Source: CHEAA-run China Appliance magazine
At the beginning of 2022, China’s home appliance industry came under pressure on both supply side and demand side under the influence of a few factors from within and outside China including the economic downturn, sporadic outbreaks of scattered covid-19 infections and the world’s geopolitical conflicts. But home appliance enterprises saw their cost pressure eased and profits bottomed out and rebounded after their efforts made in price adjustment and product mix refinement. When it comes to the market landscape, the industry leaders of white goods showed strong resilience with their strong operation and flexible sales strategies. Haier, Midea and Gree all made a growth in revenue.
Slower revenue growth and a rebound of profit
China’s home appliance industry slowed down in revenue growth in early 2022 with revenue for Q1 up 7.2% YoY at 329.39 billion RMB and net profit attributable to the parent company up 12.57% YoY at 20.686 billion RMB, according to China Galaxy Securities Co., Ltd. The faster growth of profit compared to that of revenue attests to the positive results of industry restructuring.
Category wise, residential air conditioner sector topped the list by both revenue and profit with both up YoY; residential refrigeration appliances and kitchen appliances also posted good performance; residential beauty care appliances and health care appliances made a negative growth of both revenue and profit YoY.
The pressure mainly came from the following factors: (1) high raw material prices which are still at a high level though getting steady; (2) supply chain shortages that are resulted from the shutdown of factories due to the intensified outbreaks of Covid-19 in some regions of China in March; (3) logistic hurdles caused by Covid-19 and the slow recovery of consumption that follows.
Industry leaders of white goods showed strong resilience in operation with a growth made in both revenue and net profit. It is learned that Haier Smart Home posted revenue of 60.251 billion RMB for Q1 2022, up 10% YoY, and net profit attributable to shareholders of the listed company 3.517 billion RMB, up 15.12% YoY; Midea revenue of 90.381 billion RMB, up 9.55% YoY and net profit attributable to shareholders of the listed company 7.178 billion RMB, up 10.97% YoY; Gree revenue of 35.535 billion RMB, up 6.24% YoY, and net profit attributable to shareholders of the listed company 4.003 billion RMB, up 16.28% YoY.
It’s worth noting that the profit grew faster than revenue, which means the profit is in recovery. It is particularly true for industry leaders of white goods who have a strong brand or market share. Haier, Midea and Gree all posted a growth in both revenue and profit. Gree has the highest net profit margin due to its company management, cost control and high gross profit margin of products. Haier Smart Home’s net profit margin is lower than the other two companies, but its profitability is growing with gross profit margin on an upward trend thanks to its efforts in digital transformation in recent years.
I believe the recovery of profit is mainly due to the following reasons: (1) the ease of cost pressure, which is a result of the steadiness of some raw material prices combined with the proactive efforts of enterprises; (2) the measures adopted by enterprises to deal with the high cost issue that include the refinement of their product mixes and the rollout of new products which are set at higher prices; (3) regional policies to boost consumption and product mix upgrading which promote the recovery of consumption; (4) the proactive efforts enterprises made to deal with the rising shipping cost and the downward trend of the CNY exchange rate, which contribute to the stableness of export.
Weak domestic market VS low-profit-margin export market
Under the influence of the sporadic outbreaks of infections, domestic home appliance market (3C products excluded) slid 10.3% YoY in retail sales value in Q1 2022, posting retail sales value of 144.4 billion RMB, of which the fall for January, February and March is 12.1%, 5.3% and 15.3% respectively, according to All View Cloud.
Despite the overall shrinkage of market size and the continued pressure on sales growth, emerging categories remained popular. Tumble dryer sector saw retail sales volume and value both up more than 40%; integrated stove and built-in integrated model sector also saw a rise in retail sales.
The export of China’s home appliance industry saw a slid in volume but a rise in value under the influence of some internal and external factors including the domestic sporadic outbreaks, the world’s geopolitical conflicts and the high growth base formed the year earlier. The export value of home appliances from China reached 25.1 billion USD for Q1 2022, up 1.8% YoY, and the trade surplus came to 23.89 billion USD, up 1.5% YoY, according to General Administration of Customs. The export growth slowed down starting from Q2 with a 3.4% fall in volume and a 1.8% growth in value YoY for March alone affected by growing cost pressure caused by raw material price rise, skyrocketing international shipping cost and the power outages.
Haier and Midea grew against the headwinds thanks to their years of experience in global expansion and international shipping. For Q1, Haier Smart Home saw its revenue from overseas business up 4.2% YoY and operation profit margin up 0.1 percentage YoY. Midea has not unveiled its overseas business performance for Q1, but its annual report 2021 gave us a glimpse into it. For 2021, Midea’s revenue from overseas business reached 137.654 billion RMB, accounting for more than 40% of its total revenue. Compared to Haier and Midea, Gree kept its focus on the domestic market. Its revenue from overseas business stood at 22.535 billion RMB in 2021 though it made a growth of 12.56% YoY.
Despite a rise in overseas revenue, it’s worth noting that the profit margin of the overseas business is getting slim due to the rising cost of raw materials, components, labor, and international shipping. Of the top three white goods market leaders, only Haier made a rise in gross profit margin. Midea saw its gross profit margin of overseas business fell from the 25.5% in 2019 to 21.8% in 2021; Gree from 13.5% in 2019 to 9.8% in 2021; Haier Smart Home rose from 26.7% in 2019 to 28.2% in 2021.
Key strategies of enterprises: high-end, scenario-based and diversified
The market trend towards the development of high-end, scenario-based and diversified products remained unchanged despite the uncertainties including the sporadic outbreaks and rising raw material cost in Q1 2022.
With eyes on the strategic goal of building a smart home ecosystem in the IoT era, Haier achieved a stable growth thanks to the adoption of strategies including expanding the influence of its high-end brand through product iteration and new category development, reducing cost and improving efficiency through whole-process digital transformation, tapping into the weak links of its domestic market, keeping a high-end strategy at its international markets, stepping up its core business while deploying new business lines. Three-winged Bird, a scenario brand of Haier, opened 120 new stores, according to the company’s annual report 2021. It is learned that Haier Smart Home saw its revenue from smart home and others up 16% YoY in Q1 2022. Casarte, the high-end brand of Haier, saw its revenue up 32.3% YoY in Q1 2022.
Midea is also deploying its high-end and scenario-based strategies. It is learned that Midea joined hands with Macalline to establish smart home eco scenarios and plans to make a presence in Macalline with its brands through a 1+N mode with the goal of entering 80 Macalline malls, opening more than 100 stores and achieving sales of 2 billion RMB. Plus, Midea has also launched its B2B businesses after buying Kuka. As of 2021, Midea Group has established five major business divisions which are smart home, industrial tech, robot and automation, and digital innovation.
Gree is expanding its boundaries for more development. After adopting a strategy towards diversified development, the company attaches more importance to its development of kitchen appliances and life appliances. It unveiled its new kitchen appliances on May 10 at the release conference of its new light kitchen strategy. Plus, it also extends its reach to B2B business such as mold manufacturing, healthcare and renewable resources.
Despite the headwinds, China’s economic fundamentals that underpin long-term growth, the market potential, and the resilience of the market remain unchanged. To make a break in 2022, enterprises need to tap into customer needs and roll out targeted products to accommodate to the consumption trends while improve their capabilities.