Why We’re Bullish on the Premium & Luxury Appliance Business

Written by John Laing

December 31, 2020

How has 2020 affected the overall appliance business? With consumers spending 50-100% more time eating and staying at home, demand is unprecedented across all appliances. Retailers are currently averaging a 3:1 ratio of backorders to monthly gross dollar volume. This phenomenon will probably abate at some point in 2021, but for now the outlook is very strong for this business. Here are some of the factors impacting this shift.

Macro Environment

The “hockey stick” shaped recovery is well underway. This quick turnaround is being fueled by an economy that bounced back in Q3 with a +33% increase in real gross domestic product (GDP), a stable yet strong stock market, and positive consumer confidence increases. The September 2020 confidence numbers rose over 15 points, the largest one-month increase in 17 years. Assuming employment numbers continue to expand and the election year changes do not severely impact the economy, the outlook for 2021 is very good indeed.

Home ownership is also a key driver to the kitchen appliance business. In fact, there are 10 million more households in the United States than there were four years ago – or 77 million households in total. And while luxury home sales were flat pre-COVID, a Q3 2020 exodus from overpopulated cities is driving demand and pricing up. High-end second home sales and new construction are on the rise, and quotes for remodeling projects have exploded as consumers look to improve their “locked down” environments.

Premium & Luxury Appliance Brands Segmentation

The U.S. luxury market, which bottomed out in 2011, has enjoyed steady growth and is now valued at $3.7B in retail dollars. Fortunately, the economic uncertainties that occurred in 2008 and impacted all durable purchases are NOT a factor today. And despite a decline of 31.7% in the real GDP and a Q2 2020 slowdown in appliance shipments, the premium / luxury appliance market should finish the year with industry revenue better than 2019 and equivalent to 2006.

Product & Lifestyle Trends Post COVID-19

Three trends were gaining in popularity before 2020 began and have continued to gather steam throughout the COVID-19 pandemic:

  1. Connected and artificial Intelligence appliances – Adoption has and will continue to grow as more relevant benefits are developed.
  2. Air fryer and sous vie cooking functions – These are no longer fringe benefits; they’re now regularly being built into major appliances.
  3. Appliance color customization – Customization, not just for finishes but for knobs and handle options, provide an opportunity for even greater customer input. Check out Elmira Stove Works as an example of how built-to-order luxury appliances could become more than just a niche.

Then, there are changes that have come about as a result of COVID-19. Aspiring chefs and shelter-in-place hobbyists are fueling significant increases in recipe downloads, cooking blogs and the use of both indoor and outdoor kitchens. Consumers now want quartz countertops instead of granite because they are less porous and will not absorb or retain germs, and cabinets and appliances that incorporate “no touch” opening / closing doors like those found on some minivans and SUVs. Also, reducing kitchen odors and noise have become more important, as more people are in the home more of the time.

Sales & Marketing Trends

E-commerce is still a relatively small portion of appliance sales, with unaided premium and luxury appliances ecommerce sales estimated to be 5-7% of the industry balance-of-sale.* However, retailers have quickly adopted better website functionality to enhance the shopping experience. Product-featured video content, chat and virtual showroom tours are becoming the norm, and individual showroom appointments have led to more personalized attention and service. In fact, close rates have significantly improved of late, even with minimal face-to-face selling time.

Someday soon, I hope, we will find a vaccine for COVID-19, and this pandemic will be just a bad / sad memory. However, the lifestyle and behavioral changes that we have adopted in 2020 are here to stay. Ultimately, I am VERY BULLISH on the premium and luxury appliance business for 2021, and I hope we can all learn from this past year and get more than our fair share in 2021.

This article was first published in the December 2020 issue of Retail Observer.

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