, published in June, sales for the nation's top 100 majap merchants rose a mere 1.5 percent in 2000 to $12.28 billion, compared to gains of nearly 13 percent during the prior two years. At the same time, the consolidation that hit major appliance retail shifted to manufacturing that month as Maytag announced the aforementioned $350 million buyout of struggling Amana Appliances, the country's fifth-place brown goods vendor.

As the Amana marriage was being consummated later that summer, the industry was faced with vexing problems in refrigeration and room air. With changeover snafus slowing production of the new DOE-compliant units, particularly at Frigidaire and, to a lesser extent, Amana, refrigerators were in short supply, sending retailers scrambling for inventory. While some merchants were largely forgiving of the production problems, which are expected with sweeping plant retoolings, others blamed vendors for failing to stockpile sufficient quantities of older models in anticipation of the changeover troubles.

Meanwhile, unseasonably cool summer climes threatened to kill a second consecutive year of room air conditioner sales. While temperatures remained balmy, retailers simmered as stockpiles of inventory sat unsold in warehouses and stores.

Of course, all those problems took on a different perspective in the post-Sept. 11 world. The tragic events of that day, at least from an industry vantage, caused the MARTA Cooperative of America to cut short its buying show and conference, delayed the debut convention of the newly formed Retail Dealers of America buying group, and damaged fourth quarter revenue as stores and malls were temporarily closed and consumers were distracted from buying dishwashers.

But as the year headed into the home stretch, the ultimate resiliency of America's consumers, retailers and majap makers was reaffirmed as sales snapped back and merchants began counting on white goods again to help make the Yuletide bright.

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