MEMORANDUM DATE: June 14, 2007 TO: Sponsors of the Massachusetts ENERGY STAR Appliances Program FROM: Lynn Hoefgen and Tim Pettit, Nexus Market Research RE: Results of the Appliance Model Availability Analysis This memorandum summarizes the results of an analysis regarding the availability of clothes washer models. The objective of this research is to assess the retail availability of ENERGY STAR models at different CEE Tier levels, and to use availability as a proxy for market share by CEE Tier. The underlying assumption is that the models retailers have immediately available are those that they think are likely to sell. Starting with this assumption, NMR hypothesized 1 that the availability of clothes washer models is related to program support, specifically rebates, for different CEE tiers that is, retailers are likelier to have higher efficiency models available if these models are eligible for rebates. Different programs have rebates for clothes washers of different CEE Tiers, and rebates of differing amounts, so availability should vary not only by ENERGY STAR or non-energy STAR status between states with programs and states without programs, but also by CEE Tier among states with programs. Data Collection Plan and Analytical Approach Table 1 shows clothes washer incentives in various states and their expected effects on market share compared to Massachusetts. We selected comparison states with a variety of rebates available, as well as relatively high household incomes and no water shortages (which can provide another motivation for purchasing resource-efficient clothes washers). We would expect Virginia, as a state with no incentives for ENERGY STAR clothes washers, to have lower availability of ENERGY STAR clothes washers in general than Massachusetts, and especially Tiers 2 and 3 (by the 2007 definition), because Massachusetts provides incentives for Tiers 2 and 3. We would expect Iowa to have similar availability of ENERGY STAR clothes washers as Massachusetts, because it provides incentives, but lower availability of Tier 2 and Tier 3 models, because they are not differentiated by the rebates. We would expect Connecticut to have slightly lower availability of Tier 2 and Tier 3 models, because, while specific incentives are provided, they are lower than those provided in Massachusetts. Finally, we would expect availability of Tier 2 and Tier 3 models and probably ENERGY STAR models in general to be higher in Oregon than in Massachusetts because Oregon provides not only rebates, but also tax credits for Tiers 2 and 3. Together these incentives can amount to more than twice the rebate provided by Massachusetts. 1 This hypothesis is discussed in detail in the MPER plan dated February 13, 2007. 22 HASKELL STREET, CAMBRIDGE, MA 02140 PHONE: (617) 497-7544 FAX: (617) 497-7543 WWW.NEXUSMARKETRESEARCH.COM
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 2 Table 1: Clothes Washer Incentives and Expected Sales in Key Areas Incentives/ Lowest Household State/Area Expected Tier 1 Tier 2 Tier 3 ES income Market Share 2006 Incentives none none none $100 Massachusetts $52,713 2007 Incentives none none $100 2006-2007 none none none none Virginia Iowa (Alliant) Oregon Connecticut Incentives Expected mkt. share vs. MA 2006-2007 Incentives Expected mkt. share vs. MA $50 vertical axis lower especially Tiers 2 & 3 $100 horizontal axis higher higher lower lower 2006 Incentives none none none $85 rebate, $115- $180 Tax credit 2007 Incentives none none $85 rebate, $115- $180 Tax credit same Expected mkt. same or same or or higher share vs. MA lower lower higher 2006 Incentives $50 2007 Incentives none none $40 same Expected mkt. same or same or or lower share vs. MA higher higher lower $50,028 $42,278 $42,593 $56,409 This analysis should serve as an indicator of the model availability encountered by consumers who visit retail stores. The internet was chosen as the venue for determining retail availability because it allows for the cost-effective collection of data for a large volume of models available in Massachusetts compared to other areas. We also note some limitations to this approach. Clothes washers, unlike room air conditioners, are not typically stocked for take-home sales, and large retailers generally practice just-in-time inventory maintenance to manage shelf-space needs and limit stocking risks. Indeed, big-box retailers stocking practices may be somewhat standardized for all stores across the country. We note, however, that these conditions would apply to both ENERGY STAR and non-energy STAR models, and would apply more or less equally in all states, such that in-store availability is likely to reflect what the retailers believe are the most popular models.
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 3 According the NMR s consumer survey conducted in late 2005, four national chains (Sears, Best Buy, Home Depot, and Lowe s) account for 66% of clothes washer sales in Massachusetts. Sears, Lowe s, and Best Buy were selected for this analysis because their websites allow consumers to easily verify the availability of a given model at multiple stores located near a zip code entered into the website. Home Depot requires the customer to enter in their name, address, and/or credit card information before displaying information on local availability. The first step in this research involved recording model information from the internet web sites of Lowe s, Sears and Best Buy stores for zip codes from five different cities in different parts of the country. For Massachusetts we selected the Cambridge (02140) and Worcester (01543) areas. For the comparison areas, we selected the following to represent different degrees of regional appliance program support: Connecticut: Hartford suburbs and Fairfield County Iowa: Des Moines, Cedar Rapids, Mason City and their suburbs Oregon: Portland and Salem and their suburbs Virginia: Northern Virginia (D.C. metro area) and Richmond Table 2 shows the number of stores shopped by state and retail chain. Stores were selected to be within reasonable proximity (usually 40 miles) of at least two zip codes for each state. With these comparison areas, we assess whether availability is associated with degree of support. Table 2: Number of Stores Shopped By State Store Best Buy 10 9 8 10 10 Sears 10 10 8 9 10 Lowe s 10 9 10 9 10 The online data were gathered during early March of 2007. We also compared the model number for each model designated as ENERGY STAR qualified against the list of appliances qualifying for the Consortium for Energy Efficiency s (CEE) Tier specifications. The following specific data attributes were gathered for each store. Store Name (Sears, Lowe s or Best Buy) Zip Code Manufacturer Model Number Model Name (if available) Store Availability (specificity varies by store) Delivery Wait (if available) Color Size Style ENERGY STAR and CEE Tier
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 4 Efficiency Specifications and Standards Table 3 displays the current federal standards, as well as ENERGY STAR and CEE Tier efficiency (and water) specifications for clothes washers. Note that all standards and specifications changed effective January 1, 2007, and for 2007, all specifications, but not the federal standard, include a water factor. 2 Table 3: Summary of Clothes Washer Efficiency Specifications Year Federal ENERGY CEE Tier 1 CEE Tier 2 CEE Tier 3 Standard STAR 2006 >1.04 MEF >1.42 MEF >1.42 MEF, <9.5 WF >1.60 MEF, <8.5 WF >1.80 MEF, <7.5 WF (A), 2007 >1.26 MEF* >1.72 MEF, <8.0 WF * (MEF = Modified Energy Factor; WF = Water Factor) >1.80 MEF, <7.5 WF >2.00 MEF, <6.0 WF <5.5 WF (B) >2.2 MEF, <4.5 WF Federal tax credits are available to clothes washer manufacturers. Manufacturers of clothes washers are eligible for a tax incentive of $100 per unit meeting the 2007, payable in both 2006 and 2007, for sales exceeding the previous three-year average sales volume. In addition, these units must be produced in the U.S and each manufacturer is capped at $75 million in total tax credits; note that this dollar limitation has likely affected Whirlpool, but probably not any other manufacturer. 2 The previous ENERGY STAR specification did not include any consideration for the Water Factor although nearly all ENERGY STAR clothes washers under the previous standard were among the most water efficient on the market.
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 5 Summary of Results by Retailer This section presents a summary of results by retailer and state, and a summary of all state data by retailer. Best Buy. Table 4 displays the results of the model availability analysis for the Best Buy stores located nearest to the selected zip codes in Massachusetts, Connecticut, Oregon, Iowa, and Virginia. Because Best Buy stores typically carry a relatively small selection of appliance models, the vast majority of models require special ordering, and thus were excluded from this analysis. Therefore most records on the Best Buy website were listed as unavailable while a relatively small number were available. This results in a small number of models available in each state, ranging from four (in MA) to 31 (in IA). Compared to Massachusetts, all other states had higher in-store availability of clothes washers, generally speaking. At such small numbers, four models in Massachusetts Best Buy stores provide limited insight when comparing to other states, but all four models in Massachusetts were either CEE Tier 2 or 3, according to the 2007 specification. Table 4: Availability of Clothes Washer Models at Best Buy Stores Does not meet any 0% 50% 45% 55% 58% Meets some 100% 50% 55% 45% 42% Meets minimum 0% 6% 5% 10% 8% Meets CEE Tier 1 0% 17% 14% 10% 17% Meets CEE Tier 2 25% 0% 14% 10% 0% Meets CEE Tier 3 75% 28% 23% 16% 17% Number of all models available 4 18 22 31 12 Number of non-energy STAR models - 9 10 17 7 Number of models meeting some 4 9 12 14 5 Number of models meeting minimum - 1 1 3 1 Number of models meeting CEE Tier 1 0 3 3 3 2 Number of models meeting CEE Tier 2 1 0 3 3 0 Number of models meeting CEE Tier 3 3 5 5 5 2
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 6 Sears. The Sears website lists available models as in stock pending email confirmation, or provides some other estimate of availability (e.g., 3-5 days ). Table 5 displays the proportion and number of clothes washer models meeting various efficiency levels that are available at Sears immediately (or in stock pending email confirmation ); all other returned values are considered to be unavailable. The Sears stores we shopped online in Massachusetts show that they stock more models overall than the comparison states. While the number of ENERGY STAR models are roughly similar across all states (41 to 48, with three states at 43 to 44), Massachusetts is perhaps lagging in its stock of CEE Tier 2 and 3 models, representing 25% of all available models compared to the remaining states, which ranged from 30% to 36%, although the total number of Tier 2 and 3 models is comparable. Table 5: Availability of Clothes Washer Models at Sears Stores Does not meet any 58% 43% 50% 53% 44% Meets some 42% 57% 50% 47% 56% Meets minimum 6% 8% 3% 5% 6% Meets CEE Tier 1 12% 13% 12% 13% 18% Meets CEE Tier 2 10% 6% 14% 8% 7% Meets CEE Tier 3 15% 30% 21% 22% 26% Number of all models available 104 77 86 87 85 Number of non-energy STAR models 60 33 43 46 37 Number of models meeting some 44 44 43 41 48 Number of models meeting minimum 6 6 3 4 5 Number of models meeting CEE Tier 1 12 10 10 11 15 Number of models meeting CEE Tier 2 10 5 12 7 6 Number of models meeting CEE Tier 3 16 23 18 19 22
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 7 Lowes. Similar to Sears, the Lowe s website lists available models as standard, provides some other estimate of availability (e.g., 3-5 days ), not currently available, or contact store. Table 5 displays the proportion and number of clothes washer models meeting the various efficiency levels that are available at Lowe s immediately (or standard ); all other returned values are considered to be unavailable. Lowe s carries substantially more models in stock than Sears and Best Buy. Higher efficiency models (e.g., CEE Tiers 2 and 3) at Lowe s are slightly more prevalent in Massachusetts (31%) and Oregon (32%) than in other states, with Connecticut at 27%, Iowa at 26%, and Virginia at 29%. Interestingly, all available ENERGY STAR models at Lowe s are CEE Tier 1 or higher, which is probably more attributable to the relative lack of available models overall in that specified efficiency increment, and the Kenmore brand which is specific to Sears. Table 5: Availability of Clothes Washer Models at Lowes Stores Does not meet any 44% 45% 44% 45% 43% Meets some 56% 55% 56% 55% 57% Meets minimum 0% 0% 0% 0% 0% Meets CEE Tier 1 26% 28% 24% 29% 28% Meets CEE Tier 2 20% 18% 22% 18% 18% Meets CEE Tier 3 11% 9% 10% 8% 11% Number of all models available 200 173 198 166 195 Number of non-energy STAR models 88 77 88 74 83 Number of models meeting some 112 96 110 92 112 Number of models meeting minimum - - - - - Number of models meeting CEE Tier 1 51 48 48 48 55 Number of models meeting CEE Tier 2 40 32 43 30 36 Number of models meeting CEE Tier 3 21 16 19 14 21
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 8 Combined Summary. After combining the data across states and retailers, the quantity of available clothes washers meeting the CEE Tiers 2 and 3 specifications are highest for Oregon (100) and Massachusetts (91) compared to Connecticut (81), Iowa (78), and Virginia (87). As a percentage of available CEE Tiers 2 and 3 models, however, Massachusetts is at almost 30%, which is similar to Connecticut and Virginia (30%), more than Iowa (27%), and below Oregon (33%). Table 6: Availability of Clothes Washer Models at Retail Stores Combined Does not meet any 48.05% 44.40% 46.08% 48.24% 43.49% Meets some 51.95% 55.60% 53.92% 51.76% 56.51% Meets minimum 1.95% 2.61% 1.31% 2.46% 2.05% Meets CEE Tier 1 20.45% 22.76% 19.93% 21.83% 24.66% Meets CEE Tier 2 16.56% 13.81% 18.95% 14.08% 14.38% Meets CEE Tier 3 12.99% 16.42% 13.73% 13.38% 15.41% Number of all models available 308 268 306 284 292 Number of non-energy STAR models 148 119 141 137 127 Number of models meeting some 160 149 165 147 165 Number of models meeting minimum 6 7 4 7 6 Number of models meeting CEE Tier 1 63 61 61 62 72 Number of models meeting CEE Tier 2 51 37 58 40 42 Number of models meeting CEE Tier 3 40 44 42 38 45 Conclusion Sales data from major retailers for ENERGY STAR models, as supplied to D&R, data are presented in Table 7. These data show clear differences by state, with Virginia having no ENERGY STAR appliance programs also having the lowest market share for ENERGY STAR clothes washers. Unfortunately, the D&R data do not break sales down by CEE Tier. Table 7: 2006 Market Share of ENERGY STAR Qualifying Clothes Washer Models at Major Retail Stores as Reported to D&R International 2006 ENERGY STAR Market Share Reported To D&R 46.86% 48.11% 49.77% 42.62% 33.20% Unlike the D&R market share data, the availability data do not show any clear pattern by state. Indeed, across all states, ENERGY STAR models make up a larger proportion of available models than of clothes washer sales (as reported by D&R). Moreover, states with programs do not appear to stock ENERGY STAR qualifying models at greater levels than non-program states. Hence we conclude that availability is not a good proxy for market share.
Model Availability Research for the Massachusetts ENERGY STAR Appliances Program Page 9 The reasons for these differences may include the following: Retailers make decisions on what models to stock for a variety of reasons: o Look of the appliance such as color, design, etc. they may choose more attractive models to be on display o The availability of in-house brands, such as Kenmore o Profit margin e.g., greater stocking of higher-end and/or ENERGY STAR models o Exclusive purchasing contracts and display agreements with manufacturers that may exclude other manufacturers o Seasonal promotions Retailers may have national stocking practices and protocols Just-in-time inventory management strategies may mean that subsidized models may be less likely to be stocked because customers are willing to wait to realize their discount if the model can still be delivered within a few days. To minimize unnecessary repair calls due to shipping and handling damages, all major retailers offer delivery services to ensure proper handling rather than leave the handling to the customer.