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The U.S. market for home appliances is changing dramatically, but it’s not so simple a change as “growth.” Although the industry is expanding, economic and technological forces are shaping both consumers and appliances into something wholly different than what we’re used to.
A growing wave of mass connectivity and an improving—or rather, adapting—economy spell challenges for manufacturers, and confusion for the fractured, irregular nature of U.S. consumers.
For Many, the Recession Lives On
Since the trough of the recession in 2009, big leaps in appliance innovation have unfolded despite tepid confidence among many consumers, particularly those in the middle income bracket. The fact is, enthusiasm for appliances is eclipsed by enthusiasm for personal electronics. Between 2007 and 2010, U.S. spending on home appliances fell by roughly 3.6 percent—compared to a 1.8 percent increase in television, computer, and mobile sales, according to The Wall Street Journal.
So for major appliance makers like Whirlpool, Samsung, LG, and GE, the focus is now on driving innovation in the appliance market—exciting innovation, innovation that's apt to attract wary consumers. But this can sometimes seem like companies are throwing ideas at the wall to see what sticks. It's why you see seemingly nonsensical products emerging, like Samsung’s tablet fridge, LG’s Blast Chiller, or Siemen’s camera fridge. It’s also why appliance makers are swooping in on “smart” functionality and home automation.
Kurt Jovais, vice president of marketing at Samsung Electronics America, says the business goal of smart tech is to unite appliances—traditionally disconnected, standalone devices—with the mass connectivity afforded by mobile and web technologies.
“When we define smart appliances, what we’re thinking about is the interaction between the user of that home appliance and the home appliance itself,” Jovais told Reviewed.com in an interview last year. “So that interaction goes from being a one-way interaction to being a multi-directional interaction between the user of the home appliance and other nodes.”
For everyday consumers, though, the sales pitch has been hit or miss. In 2012, Navigant research reported that the fledgling smart appliance market was valued at $613 million, compared to the wider $30 billion general appliance market.
Of course, the recession is still the elephant in the room. The fact is, Americans are nowhere near their pre-recession consumption levels—across all products—and the bifurcating state of U.S. income levels is posing additional challenges to manufacturers.
In the U.S., the median household income has fallen by 4.4 percent since June 2009, and by 7.2 percent since January 2000 (inflation adjusted), according to a June report by Sentier Research. Meanwhile, the average American income remains 6.1 percent below the pre-recession level of December 2007. Combined with consumers’ preference for personal electronics in times of economic hardship, this outlook spells trouble for appliance makers.
A New Market Emerges
Despite grim income trends, appliance sales have been slowly rebounding from the depths of the recession and are poised to accelerate in 2014. Small kitchen appliances, for example, enjoyed substantial growth in 2013, and 2014 projections for major household appliances are mostly optimistic. Perhaps most notably, Whirlpool—the world’s largest appliance maker—recently elevated its 2014 earnings forecast to reflect an improving U.S. housing market.
As it turns out, it may be a renewed interest in building that's driving consumer demand for new appliances, rather than a simple desire to upgrade. Last year, U.S. homeowners spent $130 billion on remodeling projects, according to the Wall Street Journal. That’s up 3.1 percent from the previous year and the largest amount of home-remodeling spending since 2007—the year the housing downturn began. More recently, the National Association of Home Builders reported record-high confidence among builders.
All this is likely to translate to a surge in appliance demand for 2014, but given the transitional state of the technology that drives the appliance market the question becomes: How will manufacturers service consumer demand while also meeting the connectivity standards of an increasingly mobile-equipped world?
Same Spending, Fewer Customers
The U.S. income gap is not presenting itself as a simple drag on consumer spending. On the contrary, as the above data shows, that type of spending is starting to return. What’s different now is that a larger pool of that capital is coming from a smaller market of buyers—namely, the wealthy. Fewer consumers are contributing a larger share of revenue.
According to the Institute for New Economic Thinking, the top 5 percent of earners accounted for nearly 40 percent of all personal consumption spending in 2012—up from 27 percent in 1992. In the appliance world, that has translated to greater demand for high-end products. For example, LG recently announced plans to ramp up distribution of its premium Studio Series appliances.
"With the U.S. real estate market in recovery, we are expecting to see an increase in consumer demand for upscale appliances for new homes and remodeled kitchens," said Seong-jin Jo, president and CEO of LG Electronics Home Appliance Company, in a statement last month.
Similarly, the New York Times recently reported that GE’s current fastest growing line of appliances is its Café line, which is also aimed at the top quarter of the market.
“This is a person who is willing to pay for features, like a double-oven range or a refrigerator with hot water,” Brian McWaters, a general manager at GE Appliances, told the Times.
So in addition to a U.S. market that is demanding improved connectivity standards in service of growing home automation trends, appliance manufacturers must also contend with a market that is still not fully recovered from the recession and increasingly dominated by high-income earners—a complicated outlook indeed.
The Answer to a Confused Market
This does seem to explain the growing interest in home automation, which is being pushed more by manufacturers than consumers. Google’s recent acquisition of Nest is just the latest example of an industry that is devoted to unifying the various gizmos and gadgets that make up the modern home. Recent forays by Samsung, LG, Electrolux, Whirlpool, and GE—basically, anyone important in the U.S. appliance sector—further point to a market that is technologically prepared, but has thus far lacked consumer interest.
Currently, the home automation market is valued at about $570 million, according to ABI Research, but that figure is expected to reach $2.6 billion by 2017. Guiding that growth will be the roughly 19 billion connected devices worldwide, according to Cisco.
To be clear, manufacturers are aware of these trends. They have whole budgets dedicated to this type of analysis. For consumers, though, it will be interesting to see how big appliance brands respond to the unique challenges ahead. With all of these trends coming to a head in 2014, you can expect to see increased consumer adoption, a slew of corporate buyouts—much like Google’s acquisition of Nest—and, most of all, fierce competition. Together, they’ll fully help dig appliances out of the muck of the recession.