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Price Promotions Take Toll On Majap Profits


Rampant discounting has
come to major appliances, and the industry’s two largest
manufacturers are feeling the pinch.

Whirlpool and Electrolux reported lower third-quarter
earnings last month as the combination of price promotions
and the higher cost of raw materials ate into profits.

The majap industry had traditionally avoided the kind
of deep discounting, at least on premium products, that’s
more familiar to the consumer electronics business. But
four years of declining sales, and a falloff in artificial demand
after a federal rebate program ran its course, has
compelled vendors and retailers to cut prices, or respond
in kind, in an effort to jumpstart volume.

Indeed, U.S. industry unit shipments of major appliances
decreased 3 percent during the third quarter,
Whirlpool noted, and financially stressed consumers are
trading down to lower-margins models, adding to industry

In a conference call with analysts, Whirlpool chairman/
CEO Jeff Fettig acknowledged that the company’s North
American unit cut prices during the third quarter in two
key product categories, including laundry, in response
to “extremely aggressive” pricing by competitors and “a
sharp change in demand.”

Similarly, outgoing Electrolux president/CEO Hans
Straberg said sales promotions increased within the
North American market as the federal rebate program
waned. “We experienced a very strong second quarter
as a result of the government-sponsored rebate programs
to promote energy-efficient products,” Straberg said in a
statement. “Consumers took advantage of this opportunity
by advancing their purchases of appliances, which in
turn resulted in a drop in demand during the third quarter.
As a result of the market volatility, price promotions were
intensified at the end of the quarter, especially in the U.S.”

Whirlpool’s third-quarter net earnings fell 9.2 percent
to $79 million on essentially flat sales of $4.5 billion. But
operating profit for the three months ended Sept. 30
rose nearly 24 percent to $234 million due to cost reductions
and productivity initiatives and increased monetization
of certain tax credits. These favorable factors
were partially offset by higher material costs and lower
product price/mix.

“As expected, we faced a challenging environment during
the quarter which resulted in a significant slowing in
sales growth compared to the first half of the year,” Fettig
said in a statement. “Our ongoing focus on cost reductions,
productivity and innovative new product launches
continues to enable us to adapt to changes in the macroeconomic

In North America, third-quarter sales declined 3 percent
to $2.4 billion as unit shipments increased approximately
1 percent. Third-quarter 2010 adjusted operating
profit for the North America region fell to $114
million from $147 million in the prior year, due to a lower
product price/mix and higher material costs, which
were partially offset by cost reductions and productivity

Based on the current economic outlook, Whirlpool has
lowered its full-year estimate for industry unit shipments
from an increase of 5 percent to a 3 percent gain.

During the conference call, executives acknowledged
higher North American inventory levels, which they attributed
to product transitions, weaker-than-expected demand,
and a traditional seasonal buildup in advance of the
fourth quarter.

Whirlpool North America president Marc Bitzer said
the price cuts, plus positive consumer response to several
product launches, led to “strong brand share growth” during
the quarter. New product introductions included:

• Whirlpool brand’s top-of-the-line front-load Duet
laundry pair, which uses as little as 11.5 gallons of water
per load;

• Whirlpool brand’s Cabrio high-efficiency top-load
laundry pair, which uses 74 percent less water and 76
percent less energy per load compared with conventional
pre-2004 top-load washers;

• Maytag brand’s Ice20 Easy Access four-door refrigerator,
touted as the industry’s most energy-efficient
four-door refrigerator ;

• KitchenAid brand’s large-capacity dual-fuel doubleoven
range and dishwasher with retro-style recessed
handle; and

• Amana brand’s Tandem front-load laundry pair,
which uses 73 percent less water and 71 percent less
energy compared with conventional pre-2004 top-load

Bitzer added that Black Friday promotional activity
will mirror last Thanksgiving weekend, with the greatest
participation by national chains and more limited promotional
activity by the independent dealer channel.

Meanwhile, Electrolux reported a 5 percent decline
in sales, to $3.6 billion, and a 12 percent drop in net
income, to $189.2 million, for the third quarter ended
Sept. 30. Excluding the unfavorable impact of currency
fluctuations, net sales declined 2.3 percent.

In North America, operating income dropped 37.7
percent to $60.1 million due to higher costs for raw
materials and increased price promotions amid a weak
U.S. market, although Electrolux’s termination of several
private label contracts had a positive impact on
product mix, the company said.

Pricing pressure was especially acute within the
washer category, Electrolux noted, and increased
marketing efforts for the launch of new
Frigidaire brand products also impacted operating

Separately, the company said it planned to
shut its washer plant in Webster City, Iowa, in
the first quarter of 2011.

— Additional reporting
by Steve Smith