Every now and again we hear that the service sector of the appliance industry is doomed, largely from trade members in our forums, and until recently this is not a view that has been especially popular however the events of recent times may push that view back to the fore.
Over the past two years the industry has seen some quite remarkable changes taking place through some failures and acquisitions.
You could trace some of this back to the failure of MFI, Moben and so on in the wake of the 2008 financial crisis but, whilst these were companies with a sizeable presence in the appliance industry they were more kitchen companies than appliance companies as such.
The first of the truly seismic more recent changes was the failure of Baumatic (subsequently bought in name only by Candy) when it collapsed late in 2013. In some regards this caught many in the industry by surprise as, up until that point, Baumatic appeared to be doing okay.
Hot on the heels of this the Fagor Group incorporating Fagor, De Dietrich and more also collapsed quite spectacularly and that business was effectively wound up in 2014.
This is more significant than the collapse of Baumatic as Fagor was one of the largest appliance manufacturing groups in Europe.
Perhaps however it was not the collapse of the group that was the most remarkable thing that happened. We would argue that the most remarkable and the single most significant thing about this is that nobody wanted to buy one of the top European brands.
Certainly it could be argued that perhaps it is significant that Fagor actually had production or that it was underwritten to some degree by Mondragon, it’s parent company and even they didn’t want to save it but still, why was nobody interested? How can that possibly be the case?
We decided to look a bit deeper to try to find out why and to see how this may affect the service side of things.
As we did so we learned more and, more happened.
The Fall Of Giants
Aside the two large companies mentioned, one a titan in the European appliance scene there then came murmurings and rumours that Indesit was in trouble. Well, not so much trouble but that it may be up for sale or open to working in partnership with another large manufacturer.
The bottom line appeared to be that investors in the group didn’t see it making enough of a return and wanted out. So, a way was sought to accomplish that.
What’s remarkable about this is that this is one of the top five manufacturers in Europe owning household brands such as Indesit obviously, Hotpoint, Cannon, Creda, Scholtes and more. This is not a small company by any means. Meaning that to buy it or, even to buy into it with any significance would require a behemoth of a business.
Both the top two, Whirlpool and Electrolux courted a deal. Whirlpool got it and now owns a controlling interest in Indesit.
Meanwhile, across the pond in the USA, Electrolux forged a deal to buy out General Electric’s appliance division that had been up for grabs since 2008, with not much interest being shown.
Quietly however in the background Siemens sold its 50% stake in its own name bearing appliance division to Bosch, it’s long time partner in the appliance sector.
The net effect is that in little over a year we have seen the loss of Baumatic, Fagor, De Dietrich, GE, Indesit, Hotpoint, Creda, Cannon and more besides either gone completely or sucked into a larger player’s portfolio of brands.
For the most part, end domestic consumers are unlikely to care. They just want what they want at a price that suits them, often the lowest price possible but, this also gives rise to issues.
One being that end users tend to be rather fickle and, as the prices are lowered with the inevitable drop in quality and longevity, the brands can become tarnished aside from having to deal with the issues along the way as a result of this.
So, both GE and Siemens are off to focus on more profitable areas that they trade in of a more commercial nature, no need to deal with those pesky customers for low margins.
This is not exactly shocking when you look at the numbers.
In the USA, which has had the highest level of scrutiny, from 2004 to the 2008 the number of major appliance (MAJAP) sales fell from a high just shy of 70 million units per year to just over 52 million. That’s getting on for a 30% drop.
The worst news is, that wasn’t the worst it got, 2012 was under the 52 million mark and it only recovered very slightly in 2013.
It isn’t hard, given a similar trend will likely be reflected in Europe, to see why so many appliance businesses have folded up sticks.
Margin Shock
What surprised us whilst investigating was that it is estimated that appliance manufacturers are, globally, operating on about a 5% margin.
Bluntly, that’s not enough.
You do not need too much of a downturn, dry spell or even an “off” such as a large safety recall to sink the business. The margin just isn’t there to cope with such events.
The players are therefore forced to look at efficiency gains through better policing or warranty and returns as well as avoiding any costs that they possibly can.
Volume Shock
Yet more alarming is the position in the US right now in terms of volumes after Whirlpool’s acquisition of various competitors, the biggest change coming with the buying of Maytag and Electrolux’s acquisition of GE.
In the US, both Whirlpool and Electrolux are neck and neck with around a 40% market share apiece with all the rest more less relegated to being also-rans.
We would argue that this is a very dangerous position to find the industry in and, extremely worrying for the service sector in many regards.
Consumer choice is extremely limited if 80% of any market is dominated by two companies.
Customers however don’t see it that way, what they see is all these different brands on the shop floor, all too often not having the slightest inkling that many of the familiar names that they see are in fact not who or indeed what they think that they are.
With the effective acquisition of Indesit by Whirlpool we will either be at or, getting close to a similar position in Europe although, we’re not quite there yet.
The current position in the US however should serve as a wake up call for Europe.
Service Implications
Long have we and others banged the drum about restriction of technical and spare part information and once again we feel that we must do so.
Of the three now remaining larger groups in Europe, Bosch, Electrolux, Beko and Whirlpool the only two that allow reasonable access to information are Beko and Electrolux. For the rest owners will often find themselves faced with no option but to contact the manufacturer’s own service and, pay whatever they demand.
For spare parts and service, that strikes us as somewhat monopolistic.
But, on the other hand, you can perhaps understand and appreciate that policy if you take into account the desperately low margins these companies are making and yet, they still have to maintain a service network that also costs money to operate. The reality being, they cannot provide all the back up for free, they need to fund it from somewhere.
Not only do consumers have less choice though, insurers and large service operations such as British Gas also don’t have a lot of options here either. They too will often be forced to pay higher prices on some brands.
That means that service prices along with warranty prices are pushed up and, as ever, one way or another the end customer will pay for this by way of higher maintenance cost, shortened lifespan or they buy better products although, whether that is a real answer in the current climate is open to debate.
With that service work removed it also reduces the amount of work available to independent repairers as well meaning, there’s less independent repairers. Thereby less competition for the manufacturer service.
As with most things, there are pros and cons to this.
For the large manufacturers with their own employed field technicians it seems, on the face of it, that it’s a win win, no cons only pros. In the short term that might be true, to a degree.
What likely hasn’t been considered is that, over time, they will require new techs to replace the ones that defect to other companies or retire etc and, the independent trade was a breeding ground for multi-skilled technicians.
Sure, many disenchanted techs left manufacturers to set up shop for themselves as well and there are arguments to be made either way but as things stand now, there is a distinct shortage of trained appliance technicians, at least certainly in the UK.
Interestingly however, there is also a shortage of repair companies.
This issue is most acute in gas repairs, something that we have made mention of many times and that the WTA have tackled as well. The short version of the story is, nobody really seems to care if you can get a gas product repaired or not.
For end users reading this you may well think, “Why should I care, this isn’t my problem.” and, that’s fine but, it kind of is your problem. Maybe not today, right now but it will be at some point.
You see, what this shortage of techs means is that you will have to wait longer for service and, as many are given two or three weeks training, a van and a toolbox, the service you do receive is not liable to be stellar either.
The engineers are under so much pressure to reach targets or their “KPI’s” that they run about doing as much as they can as quickly as possible, again not exactly going to offer you the best service that you probably expect you will receive.
That is an almost direct effect of the products being so cheap to buy in the first place.
And, as they are so cheap to buy they are also, at least in the minds of many, cheap to replace as well so, less people have them repaired only feeding the further decline of the repair industry.
This is set to be a topic of discussion at the Whitegoods Conference later next month and, for trade members that wish to attend please register on the WTA website here as we think that this may be a very interesting topic and more discussion will be had as well as information will be there.
New Business
New businesses into the MAJAP sector face a number of hurdles.
The first is that most don’t actually make anything, it’s just a brand and the actual products are built by companies that have production facilities.
To set up a production line for any appliance costs millions of pounds so, with the low margins on offer it is not surprising that there are not many new entrants into that arena. The time to recoup the investment is just too long and, it’s hard to do.
Not only that, if there is an issue of any kind that investment could easily be wiped out.
For brand owners there are a number of issues, not least of which is getting products at a reasonable price that you can make a profit on. Again however, even at retail level the margins can be wafer thing to just about enough, closer to wafer thin though.
Given this it is once more unsurprising that the number of retail outlets has shrunk, think Comet, MFI, Moben and countless local electrical retailers in the past few years due to the shrinking margins coupled with new entrants, largely online retailers eating into their businesses.
Getting back to new entrants or new brands though, if there are less independent repairers just how do they get the products that they sell serviced?
They cannot afford to employ technicians as they don’t have the volume to be able to justify that. They quite possibly cannot find companies that can carry out repairs either through them simply not being there or perhaps not being up to the task for whatever reason.
What do they do?
So far most have managed to patch up a repair service but given the information to hand and the current position of the industry it is all too possible, perhaps even likely, that the clock is ticking on that being a viable option.
What will happen in the future?
Perhaps the doomsayers might just have been correct after all.