Harvard Business School 9-386-115 Rev. December 2, 1994 The Major Home Appliance Industry in 1984 Revised Major home appliance sales exceeded $12 billion in 1984 in the United States, and represented one of the largest consumer goods industries. However, growth in demand had been lackluster for a decade, and the U.S. industry was burdened with overcapacity. To make things worse, Japanese competitors had gained a strong foothold in some smaller appliance segments, and there were fears that imports would take an increasing share of the U.S. market. After a particularly painful period during the recession of 1980-1982, the industry was showing strong signs of recovery in 1984, but the long-term future of the industry seemed uncertain. Industry History Prior to World War II, most appliance manufacturers produced a limited line of appliances; General Electric produced refrigerators, Maytag made washers, and Hotpoint produced electric ranges. While these producers gradually broadened their product lines, it was not until after World War II that manufacturers began to offer full lines of appliances. There were about 300 appliance manufacturers in the United States at the end of World War II. The 1945-1955 period saw rapid expansion in demand and much capital investment, leading, in the mid-1950s, to overcapacity. The industry then began to consolidate through numerous mergers and acquisitions. The 1960s proved to be another boom period for the appliance industry (Exhibit 1). Room air conditioner and dishwasher unit sales almost quadrupled, and clothes dryers more than tripled. Even products that had achieved high levels of saturation such as refrigerators and ranges, already present in 99% of wired homes experienced unit sales increases of roughly 50% over the decade. At the same time, many new features were added to appliances and the general trend was towards larger models with greater capacity. Product reliability also improved, and real prices declined about 10% over the decade. Professor John R. Wells and Nasswan S. Dossabhoy prepared this note as the basis for class discussion. It is a condensed revision of the Note on the Major Home Appliance Industry 1984 (HBS Case No. 4-385-044) prepared by Nasswan S. Dossabhoy under the supervision of Professor Joseph L. Bower. Copyright 1985 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of Harvard Business School. 1
386-115 The Major Home Appliance Industry in 1984 Revised The 1970s saw enormous swings in appliance demand. While 1973 was the best year ever with 39 million units, demand dropped off rapidly to a trough of only 27.7 million units in 1975 before recovering by the end of the decade. Inflation, the two oil crises, and recession demonstrated the sensitivity of appliance sales to macroeconomic factors as saturation levels were approached in many products. When real disposable incomes fell, buyers merely deferred appliance purchases, choosing not to replace older appliances. Recognizing its vulnerability to downturns in housing construction, the industry began paying greater attention to the replacement market. Some long-term trends in product performance and consumer behavior were also adding to the appliance industry's problems. The increasing quality of the average appliance was sufficient to provide for an average life expectancy in 1984 of 10 to 15 years, and many functioned adequately for significantly longer. Moreover, consumers increasingly tended to repair their appliances, extending their lives still further. It was estimated that about 40% of repairs were of the do-it-yourself variety. Products Refrigerators Refrigerators had historically been the largest selling appliance (Exhibits 1 and 2). Since the product's average life expectancy was 15 years, manufacturers expected that replacement sales alone would come to about 5.5 million units a year during the 1980s. Refrigerators were the only appliance product whose saturation (units per household) exceeded 100%. Some households had two or more units, and many nonhousehold entities such as offices and dormitory rooms also had a refrigerator. Traditionally, U.S. consumers had demanded large refrigerators, but compact units of less than 6.5 cubic feet had been gaining a share of the overall refrigerator market since 1978. Imports had gained a 40-50% share of the compact segment. Imports also played a small but growing role in the standard-size segment, although most standard-size imports were refrigerator-freezer combinations. Refrigerator-freezers were traditionally more popular abroad than in the United States. Three companies Whirlpool, GE, and White Consolidated together represented 80% of refrigerator sales. The top five including Admiral and Amana made up 95% of the market (Exhibit 3). Freezers Freezer sales took off in the early 1960s, but had been in the doldrums since the recession of 1975 as sales seem to have leveled off at a 45% saturation level (Exhibit 1). Freezers had the longest life expectancy of any appliance, and the product features had not changed in decades. Sales of compact freezers had also remained constant over the late 1970s and early 1980s. Whirlpool was the clear leader in freezers, followed by White, with Admiral (Magic Chef) a distant third (Exhibit 3). These three companies controlled 80% of the market. In 1981 Magic Chef had acquired Revco, but had failed to hold onto all of Revco's market share. 2
The Major Home Appliance Industry in 1984 Revised 386-115 Air conditioners Air conditioner sales were more volatile than those of any other appliance since demand was seasonal and dependent on the weather. After an all-time high of 5.9 million sold units in 1970, air conditioner sales failed to recover from the 1974-1975 recession. GE, Whirlpool and White held just over 50% of the air conditioner market; Fedders, Friedrich, and Addison, three air conditioner specialists, together had slightly under 40% (Exhibit 3). Ranges and microwave ovens The introduction of microwave ovens represented the most radical technological change in the appliance industry since World War II. Traditionally, the choice had been between gas and electric ranges, but during the early 1970s, microwave ovens were introduced by a number of electronics companies that had not previously competed in the traditional appliance industry. At first, the microwave was seen primarily as a novelty or luxury item and its use was limited to the quick reheating and defrosting of foods. From the mid-1970s on, however, microwave oven sales grew rapidly, and by 1983, microwaves were the single largest selling appliance product and represented one of only two real growth markets for appliance manufacturers (the other being dishwashers). Throughout this period, microwaves benefitted from numerous technological and product innovations including sophisticated electronic controls and a model that could be installed over a range (the GE "Spacemaker") to save kitchen space. Microwaves had largely overcome the public's wariness about safety, but although all manufacturers complied with stringent government safety tests, some concerns about microwave radiation still lingered. GE was the leading supplier of microwave ovens in 1982, followed by Sanyo, Electrolux, and Litton (Exhibit 4). In 1977, GE had taken over the leadership position from Litton, the defense contractor that had originally developed the product, by introducing the "Spacemaker." Other significant competition came from Japanese manufacturers (Sharp, Sanyo, Panasonic, and others). Washers and dryers The market for laundry products, though less saturated than for some other appliance products, seemed to be growing more slowly than most. Industry observers felt that washer saturation of a little over 70% and dryer saturation of about 65% would not be exceeded in the foreseeable future (Exhibit 2). Many of those who did not own washers and dryers were apartment dwellers as few apartments had the necessary space and plumbing facilities to accommodate such appliances. Since laundry equipment constituted more than 25% of total major appliance unit volume, manufacturers were continually striving to introduce innovations that would boost sales. Some new products reduced water and energy consumption, others improved dependability and performance. Manufacturers had also developed more compact, stackable appliances. The expanding use of microelectronics, though not a major feature, allowed elaborate cycle control options on the higher priced models. Almost 90% of the laundry products market was controlled by Whirlpool (40%), GE (20%), White (15%), and Maytag (15%) (Exhibit 5). Dishwashers With a saturation level of under 45%, dishwashers appeared to offer significant growth potential. Dishwashers were considered one of the most complicated of all appliances to manufacture. 3
386-115 The Major Home Appliance Industry in 1984 Revised The dishwasher market had long been dominated by Design and Manufacturing (D&M), a privately held firm specializing in dishwashers. GE had been a steady #2 with about 25% market share, while the premium end producer Hobart/Kitchen Aid followed with 15% (Exhibit 6). Disposals Until 1980, GE was the leading supplier, followed by In-Sink-Erator, a wholly owned subsidiary of Emerson Electric. Disposers were Emerson's only home appliance product. When GE decided to exit disposers, In-Sink-Erator become the leader, with a 65% market share, followed by Anaheim Manufacturing, with a 25% share. Anaheim was acquired by Tappan in 1965 (Exhibit 6). Compactors The trash compactor market was dominated by Whirlpool and GE with a combined market share of 75%. Although saturation was less than 5%, potential growth seemed limited, and manufacturers did not attach much importance to this product (Exhibit 6). Innovation Innovation in appliances took three forms: 1) new features; 2) product changes that reduced manufacturing cost; and 3) new products that expanded the market. Feature innovations had been plentiful. Because many appliance markets were highly saturated, features were considered a useful way of speeding up replacement demand and differentiating products from those of competitors. Examples included the self-cleaning oven, pilotless gas ranges, and "Servadoor" refrigerators. In the late 1970s, there had been an emphasis in almost all appliances on electronic timers and controls, and on energy efficiency. Most often features were introduced at the top of the line and made available on lower priced models within a few years. Generally the manufacturers' brands had the newest and most elaborate features, followed by the private brands of national retailers, who usually copied the previous year's successful top-of-the-line features. Cost cutting innovations included the use of plastic rather than metal, foam rather than fiberglass insulation, coiled rather than flat steel, and prepainted rather than in-house painted cases. Occasionally these changes had made the product intrinsically better as well (e.g., lighter, slimmer, or more spacious). The only truly successful new product introduction for over a decade had been the microwave oven. Another new product concept that was thought to hold great promise, the combination washer-dryer, had not proven popular in the United States, though it had sold well in Europe. Markets There were two major channels of distribution for appliances in the United States: contract and retail. The contract market In the contract market, construction firms, builders, contractors, mobile home manufacturers, or kitchen remodelers purchased appliances for installation in the homes they were building or refurbishing. In these instances, the contractor typically had a major influence on the purchase decision. The contract segment had grown to 33% of total appliance shipments in 1973, but had dwindled with the collapse of new housing construction during 1973-1975. From 1976 to 1982, contract sales remained at about 25% of total shipments. 4
The Major Home Appliance Industry in 1984 Revised 386-115 Appliances were crucial in selling homes even though they represented a small percentage of total home costs. While consumers had difficulty in evaluating the quality of a dwelling unit, they tended to associate building quality with the quality of the appliances that had been installed. Contractors typically purchased ranges/ovens, dishwashers and disposers, leaving the homeowner to purchase other major appliances (Exhibit 7). Because of the perceived importance of appliance brand image, builders seldom bought private label brands. Builders were very cost conscious buyers of appliances and typically bought the middle and lower end of the product line. However, they also valued timely delivery and other support services. Builders often purchased all their appliance needs from one manufacturer. Manufacturers sold appliances directly to larger contract customers and used local distributors for some small accounts. Direct sales typically accounted for 80% of the total. All the major companies active in the contract market sold full product lines. Some manufacturers also provided kitchen design and other services to large builders. The retail market There were four major types of retail outlets for appliances: appliance dealers, catalogue/chain stores, discount stores, and department stores. Since the mid-1970s, the catalogue/chain stores had gained share in almost all product lines (Exhibit 7), primarily because of deeper penetration by Sears, which accounted for about 35% of retail appliance sales. Appliance stores had also gained some share due to the emergence of large regional chain stores specializing in appliances (e.g., Lechmere, Polk Brothers, Trader Horn). Small independent appliance dealers had held their own by providing personalized, special service which the large retailers could not offer. The biggest losers were the traditional department stores, many of which had gradually phased out their major home appliance departments. After significant gains in the 1960s and early 1970s, the discount stores (K Mart, Korvette's, Caldor's) had also started to lose ground in standard-sized appliances but had maintained or improved their position in compact appliances, microwave ovens, and room air conditioners. Appliances were sold under the brand names of both retailers and manufacturers. National retail chains such as Sears and Penney's carried their own brands. These private label products were often designed by the retailer, manufactured according to detailed specifications, and heavily advertised. Sears accounted for more than half of the sales of Whirlpool, Roper, Sanyo, and D&M, and had recently started sourcing particular appliance types from more than one manufacturer. The retail purchase decision for major appliances was precipitated by four major events (household move, family change, product failure, and wealth increase) and three catalysts (initial homemaking, seasonal gift-giving, and promotional offers). The precipitating event was ordinarily preceded by an extended period of low-level involvement in information gathering (from parents, relatives, friends, media, etc.). For a short time after the stimulus event, purchasers sought information more intensively (visiting stores, looking in catalogues, calling up family and friends, etc.), trying to learn about available brands, price, performance (features), credit, and so on. Sales skills at the retail level were found to have considerable influence on the purchase decision. However, consumers also displayed considerable brand loyalty in appliance purchases. Asked 5
386-115 The Major Home Appliance Industry in 1984 Revised whether they would buy the same brand again when purchasing a new appliance, 70.1% of one survey sample said they would, 13.6% would not, while 16.3% did not know. 1 Industry Economics Manufacturing Appliance plants were typically dedicated facilities, since each product category required its own specialized equipment on the assembly line. Even within a plant, different model configurations (e.g., top-mounted vs. side-by-side) required their own dedicated lines, and some manufacturers found it more efficient to manufacture them in separate plants. Vertically integrated manufacturers produced their own compressors, plastic molding, wiring harnesses, electronic controls, etc. Even the most integrated manufacturer bought many components outside, however, since there were many efficient and competitive suppliers. Purchased materials and components amounted to almost 30% of manufactured costs (Exhibit 8). The optimum size of a finished goods plant was thought to be an annual capacity of 500,000 units for refrigerators, ranges, dishwashers, and washer/dryers, and 100,000 units for air conditioners. Production costs were estimated to be 5-10% higher in plants one-half the optimal size. Full-line manufacturers who had concentrated their production and/or distribution facilities in one location were able to achieve economies (approximately 8-10% of transportation costs) by shipping full carloads loaded with different kinds of appliances. Distribution Shipping and warehousing of appliances between factory and retail stores was achieved in several ways. Some manufacturers and retailers had developed their own distribution networks. For instance, GE owned its entire distribution network, as did Sears. However, these were exceptions. Typically, "captive distribution" only satisfied a portion of in-house needs. Whirlpool, for example, owned 50% of its distribution, mainly in the Sunbelt states, and otherwise worked through independents. The majority of manufacturers and retailers relied heavily on independent distributors. It was generally believed that only the very largest manufacturer could match the costs of an independent distributor, since the distributor could spread warehousing, transportation, sales, and collections costs across its entire product mix. On the other hand, whoever controlled the distribution channel had substantial influence over the retailers in areas such as inventory, pricing, selection of retail outlets, and advertising. Certain smaller manufacturers, such as Maytag and Hobart-Kitchen Aid bypassed the independent distributor and shipped directly to carefully selected dealers. Even if an independent distributor was responsible for selling a particular firm's appliances, the firm might often deliver the shipment direct to larger retail accounts (a drop shipment). The trend in 1984 was towards more drop shipments. One large distributor of Whirlpool's appliances estimated that in 1982, 60% of the units sold in his region did not pass through his warehouse. These direct dealer shipments cut costs about $18.00 per unit. Another trend in 1984 was the emergence of buying groups through which several dealers grouped their purchases and pressed 1. Look, National Appliance Survey, 1963. 6
The Major Home Appliance Industry in 1984 Revised 386-115 the distributor for volume discounts, or went directly to manufacturers. Large chains also tended to shop for prices across several distributors' territories or purchase directly from manufacturers. Marketing Companies marketed appliances in several ways. Maytag, GE, and other top-of-theline competitors emphasized branding, while manufacturers at the middle or lower end of the line, such as White and Magic Chef, gave the retailer higher margins and advertising allowances to encourage them to push their products. Retailers often used a "sell-up" strategy employing heavy advertising of low priced models to pull customers into the store. Once there, the salesmen were trained and financially motivated to sell up customers to higher priced models. Service GE was the only manufacturer and Sears and Penney were the only retailers with their own appliance service networks. Other firms relied on franchised or free-lance independent service agents. These service agents had no connection with independent distributors. Competitors Historically, all the major automobile manufacturers except Chrysler had had appliance divisions: Frigidaire of General Motors, Philco of Ford, Kelvinator of American Motors, and Franklin of Studebaker. The other two major automotive-related companies in the appliance business had been Bendix and International Harvester. By 1984, all of these firms had divested their appliance business units, most of which had been acquired by White Consolidated. The giants in the electric/electronics industry GE, RCA, Westinghouse, McGraw Edison, Emerson Electric had also been involved in the appliance business. Only GE remained as a major force, while Emerson Electric, through its In-Sink-Erator subsidiary, manufactured only disposers. A number of diversified companies had also competed in major appliances, including Rockwell, United Technologies, Borg Warner, Litton, Raytheon, and Dart & Kraft. Litton, Raytheon (Caloric, Amana, Speed Queen, and Modern Maid) and Dart & Kraft (Hobart-Kitchen Aid) were still participating in 1983. Of the approximately 300 specialist appliance manufacturers in the United States at the end of World War II almost all had been small, regional, and focused on a single product area. Only about 15 remained active in 1983, most notably Whirlpool, Magic Chef, Maytag, Tappan (acquired by Electrolux of Sweden in 1979), D&M (Design and Manufacturing), and Roper (41% owned by Sears). Appliance industry participants in 1984 fell into three broad categories: those that manufactured a full range of appliance product groups (General Electric, Whirlpool, White Consolidated, and Magic Chef); those that manufactured a partial line of one or two groups of appliances (Raytheon, Maytag, Tappan, Hobart-Kitchen Aid, and Thermador-Waste King); and specialists that concentrated on only one product (In-Sink-Erator for disposers; D&M for dishwashers; Litton, Sharp, Sanyo, and Panasonic for microwave ovens; Fedders, Friedrich, Addison and Emerson for room air conditioners). 7
386-115 The Major Home Appliance Industry in 1984 Revised General Electric (GE) GE was the largest producer of major appliances in the United States in 1983. It had entered the appliance field in 1918 with the acquisition of Hotpoint. In the 1950s, GE had pursued a policy of adding capacity ahead of demand, building a vast manufacturing complex in Louisville ("Appliance Park") and a leading position in the marketplace. In the late 1970s, GE was believed to be debating whether it should maintain its interest in appliances, and it did not complete its planned second major appliance production facility in Columbia, Maryland. However, in the early 1980s the company appeared to be reassessing itself in the major appliance area 2 and was investing heavily in highly automated integrated production technology at Louisville. In 1984, Appliance Park was believed to be the largest major appliance facility in the world. GE had historically produced a wide range of its appliance component needs in house. The company also operated its own distribution and service facilities. GE was believed to be the most vertically integrated of the U.S. major appliance manufacturers. Although in the 1980s, GE was moving towards more outside sourcing of components, especially electronic devices. Historically, GE had offered three brands in the marketplace: GE, Hotpoint, and Penncrest. The GE brand normally offered more features and was higher priced than the Hotpoint brand. The Penncrest brand was produced exclusively for J.C. Penney. In the early 1980s, GE began to compete aggressively to sell its appliances to other appliance manufacturers, supplying dishwashers for Magic Chef and Tappan under their brand names. The company also divested itself of its waste disposer business and was investing heavily in dishwashers and microwave ovens. Whirlpool Whirlpool was the number two producer of major appliances in the United States in 1984. Whirlpool owed its position to its unique 50-year relationship with Sears, which accounted for just over half of Whirlpool's sales at the factory level. Whirlpool was the prime manufacturer for most Sears products and supplied 100% of Sears laundry products, 70% of air conditioners, and 65% of refrigerators and freezer products. Whirlpool operated 10 manufacturing facilities in the United States, each focused on a relatively narrow line of products (Exhibit 9). Home laundry appliances accounted for 39% of Whirlpool's $3.1 billion in 1986 sales, home refrigeration and air conditioning for 37%, and other appliances for 19%. White Consolidated The third-ranked position in major appliances in the United States belonged to White Consolidated. White had built its position exclusively through acquisitions. While antitrust considerations prevented GE and Whirlpool from acquiring other appliance businesses, White was able to take over the troubled appliance divisions of all the automobile manufacturers and of Westinghouse in rapid succession. However, White had not yet integrated the acquired companies 2. Fortune, July 25, 1983. 8
The Major Home Appliance Industry in 1984 Revised 386-115 into a single organization. The company's brand names included Frigidaire, White-Westinghouse, Gibson, Kelvinator, and Philco. Other Producers Raytheon, Magic Chef, and Maytag (#4, #5, and #6 in the industry) were less than half the size of White. Raytheon had entered the business in 1965 and had grown mainly by acquisition, its distinctive advantage being high technology. Magic Chef was a full line producer that tended to supply low end products under the Admiral and Norge brand names. Maytag had historically stayed away from any acquisitions and concentrated on its special market, laundry products. Tappan by itself ranked #7, but its acquisition by Electrolux made it a strong potential competitor. A leading appliance manufacturer in Europe, Electrolux had been rapidly expanding through acquisition and had strong product lines precisely where Tappan had a gap in the refrigerator business. The remainder of the industry consisted of a few product specialists. Litton and three Japanese firms Sharp, Sanyo, and Matsushita (Panasonic) had a considerable stake in the microwave market; Waste King and In-Sink-Erator were concentrated in the waste disposal market; and Kitchen Aid was the premium producer of dishwashers, while the high volume dishwasher specialist was Design and Manufacturing (D&M, 1982 sales $170 million). Kitchen Aid In addition to dishwashers, Kitchen Aid also was a premium producer of kitchen mixers. All Kitchen Aid products had a reputation for strength and durability, but conservative design. Its mixer, for example, had lead weights in the bowl for stability. Prices were usually above the market average, and the company's distribution was somewhat exclusive. Kitchen Aid had been through a number of corporate parents in recent years. Currently, it was owned by Hobart, a manufacturer of commercial and industrial appliances such as bakery mixers and restaurant stoves. Hobart in turn was owned by Dart and Kraft, the consumer goods conglomerate formed in the 1980s. Design and Manufacturing Co. (D&M) D&M was established when Samuel Regenstrief left Philco in 1959 and purchased the appliance division of Avco. At the time, the division was incurring substantial losses, despite the fact that it was believed to have an efficient production facility and a good dishwasher. Many of its problems were ascribed to weak distribution. The company focused on providing a quality dishwasher to large retailers and other appliance manufacturers at the lowest possible cost and did not sell under its own brand name. It continually installed new, more efficient equipment to meet this objective. D&M was rarely first to offer "new" product features, but was fast to respond to new ideas as they became established in the marketplace. D&M operated with a very lean and informal organizational structure. Company employees owned 97% of the company stock, the majority being in the hands of Sam Regenstrief. D&M had no substantial long-term debt. 9
386-115 The Major Home Appliance Industry in 1984 Revised The company had grown strongly throughout the 1960s and 1970s and had become the largest dishwasher producer in the world, with about 40% of the U.S. market. D&M provided Sears with 100% of its dishwasher needs and also supplied 12 other appliance manufacturers. Sears, Roebuck and Co. Though Sears did not manufacture appliance products, it was the largest seller of major home appliances in the United States, with a reported market share of approximately 35%. Sears used heavy advertising to generate store traffic, maintaining consistent quality and providing good service. Sears offered a full product line, with several offerings in each product category. The top-of-the-line product offered a full array of advanced features not available on the lower-priced products. In between were carefully spaced pricing points, each associated with a separate feature. Sears believed this gave its customers the opportunity to get the best buy at whatever price they could afford. Sears offered a service contract backed up by its own servicemen. Sears suppliers were responsible for the cost of breakdowns during the warranty period. Sears bought most of its appliance products on a negotiated cost-plus basis. It constantly worked with its suppliers to make them the most cost-efficient. Sears' goal was to share as much of the production and assembly process with the suppliers' products as possible in order to reduce unit costs. All costs until the point at which the Sears' product was differentiated from the manufacturers' own products were shared. From this point on, Sears was responsible for all the costs of its product line. Europe International Competition Historically each of the major European countries had been supplied by local producers. However, this was changing, and significant consolidation and restructuring was apparent (Exhibits 10a and 10b). Siemens, Bosch and AEG Telefunken had traditionally dominated the West German market. However, after acquiring about 50 companies to build its European position, AEG collapsed and was dismembered. Zanussi, Philips, Electrolux, and Siemens were negotiating to purchase various parts of AEG. Zanussi, Italy's largest major appliance manufacturer, was also in financial difficulties and in 1984 was being acquired by Electrolux, Sweden's leading competitor. Both Hoover and General Electric (not related to GE in the United States), the U.K.'s top producers, were retrenching in the face of fierce import competition from mainland Europe. Imports accounted for three quarters of the U.K. market. Thomson-Brandt was the sole French major appliance manufacturer. Philips (of the Netherlands) was the number two supplier to the French market. Japan There were at least six major Japanese companies that manufactured appliances: Hitachi, Mitsubishi, Matsushita, Sanyo, Sharp, and Toshiba. Considering the success of Japanese consumer durable goods in the United States, most U.S. appliance executives were cautiously looking over 10
The Major Home Appliance Industry in 1984 Revised 386-115 their shoulders in 1984. Japanese producers held about 30% of the U.S. microwave oven market and 40% of the compact refrigerator market and had just introduced a miniwasher. While the compact refrigerator market had remained steady at less than 1 million units for the previous five years, the market for microwave ovens had been growing consistently, becoming the second largest selling appliance product in the United States. The Japanese strategy for the U.S appliance market seemed to be two-pronged: exporting and setting up manufacturing plants in the United States. As reported by an industry analyst: Matsushita, Sharp, and Sanyo will soon be making about 50,000 microwave ovens a month in the United States 20% of total annual sales. Toshiba America, Inc. may join them later this year. And Sanyo's San Diego plant is making 1,000 compact refrigerators a day, approximately 40% of the U.S. market. The Japanese appear to be picking their targets carefully, avoiding head-to-head competition with major U.S manufacturers in mature product lines.... However, Sanyo does have plans to add a full-size refrigerator.... 3 Future Prospects In 1984 it appeared that the appliance industry might turn out to be the unlikely leader of a renaissance in U.S. manufacturing. Both GE and Whirlpool were in the process of spending hundreds of millions of dollars redesigning their products and retooling their plants with the twin objectives of increasing productivity and product quality. 3. "An Appliance Boom That May Not Last," Business Week, March 10, 1980. 11
Exhibit 1 Total Shipments, Domestic and Exports (in millions, units and sales) 386-115 - 12-1961 1966 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Refrigerators 3.48 4.98 5.69 6.32 7.01 6.27 4.90 5.37 6.39 6.81 6.54 6.05 5.87 5.10 $1,027 $1,328 $1,542 $1,706 $1,936 $1,819 $1,474 $1,748 $ 2,585 $ 3,461 $ 3,413 $ 3,359 $ 3,510 $ 3,161 Freezers 1.05 1.10 1.44 1.58 2.70 3.52 2.74 1.79 1.89 1.83 2.19 2.08 1.93 1.54 293 256 311 342 580 804 653 469 549 566 786 840 836 706 Air conditioners 1.50 3.35 5.44 4.51 5.35 4.56 2.67 2.96 4.15 4.93 4.39 3.79 4.14 3.12 389 699 1,147 911 1,069 931 641 741 1,166 1,563 1,527 1,393 1,654 1,312 Gas ranges 1.81 2.18 2.55 2.66 2.48 1.95 1.62 1.83 1.75 1.80 1.79 1.53 1.50 1.38 272 421 517 565 544 447 383 484 537 619 643 583 619 585 Electric ranges 1.55 2.01 2.71 3.12 3.64 3.23 1.36 2.73 3.35 3.60 3.29 2.81 2.63 2.12 411 447 601 707 1,016 844 657 817 1,078 1,293 1,309 1,170 1,134 932 Microwave ovens - -.10.33.44.64.84 1.49 2.25 2.55 2.92 3.69 4.53 4.27 - - 45 130 167 217 337 626 995 1,171 1,338 1,639 2,140 1,999 Dishwashers.62 1.53 2.48 3.20 3.70 2.32 2.70 3.14 3.36 3.56 3.50 2.72 2.57 2.23 155 330 542 676 800 759 697 855 994 1,082 1,138 960 952 858 Disposers.80 1.41 2.29 2.77 2.97 2.55 2.08 2.52 2.94 3.31 3.32 2.89 3.07 2.69 64 85 138 172 193 194 187 252 324 285 295 277 321 293 Compactors - -.10.21.32.32.23.25.28.30.29.23.21.18 - - 26 48 70 66 52 57 66 72 74 62 60 52 Washers 3.44 4.45 4.61 5.11 5.98 5.34 4.48 4.75 5.12 5.28 5.18 4.71 4.67 4.18 882 1,018 1,077 1,212 1.434 1.349 1,399 1,621 1,830 1,831 1,832 1,765 1,812 1,757 Dryers 1.24 2.36 3.38 3.93 4.55 3.89 3.06 3.37 3.62 3.68 3.60 3.19 3.16 2.82 245 422 583 689 821 741 762 887 1,000 938 980 935 1,003 964 Total 15.49 23.37 30.79 33.85 39.04 35.59 27.68 30.20 35.10 37.65 37.01 33.69 34.28 29.04 3,738 5.006 6,529 7,158 8,630 8,171 7,242 8,552 11,124 12,881 13,335 12,983 14.041 12,139 Average price $ 241 $ 214 $ 212 $ 212 $ 221 $ 230 $ 262 $ 283 $ 317 $ 342 $ 360 $ 385 $ 410 $ 418 Source: Merchandising magazine
The Major Home Appliance Industry in 1984 Revised 386-115 Exhibit 2 Product Line Data 1982 Expected Sales Imports Average Replacement Retail Life Demand 1984 Units Value Units Value Saturation Expectancy (Million (Millions) ($ millions) (Millions) ($millions) (%) (Years) Units) Refrigerators Standard 4.37 $2,937.16 $19 Compact.49 100.41 29 99.9 13 5.46 Freezers Standard 1.29 621 Compact.23 70.10 16 42.8 15 1.19 Room air conditioners 2.75 1,173 - - 27.0 11 3.20 Gas ranges 1.38 585 - - 42.7 Electric ranges 2.04 902 - - 58.2 16 3.67 Microwave ovens 4.20 1,979 1.15 204 25.6 12.44 Smooth top ranges.10 64 - - 2.0 - Washers Standard 3.79 1,641 - - 73.6 12 4.49 Compact.25 74 - Dryers Standard 2.61 898 - - Compact.17 56 - - 65.3 13 2.70 Dishwashers 2.18 846 - - 44.5 11 3.0 Disposers 2.69 293 - - 49.7 10 2.78 Compactors.18 52 - - 3.1 10.10 Sources: For "Unit Shipped," "Retail Value," and "Saturation % (1961-1978):" Merchandising magazine. For "Saturation % (1979 and 1982)," "Life Expectancy," and "Units to be Replaced:" Appliance magazine 13
Exhibit 3 Company Market Shares, Refrigeration 386-115 - 14-1982 1981 1980 1979 1978 1977 1969 1964 1954 Companies Refrigeration % % % % % % % % % Whirlpool Refrigerator 30 31 31 27 27 25 27 24 8 Freezer 36 36 30 30 30 30 * 31 13 Air conditioner 17 17 17 17 17 15 * 25 10 GE/Hotpoint Refrigerator 25 28 26 30 30 30 21 21 26 Freezer * * * * * * * 6 7 Air conditioner 20 20 20 20 20 20 * 12 8 White Refrigerator 21 21 21 25 25 30 27 18 19 Freezer 34 34 25 25 25 25 * 5 5 Air conditioner 15 15 15 15 15 15 * 4 10 Magic Chef (Admiral) Refrigerator 14 11 11 12 12 10 7 6 * Freezer 13 13 9 9 9 15 * * * Revco Freezer - - 15 15 15 15 * * * Raytheon (Amana) Refrigerator 5 5 5 * * * * * * Freezer 7 7 * * * * * * * Fedders Air conditioner 14 15 15 15 15 15 * 11 4 Friedrich Air conditioner 12 12 12 12 12 10 * * * Addison Air conditioner 10 10 10 10 10 10 * * * Others Refrigerator 5 4 6 6 6 5 20 37 47 Freezer 10 10 21 21 21 15 * 51 75 Air conditioner 12 11 11 11 11 15 * 48 68 Sources: (a) for years 1977 to 1982 Appliance magazine (b) for years 1954, 1964, and 1969 Note on the Major Home Appliance Industry *Could mean either does not manufacture, or insignificant market share, or figures not available and hence included in "others."
Exhibit 4 Company Market Shares, Ranges and Ovens 386-115 - 15-1982 1981 1980 1979 1978 1977 1969 1964 1954 Companies Ranges/Ovens % % % % % % % % % Whirlpool Electric 9 9 9 9 * 19 20 9 Microwave 5 4 * * * * * * * GE/Hotpoint Electric 33 35 35 35 35 35 15 13 12 Microwave 16 19 21 13 13 10 * * * White (including Frigidaire) Gas 6 * * * * * * * * Electric 18 18 18 18 18 20 11 9 7 Magic Chef (Admiral) Gas 20 20 20 20 20 25 Electric 7 5 5 5 13 10 Microwave 4 4 * * * * 13 6 5 Maytag (JennAir & Hardwick) Gas 11 10 10 10 10 10 Electric 7 5 5 5 * * Microwave 1 1 * * * * Raytheon (Amana & Caloric) Gas 18 15 12 12 12 10 Electric 8 * * * * * Microwave 10 14 13 20 20 20 Electrolux (Tappan) Gas 20 20 20 20 20 20 Electric 6 6 6 6 10 10 Microwave 12 8 8 13 13 10 12 6 7 Roper (41% owned by Sears) Gas 15 15 15 15 15 15 Electric 7 8 8 8 10 10 Microwave 1 * * * * * 2 * * Litton Microwave 11 14 14 23 20 25 Sharp Microwave 10 11 8 13 13 15 Sanyo Microwave 15 9 * * * * Matsushita Microwave 5 4 * * * * Others Gas 10 20 23 23 23 20 25 46 60 Electric 7 14 14 14 14 15 Microwave 10 10 36 18 21 20 Sources: (a) for years 1977 to 1982 Appliance magazine (b) for years 1954, 1964, and 1969 Note on the Major Home Appliance Industry, 1972 *Could mean either does not manufacture, or insignificant market share, or figures not available and hence included in "others."
Exhibit 5 Company Market Shares, Washers and Dryers 386-115 - 16-1982 1981 1980 1979 1978 1977 1969 1964 1954 Companies Washers and Dryers % % % % % % % % % Whirlpool Washers 41 40 40 40 40 45 46 27 18 Dryers (Electric) 40 40 40 40 40 40 45 43 26 Dryers (Gas) 40 40 40 40 40 40 GE/Hotpoint Washers 20 20 20 20 20 20 16 11 8 Dryers (Electric) 20 20 20 20 20 20 14 8 6 Dryers (Gas) 15 15 15 15 15 15 White Washers 14 14 14 14 14 * 12 8 8 Dryers (Electric) 15 15 15 15 15 10 9 8 9 Dryers (Gas) 15 15 14 14 14 10 Magic Chef (Norge) Washers 5 5 5 5 5 * Dryers (Electric) 5 5 5 5 5 * Dryers (Gas) 5 5 5 5 5 * Maytag Washers 15 15 15 15 15 15 10 11 8 Dryers (Electric) 15 15 15 15 15 15 9 9 2 Dryers (Gas) 15 15 15 15 15 15 Others Washers 5 6 6 6 6 20 16 43 58 Dryers (Electric) 5 5 5 5 5 15 23 32 57 Dryers (Gas) 10 10 11 11 11 20 Sources: (a) for years 1977 to 1982 Appliance magazine (b) for years 1954, 1964, and 1969 Note on the Major Home Appliance Industry, 1972 *Could mean either does not manufacture, or insignificant market share, or figures not available and hence included in "others."
Exhibit 6 Company Market Shares, Clean Up Products 386-115 - 17-1982 1981 1980 1979 1978 1977 1969 1964 1954 Companies Clean Up % % % % % % % % % Whirlpool Dishwashers 7 6 * * * * 5 10 * Compactors 45 45 45 45 45 45 * * * GE/Hotpoint Dishwashers 22 20 25 25 25 25 29 30 38 Disposers - - 35 35 35 40 * * * Compactors 30 30 30 30 30 30 * * * White Dishwashers 4 4 * * * * 15 7 12 Maytag Dishwashers 6 6 6 6 * * * * * Disposers 2 2 * * * * * * * Hobart (Kitchen Aid) Dishwashers 15 15 15 15 15 15 20 10 11 Disposers 4 3 10 10 10 10 * * * Compactors 10 10 * * * * * * * Thermador (Waste King) Dishwashers 2 2 * * * * * * * Disposers 7 6 * * * * * * * Compactors 1 1 * * * * * * * Design & Manufacturer Dishwashers 42 45 45 45 45 45 25 18 * In-Sink-Erator (Emerson Electric) Disposers 60 60 25 25 25 18 * * * Tappan (Anaheim) Disposers 20 25 20 20 10 15 * * * Compactors 7 7 * * * * * * * Others Dishwashers 2 2 9 9 15 15 6 25 31 Disposers 7 4 10 10 20 17 * * * Compactors 7 7 20 20 20 20 * * * Sources: (a) for years 1977 to 1982 Appliance magazine (b) for years 1954, 1964, and 1969 Note on the Major Home Appliance Industry *Could mean either does not manufacture, or insignificant market share, or figures not available and hence included in "others."
Exhibit 7 Percent of Appliance Sales by Type of Outlet, 1982 386-115 - 18 - Standard Compact Standard Standard Air Compact Compact Gas Electric Washer/ Washer/ Refrigerator Freezer Conditioner Refrigerator Freezer Range Range Microwave Dryer Dryer Dishwasher Disposer Compact Appliance stores 33 15 28 25 18 42 40 36 34 49 26 9 26 Catalog/Chain Stores (Sears, Penney's, etc.) 29 47 22 38 41 31 22 27 39 14 25 17 28 Department stores 8 14 13 9 12 3 5 8 8 11 3 2 11 Discount stores 5 13 25 18 16 5 3 11 8 12 7-2 Furniture stores 5 4 2 2 5 6 4 4 4 10 2 - - Catalog showrooms - - 3 7 4 1 1 4 3 5 - - 1 Builder/Contractors 12 1 4 1-7 10 2 4 1 28 28 21 Kitchen remodelers 2-1 1-5 9 4 - - 6 11 9 Plumbing contractors - - - - - - - - - - 1 23 1 Home improvement centers - - - - - - - - - - 2 10 3 Others 7 6 2 5 4 1 5 4 - - - - - Source: Merchandising magazine
The Major Home Appliance Industry in 1984 Revised 386-115 Exhibit 8 Appliance Value Chain While there were wide variations, the value chain of a typical appliance broke down as follows: Manufacturer % of % of Producer Price Retail Price Raw materials 30 20 Labor 10 7 Depreciation, maintenance 15 10 General administration 15 10 Manufactured cost 70% 47% Transportation, warehousing 6 4 Advertising 2 1 Selling, other marketing 6 4 Service 3 2 R&D 3 2 General administration 5 3 Pre-tax profit 5 3 Manufacturer price 100% 66% Wholesaler Selling 6 4 Transportation, warehousing 4 3 Rent, taxes, insurance, general administration 2 1 Floor plan, interest 3 2 Pre-tax profit 2 1 Wholesale price 116% 77% Retailer Advertising 7 5 Selling 7 5 Rent 5 3 Other 10 7 Pre-tax profit 5 3 150% 100% Source: Note: Interviews with industry participants; casewriter estimates For retailers partly integrated into wholesaling, costs (and profits) have been allocated appropriately. 19
386-115 The Major Home Appliance Industry in 1984 Revised Exhibit 9 Whirlpool Manufacturing Facilities, 1983 Location Floor Area Product Line ('000 sq. ft.) Evansville, Indiana 1,634 Home refrigeration equipment Clyde, Ohio 1,370 Home laundry appliances Fort Smith, Arkansas 1,312 Home refrigeration equipment St. Joseph, Michigan 1,312 Home laundry appliances La Porte, Indiana 895 Parts and service Marion, Ohio 849 Home laundry appliances, microwave ovens Lewisburg, Tennessee 733 Heating and central air conditioning equipment, humidifiers Findlay, Ohio 734 Home laundry appliances, dishwashers, and ranges La Vergne, Tennessee 532 Room air conditioning equipment Danville, Kentucky 374 Trash compactors, vacuum cleaners, parts, subassemblies Source: 10 K. Exhibit 10A Top Ten Appliance Manufacturers in Europe Appliance Sales ('000 Units) Manufacturer Country 1977 1981 1. Zanussi Italy 3,872 4,000 2. Philips Holland 2,583 2,800 3. Siemens-Bosch Germany 2,200 2,300 4. AEG Telefunken Germany 2,050 2,200 5. Electrolux Sweden 1,540 2,000 6. Thomson-Brandt France 1,950 1,600 7. Indesit Italy 2,120 1,300 8. Merloni Italy 773 1,200 9. Bauknecht Germany 1,430 1,200 10. Candy Italy 805 900 Exhibit 10B Saturation Levels for Selected Appliances in Europe (1978-1979) Electric Washers Dishwashers Refrigerators Freezers Ranges Germany 88% 20% 95% 47% 70% Italy 88 16 89 28 3 U.K. 77 3 91 44 41 France 72 13 83 23 10 Sweden 65 21 94 66 89 Holland 87 11 98 44 8 20