Buying Groups Foresee 2nd-Half Uptick For Majaps

By Alan Wolf and Steve Smith On Mar 7 2011 - 6:01am

NEW YORK — The nation’s two largest buying groups, BrandSource and Nationwide, are forecasting moderate gains for major appliances in the second half of the year.

But that will follow a tepid first half as dealers face tough year-over-year comparisons to the opening months of 2010, when a federally funded and state-administered majap rebate program artificially fueled sales.

Buying group executives believe revenue will be bolstered in the second half by vendor price hikes, firmer MAP policies, increased marketing, more finely tuned holiday promotions and continued demand for mass premium products, particularly in French-door refrigeration.

John White, major appliances VP for BrandSource, told attendees at the group’s Orlando Summit last month that business will pick up in the second half of 2011 following tough first-half comparisons, and that overall, “We’ll have a decent year.”

Adam Thomas, appliance marketing VP for the Nationwide Marketing Group, anticipates industry growth of 2 percent to 3 percent this year, compared with 4 percent in 2010. “There’s too much infrastructure,” he told TWICE last month during the group’s PrimeTime! event in Las Vegas. “The industry moved 48 million units in 2006 — this year it may sell 39 million. There are more outlets for appliances now, and it creates stress on the demand side.”

Business will also be impacted by Internet channel conflict and narrow holiday sales opportunities, he said.

Both executives agreed that majaps have become more promotionally driven around major holidays, but said it is necessary for their groups to respond to low-price offers from Sears and Home Depot with traffic-driving discounts of their own. Home Depot in particular is a “promotional leader” that is undermining marketplace margins, White said, but, “We couldn’t afford not to participate” in a 2010 promotional calendar that ran through Black Friday.

Thomas said vendor promotions were “too broad and too deep” last year, and that promotional activity will be much more controlled in 2011, with discounts limited to select models within manufacturers’ assortments. Nevertheless, some 25 percent to 30 percent of all business will be done in the 65 to 70 days that comprise the big holiday windows, he said.

Thomas said last year’s stimulus subsidies plus Nationwide’s strategic use of marketing funds helped it end the year up 10 percent in unit shipments, compared with 4 percent for the industry, implying market share gains. To compensate for the government rebates, the group is budgeted to throw additional marketing resources behind white goods, particularly models that meet new and stiffer Energy Star standards.

BrandSource CEO Bob Lawrence said his group exceeded industry volume by 1 percent and outpaced the independent channel by 3 percent in 2010. This year White believes “refrigeration will be a big winner again,” but that laundry sales “will continue to lag” during 2011.

Thomas said French door configurations in particular will be “quite robust,” commanding fully half of all refrigeration dollars. The Nationwide exec is also bullish on highefficiency top-load washers, which remain less price-sensitive than front-load laundry products.

Nationwide is also staying focused on the mass premium segment, where it claims a 60 percent share of the market. Business there continues to improve, while the super- premium tier, which was fueled by mortgage brokers, Thomas said, has fallen by 50 percent to its historical 1 percent to 2 percent slice of the white-goods market.

Thomas is also optimistic about a new Whirlpool MAP policy governing Internet sales that will be implemented July 1. “They’re trying to put some sanity back into the game,” he noted. “It’s not perfect, but will give us a little more confidence that advertised prices are competitive.”

All pricing is expected to rise 8 percent to 10 percent the first week of April, when manufacturers implement cost increases to offset rising raw materials prices. Thomas said he supports the price hikes, which are much needed by vendors, “as long as they’re unilateral and across all channels.” Whether the increases will stick and at what level remains to be seen, however, as bigbox chains have inventory through mid-May.

Thomas is less sanguine about smart-grid appliances, which are still another year away from launch. The products will likely be replacement purchases rather than upgrades, do not represent a major margin opportunity, and the utilities have yet to agree on a common platform, he said.

On the competitive front, both groups cited continuing weakness at Sears. The No. 1 majap merchant is struggling, White said, with its once 40 percent-plus market share eroded to 30 percent and its viability threatened by overall financial weakness. Its private-label Kenmore brand, while still the industry’s largest, has fallen 50 percent to a 15 percent share, Thomas added, and Nationwide rejected offers to add Kenmore to its assortment.

More troubling is talk of another Walmart test of GE appliances, 11 years after a first pilot program was pulled. Some reports suggest that a 20- to 30-store test is set to begin next month, White said. Others place the trial in Texas, where majaps will receive dedicated departments rather than the front-of-the-store placement of the earlier effort. But GE, said Thomas, claims the project is now off the table.