By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Retailers and vendors are facing another tough season for room air conditioning, thanks to unusually cool weather across most of the country. Although the summer is halfway over and the prime room air selling period has passed, dealers and their suppliers are still holding out hope for a torrid August to help move remaining inventory.
But besides creating overstocks, tepid AC sales are also putting additional pressure on pricing. The category, which independent dealers could once count on as a high margin boost to the bottom line, is now regularly footballed by national and regional chains, particularly in the smaller Btu window units, as a means to drive traffic. Encouraged by cheaper wholesale costs as the bulk of production has moved offshore, and anxious to clear out inventory to make way for their fall and winter wares, the nationals, including Wal-Mart, Lowe's and The Home Depot, have driven price points to new lows, with some 5,000 Btu units retailing for as little as $55.
Independents have responded by stocking in-wall models, larger window units, more specialized ACs and better brand names, although those items tend to be planned purchases, and will be largely unaffected by any late season heat, dealers say. Other retailers even talk of abandoning the opening-price-point category outright.
But there may be a silver lining of sorts for ACs. New federally-mandated ground fault interrupter (GFI) power cords, required on all units manufactured after Aug. 1, along with rising raw materials costs and a shortage of compressors, are bound to translate into increased wholesale and retail prices next year. That will make any low-priced carryover from the current room air crop especially attractive in 2005, which will help with their disposal.
But that's still small reward for an industry that's sweating out the present season, which was marked by a 16.6 percent dip in factory shipments in June (see story, below).
"This is an all-time rotten year for room air," said Warren Mann, executive director of the MARTA Cooperative of America buying organization. "If you can sleep at night with the windows open, it's horrible for business."
Also bad for business is the "catastrophic collapse" of price points, which are a quarter of where they were just five years ago. "At $55, profitability is dust," Mann said. "It's simply a dump. It's the low-overhead intersection of off-shore manufacturing and discount merchandising, just like DVDs. Commodity AC is a crummy business, and one our dealers would be well served to get out of."
"It's a volatile business because it's dependent on the weather," observed Mel Hunger, executive director of the NECO Alliance, a buying confederation of Northeast independents, and a member of the Nationwide Marketing Group. "You need three days minimum of hot, humid weather to sell window units, and you can't merchandise or market your way out of it."
Hunger took to task those vendors and distributors who have been "selling to supermarkets" and disrupting the marketplace. "Giving product away is unfortunate and a puzzle because if it's hot they'll sell regardless of the price, and if it's not, no one will buy them anyway."
Like NECO and MARTA, P.C. Richard & Son, one of the nation's largest white goods dealers, has found sanctuary in bigger and better units, including in-wall and portable models.
"Retailers who are buying a full assortment with sleeve units and greater Btus will have a decent season," said director and general merchandise manager Doug Kelly. "Those with commodity 5,000 Btu units won't."
He continued, "You need a heat wave to drive tonnage in the $69, $79 range, and since the heat hasn't arrived, the home center stores are trying to dump inventory." By contrast, "when you get into bigger, varied-sized units, these are purchases that are planned around a renovation or the burnout of an old unit."
Also working in the independents' favor is the need for nationals to end their room air season now, in order to make way for their fall and winter inventory. "The brown and white goods specialty guys can ride the AC season to the end," Kelly said, which can run as late as October through November. "We have no need to transition over to snow blowers."
Room air vendors respond in the Aug. 23 issue of TWICE.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.