Appliance Outlook: Home Appliance Market Poised for Another Good Year
By Jonathan Samples on March 15, 2018
With housing markets and consumer confidence on the rise, demand for home appliances is expected to soar this year. The U.S. home appliance sector has been growing for the past several years, and analysts are predicting that trend to continue in 2018.
Domestic shipments of major home appliances were up 5.8 percent in 2017, according to the Association of Home Appliance Manufacturers. Evan Barrington, vice president of economic analysis and forecasting for The Stevenson Company, Louisville, Ky., says the same was true for core appliances such as washing machines, refrigerators and ovens.
Full-year shipments of core products were up 3 percent year over year in 2017. That’s down from the 5.5 percent growth this sector saw in 2016 but still respectable, according to Barrington. “We’ve been growing over time, so it only makes sense that the rate of growth is going to decelerate a little bit,” he says. “But 3 percent, I think the industry is reasonably happy about that kind of growth.”
John Dobek, vice president of business development at Roswell, Ga.-based Kloeckner Metals, says his company has seen business grow in the appliance sector in recent years and there’s no sign the market is slowing down. “For the past three years, we’ve had very good results in terms of our overall appliance business,” he says. “We expect that trend to continue through 2018 and maybe even into 2019.”
As always, the housing market was a key driver of appliance sales last year. That’s because new homes mean new kitchen and laundry appliances, which make up the majority of those core products. Approximately 608,000 new homes were sold in 2017, according to the U.S. Census Bureau and the Department of Housing and Urban Development.
This 8.3 percent increase in new home sales certainly helped boost demand for appliances, Barrington says, but it isn’t the only contributing factor. Sales of existing homes also affect the appliance market. And last year, the number of existing homes sold increased 1.1 percent year over year to 5.5 million. The National Association of Realtors says 2017 was the best year for sales since 2006, when existing-home sales approached 6.5 million.
“When conditions are good for those housing markets, they’re good for the appliance industry,” Barrington explains. “My experience in terms of forecasting appliances, if I get my housing number right I get my forecast right.”
The good news for appliance makers, as well as metal distributors who sell into that sector, is that analysts are maintaining a positive outlook for those key housing markets. According to NAR data from February, existing-home sales are expected to increase 0.5 percent this year, while new single-family sales are projected to jump 15.3 percent.
Similarly, the National Association of Home Builders says housing production will be on the rise this year, with total housing starts projected to climb 2.7 percent to 1.25 million units. Among total housing starts, single-family production is expected to increase 5 percent to 893,000 units.
“We expect that tax reform will boost GDP growth to 2.6 percent in 2018, and this added economic activity will also bode well for housing, although there will be some transition effects in high-tax jurisdictions,” NAHB Chief Economist Robert Dietz said during the NAHB International Builders’ Show in January. “Ongoing job creation, expected wage increases and tight existing home inventory will also boost the housing market in the year ahead.”
Job and wage growth aren’t just important factors for the housing market. Barrington says they also play a major role in consumers’ decisions to purchase durable goods, such as appliances. “If we get an increase in jobs, that’s an increase in take- home pay, income available to people,” he says. “And if people have more income, it’s easier to go make those purchases.”
Chris Billman, market research manager at Cleveland-based Majestic Steel USA, also thinks consumer confidence and a strong economy will help drive demand for appliances this year. “All the fundamentals are strong in the market: the economy is strong, consumer spending is up, construction activity is up. That should all lead to increased demand,” he says. “It seems like people are starting to get a little more extra money, their wages are going up, they’re getting a tax break. That could also lead to things like people remodeling their kitchens, buying all new appliances.”
Overall, Barrington is predicting a 3 to 4 percent increase in shipments of core appliances in 2018. That’s slightly higher than the 3 percent growth seen last year.
“The market will continue to grow; it’s going to start with housing continuing to grow and that by itself is going to help appliances grow,” he says, adding that the new federal tax reform bill and predictions that the economy will grow in the mid-2 percent range in 2018 are also swaying projections. “Tax reform is a key factor that has led people to boost their forecast for the current year. If we have greater overall economic growth, that will feed through to stronger appliance sales.”
The housing market, combined with higher consumer confidence, have domestic appliance manufacturers like Whirlpool optimistic as well. The Benton Harbor, Mich.-based appliance maker recently announced its 2018 guidance, predicting revenue growth of 3 to 5 percent in the up-coming year.
Jim Peters, executive vice president and CFO at Whirlpool, said during the company’s fourth-quarter earnings call that he also expects unit volumes to increase in the U.S. “As you look at 2018 for North America, we expect our volumes to grow in line or slightly above the industry,” he said. “Overall, we believe the unit demand for the industry is stable within the U.S., and we see that our growth will be in line with that and maybe slightly ahead of it.”
Swedish appliance maker Electrolux, Stockholm, is similarly optimistic that demand for appliances in the U.S. will increase this year. “The overall positive demand trend across most markets in 2017 is expected to continue in 2018,” Electrolux President and CEO Jonas Samuelson said in the company’s fourth-quarter earnings results. “We anticipate market demand for appliances in Europe to grow by 1-2 percent and in North America by 2-3 percent in 2018.
A recent decision by the Trump administration to slap a heavy tariff on imported washing machines was also welcomed by domestic appliance manufacturers, despite concerns that it will cause prices to go up this year. The move will put a 20 percent tariff on the first 1.2 million imported washers to enter the country in 2018, followed by a 50 percent tax on every washing machine after that.
Whirlpool CEO Marc Bitzer said during the company’s most recent earnings call that the tariff is a victory for U.S. manufacturers. “After nearly a decade of litigation, we are thankful that the U.S. government has announced an effective remedy,” he said. “This decision is a victory for American workers and will enable new manufacturing jobs here in the United States. At this point, however, it is too early to quantify the financial impact on 2018. But this is without any doubt a positive catalyst for Whirlpool.”
The tariff has already caused some overseas appliance makers, such as South Korean electronics manufacturer LG, to announce they would raise prices on washing machines as a result. But analysts don’t think the increased cost will have much of an impact on demand.
“Let’s say everybody raises prices $30 to $35, if someone buys a new home, is that going to cause them to not buy a new washing machine? If your washing machine breaks, is that somewhat higher price going to impact you? Probably not,” says Barrington.
In addition to all of these factors, demand for appliances can also be influenced by innovation. Dobek says new technology and a new emphasis on different color options are driving customer interest. “The feeling is good because the technology is changing,” he says. “There are a lot of different bells and whistles to appliances that keep interest up, and that keeps consumers buying and looking to upgrade.”
And with innovation and consumer choice becoming high priorities for appliance makers, service centers such as Kloeckner are looking for ways to remain competitive. Dobek says the company has begun offering PVD coating to stainless sheet, giving the next generation of stainless steel appliances a variety of color options. “PVD provides a feature where you get the benefit of a stainless product without losing the finished characteristic, the grain, of the steel,” he explains. “PVD doesn’t fill, it doesn’t mask, it’s translucent, so the texture of the stainless steel is still there except it’s in a color form. Whether it’s chrome, a gunmetal, black, gold, copper, brass tones, you can still retain the look and feel of the stainless product.”
Barrington agrees that new colors and features are helping drive demand. “New products are coming to market much quicker,” he says. “There’s enough change in the market that there’s just a lot more going on, which should capture the attention of consumers.”
With so many factors at play, there’s always a possibility that forecasts could change. But a strong housing market and high consumer confidence have most analysts and distributors confident that 2018 will be a good year for appliance makers and metal distributors selling into the market.
“It’s really not a science, it’s more of an art,” Dobek says of market projections. “I try not to get too complicated as far as outlook. This year is looking pretty strong, we feel pretty good about it. But when you start going past a year out and forecasting, things get cloudy very quickly.”
Steven Nghe is currently the Head of Marketing & Communications at Kloeckner Metals. Nghe is a marketing professional with more than 14 years of experience in various environments and industries. His goal is to tell you about the sexy side of steel. Nghe holds a bachelor’s degree in Business Management with a concentration in Marketing from North Carolina State University. Prior to Kloeckner, Nghe worked for Delta Dental, Wells Real Estate Funds, Georgia Institute of Technology and Doosan.