Buying Groups Expect Majap Consolidation

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The extended downturn in the major appliance industry could force smaller, specialty manufacturers to close up shop, buying group executives warn.

“The smaller niche players may go away,” observed Adam Thomas, appliance marketing senior VP for the Nationwide Marketing Group. “The top guys are struggling too.”

As a precaution, “We're telling our dealers not to do business with the tertiary brands,” Thomas told TWICE,

Similarly, John White, appliances executive VP for Brand Source, predicted a consolidation among third-tier luxury vendors given softened demand within the premium appliance segment, which is down 4 percent within the group's majap mix.

Thomas has also seen a “slight slide” in Nationwide's premium business over the past 10 months, but said the real damage has been in the super premium segment, where business is off by 50 percent.

“We're seeing a permanent shift to where the business should have been all along,” Thomas said. “Too many consumers were overextending themselves. The very affluent will continue to spend, but the middle class is less likely to spend riskily.”

Indeed, 90 percent of consumers now shop for appliances on the basis of value and price, compared with only 33 percent just three years ago, he noted. “There's been an unbelievable change in consumer behavior. Business is driven now by price and rebates. We're in a replacement cycle vs. a buy-up cycle, and the consumer is more value-conscious than ever before.”

That's one reason the 10 percent price hikes imposed last January by Whirlpool, Electrolux and GE to offset higher raw-material costs didn't tend to stick, Thomas said — along with pressure from LG, which held the line on price.

“We've got to show real value to the consumer to attract them to the store,” he continued. “Our mantra is 'selection, value and price.' Once they come in, we can sell them the services.”

The current consumer climate wasn't lost on Brand Source, which plans to mount aggressive promotions to help members match offers by the big-box chains. White said the group's arsenal will include:

  • more 10 percent-off sales;
  • more affordable finance options;
  • rebates on core products, in addition to premium lines;
  • coupon offers, beginning in the second quarter; and
  • aggressive tabloid advertising.

“We must have competitive prices” to drive traffic, White said, even if that means selling leader products at $2 or $3 above cost. “The sales guys must step [customers] up.”

White also advised members during last month's Brand Source Summit here to optimize their vendors, limit the number of brands they carry, maintain the proper product mix, keep inventory low and employ email marketing.

Meanwhile, Nationwide's balanced assortment and its evolution from a buying group to a marketing group has already helped it take major appliance share, Thomas said — and the time is ripe to take more. Areas of opportunity continue to include high-efficiency laundry, both top- and front-load, and French door refrigeration. The latter category “is on fire,” he said, and now commands 35 percent of all dollar volume in refrigerators and 23 percent of unit sales.

In addition, Sears, which reversed a years'-long decline and increased its majap market share last year through aggressive price promotions, remains vulnerable Thomas said, due to a high cost-structure that makes the sales events unsustainable.

The promotional activity by Sears, Lowe's and other national chains has reduced everyone's margins by 5 percent to 8 percent, White said. The good news, he noted, is that traffic at the home improvement chains is down by 40 percent, and that Brand Source's majap business is only down 9.8 percent year to date, compared with 19.4 percent for the industry. Business improved for the group in March, and while margins will remain tight, sales should continue to pick up in the second quarter through 2010, he said.

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