The household appliance industry is huge!! Think of a typical day when you awake to coffee that has been brewed by your timer-controlled coffee maker. You pop a couple of slices of bread into your electric toaster, grab some juice from the refrigerator and throw a load of laundry into your washing machine. You dry your hair with your electric hair dryer, brush your teeth with your electric toothbrush and head off to your job. At lunchtime, you prepare your lunch in the microwave oven and then leave early to head home to work in your yard with your lawnmower, leaf blower and trimmer. Dinner time means you need to put that roast in your electric oven, open a can of vegetables with the electric can opener and mix up a cake with your electric mixer. After the dishes have been put in the automatic dishwasher, it is time to relax with the TV and VCR, but only after you put the clothes into the dryer and iron the clothes you will need for tomorrow. Time to set that timer on the coffee maker again and prepare for a brand new morning!

The number of household appliances grows every year, but there is one sector of the industry, the major appliance sector, that remains fairly constant. This is the sector that I have chosen to analyze. The appliances that comprise this sector are ranges, refrigerators, washers, dryers, and dishwashers. The SIC codes that relate to them are

The major appliance industry is both saturated and mature. The five major players are General Electric, Maytag, Whirlpool, Electrolux (Frigidaire) and Raytheon (Amana). All are well established in the industry and have been players for many years. The industry employs about 110, 000 people and in 1996, 55.1 million units were shipped by major appliance manufacturers, topping the previous record set in 1994 of 53.5 million units shipped. Product shipments of household appliances totaled $20.2 billion in 1996. Final data for 1997 is not yet available, but the Association of Home Appliance Manufacturers (AHAM) estimates that the number of units shipped in 1997 will total 53.4 million units.

1 Random House Webster's College Dictionary, New York, NY: Random House, 1992.

The major appliance industry is unusual because of its relative saturation. In the appliance industry, saturation means "at least one per household". The markets for refrigerators and ranges have been fully saturated since the 1960s. The markets for dishwashers and washers and dryers is less saturated. The market is very dependent on interest rates, new housing construction, kitchen remodeling, and replacement appliances.

Interest rates are expected to stay low during 1998. This, in turn, will fuel an increase in new housing starts, although some experts feel that most pent-up demand for new housing may have already been satisfied. Sales of new and existing homes exceeded 4.85 million in 1996 and are expected to remain steady or increase slightly in 1998. The booming economy gives consumers more real disposable income which is also expected to increase in 1998. This is an important factor in major appliance sales as it is estimated that U.S. consumers spend about 50 cents of every $100 on major appliances. The economy also bodes well for consumer loans. In good times, consumers are less afraid to borrow money for major purchases, such as appliances. Many may even decide to buy while the economy is good, rather than waiting until they are forced to make a purchase when an appliance wears out.

Changing demographics will play a significant role in the major appliance market over the next few years. The baby boom generation will be in the 35-to-55 age group during the next 5 years. Households headed by consumers in this age range are in their prime earning years and tend to spend more on household durables than any other age group. The 45-to-54 age group is expected to grow more than three times faster than the population as a whole and will grow to an estimated 39 million people by 2002.

The major appliance market will also be affected by future housing trends. As the number of U.S. households headed by people in their 20s decreases, the need for apartments will decline. This decline will accelerate the building of new single family homes, many of them larger and more lavishly appointed than in years past. Many new homes feature large laundry rooms and

spacious kitchens and are up to 25% larger than homes built just 15 years ago. The market for homes is also shifting from starter homes to larger, more lavish "trade-up" homes. This again reflects the trend in shifting demographics.

Today's kitchens are often the entertainment center of a home. Many consumers are demanding appliances that are attractive, convenient and easy to clean. Manufacturers have responded with induction cooking elements that clean easily, more refrigeration compartments to store more foods, traditional ranges that double as convection ovens, larger capacity washers and dryers and quieter dishwashers and refrigerators. Many consumers are willing to pay top prices for top of the fine appliances that enhance their decor’s and save precious time. GE's Monogram line caters to this high end market as does Maytag's JennAire line and the Whirlpool Gold line. While sales of high-end appliances have been a source of increased revenue for appliance manufacturers, all of them sell appliances at various price points to appeal to the entire consumer market.

Housing designs are also changing. These changes can make appliances prematurely obsolete. Washers and dryers are increasingly being moved out of basements and into more conveniently located laundry rooms. This prompts a need for more attractive, less noisy models.

has historically spent more than any other group on home remodeling. Many are proponents of

"cocooning" and enjoy spending money on their homes rather than on outside entertainment.

This sector often opts for top-of-the line, state of the art appliances. According to Builder

magazine, kitchen remodeling is at the top of the list of projects which offer the biggest payoffs in

terms of home values. Obviously, consumers think the purchase of major appliances is a sound

investment.

Since most consumers can't make do with an appliance that does not work, there is always a market for major appliances. The average life span for major appliances is 10 to 15 years. Ranges and refrigerators usually last the longest, while dishwashers need to be replaced more often. The industry is driven by replacement demand, which accounts for about 75% of all appliance purchases. Different manufacturers have differing exposures to replacement demand, depending on the products they offer. For example, Electrolux (Frigidaire) would not see as many replacement sales for freezers as GE sees for dishwashers. Electrolux leads in freezer market share and GE leads in dishwasher market share, but the life spans of these two appliances are quite diverse. Replacement demand is driven by other factors besides wear and tear. Many homeowners replace one or more appliances after they move to a new home, regardless of their condition.

The prices of new home appliances have remained fairly constant over the past 10 years due to competition and improved efficiencies of manufacturing. Many consumers find it more economical to buy a new appliance than to repair or operate a less energy efficient model.

There are no revolutionary new products being developed by major appliance manufacturers. The last two really important new products were the dishwasher and the microwave. Manufacturers are instead concentrating on improving established appliances by adding new and advanced features. Perhaps the best example of this is the Neptune washer currently being marketed by Maytag. This horizontal-axis washer uses only 23 gallons of water

per single cycle, compared to the 40-46 gallons used by a top loading washer. The Neptune has a horizontally suspended tub with no agitator. It boasts superior cleaning action along with savings of energy and water. This new washer also has a powerful spin cycle that extracts more water from clothes, thus reducing the time and energy needed to dry them. Electrolux (Frigidaire) is also developing a Tumble Action horizontal-axis washer.

The Internet is seen as a future means of communication between manufacturers, consumers and appliances. Within the next decade, manufacturers will begin building Internet web browsing capabilities into appliances. When something breaks, the appliance will be able to search for its own fix and repair itself

Other new products which are in varying stages of development include a waterless sonic washing machine, a microwave clothes dryer, and a machine that grinds plastics for recycling.

The National Appliance Energy Conservation Act of 1987 set new standards that limit energy consumption by new appliances. The act mandates that manufacturers reduce the amount of energy required to operate appliances by about 25% every five years. The first energy efficiency standard was easily met on January 1, 1993, but the second standard, which had been scheduled to go into effect in 1998, has been pushed back to 2003 with a new 30% improvement efficiency mandate. This so angered Whirlpool that is canceled its membership in the Association of Home Appliance Manufacturers trade organization, Whirlpool had spent millions of dollars to meet the earlier deadline and felt AHAM had been unsupportive in lobbying the Department of Energy for an extension. It has since rejoined the trade group.

The effective date and stringency of the standards for energy efficient refrigerators are still under consideration as HCFC-141b, a blowing agent for foam insulation in refrigerators and freezers that depletes ozone, will not be allowed after 2003 due to EPA regulations. Chlorine containing and ozone-depleting chlorofluorocarbons (CFCs) were banned as of 1996 in the U.S. and as of 1995 in Europe. In most Asian countries, the ban takes effect in 2010. There have been no compliance problems among the top manufacturers.

A final DOE rule, expected in 1998 will affect cooking products. It is expected to ban pilot lights on gas ranges.

Whirlpool is the overall market leader in the industry with market share of 35.9%. It is the largest seller of washers and dryers and of the five publicly traded major appliance manufacturers, the only one besides Maytag that is solely in the business of manufacturing appliances.

Brand loyalty is very important to the major appliance business. To capitalize on brand loyalty, Whirlpool has created a "dominant consumer franchise" or DCF strategy which requires that products be more functional and attractive. It also mandates superior service and constant innovation in all aspects of the business. It recently completed a major restructuring that resulted in layoffs at a number of sites. Whirlpool markets 12 major brands in nearly 140 countries and is #1 in market share in Latin America and Asia.

Appliances is only one of General Electric's many businesses, but in keeping with CEO Jack Welch's desire for all its businesses to be number one or number two in their markets, GE Appliances is the 92 appliance manufacturer in the U.S. GE recently wrested the #1 spot in dishwashers from Whirlpool and now controls 40% of that market. It is also #1 in ranges and refrigerators. GE Appliances sells over 150 million appliances per year in 150 world markets.

Maytag also relies on brand loyalty and is well known in the industry for the quality of its products. Everyone has seen the commercials with the Maytag repairman who never gets any calls for service. Maytag is currently # 3 in overall market share. It is an innovative company that only sells appliances and is now marketing the Neptune horizontal-axis washer. Laundry appliances have traditionally been the company's flagship product, but it has begun to expand into all other fines and is doing quite well. Recently its dishwasher sales caught up with its sales of laundry equipment. It is expanding its mid-priced and value lines as well as refining its top-of-the line products.

Electrolux is a Sweden-based company that ranks #4 in market share for major appliances in the U.S. and #1 in Europe. Frigidaire is one of its six business sectors and probably the best known here in the U. S. The company is presently in the middle of a two-year restructuring plan that will reduce its workforce by 11% and close 25 factories. The company wants to be known world wide as an innovation leader and wants to strengthen its bottom line. It is developing a horizontal-axis washer for the U. S. It has had experience selling them in Europe as they are quite common there. Electrolux is a very environmentally friendly company. Its mission is to develop products that use less resources and are less expensive to operate. It has developed an oven that uses 30 to 60% less energy and a washer that recycles the last cycle's rinse water for use in the next load of laundry. It is thinking about lease programs for appliances and is also exploring refurbishing programs where it would take back old appliances, refurbish them and resell them.

Raytheon Company is an international high technology company which operates in four business areas: commercial and defense electronics, engineering and construction, aircraft and major appliances. In July, 1997, Raytheon's Amana Home Appliance Group was purchased by Goodman Holding Company, a privately held company. Many in the business were surprised that the Amana group was not purchased by another appliance manufacturer. Raytheon plans to retain its commercial laundry business where it is a market leader.

Bosch-Siemens is an up-and-coming appliance manufacturer. Currently accounting for less than 2% of U.S. market share, the company is a market leader in Germany and other European companies and currently is expanding globally. Bosch-Siemens recently opened a dishwasher manufacturing plant in New Bern, North Carolina.

While the major home appliance industry remains profitable in the United States, there is not much opportunity for growth. The industry is mature and saturated and it is estimated that appliance shipments over the next few years will remain constant or increase very slightly. Consequently, all the top manufacturers of major appliances are looking to foreign markets to try to increase sales.

Two important trade agreements will have a direct impact on the major appliance industry. The Uruguay Round of the trade agreement will reduce tariffs on all goods by about 40% in developed countries over 10 years beginning in 1995. The North American Free Trade Agreement (NAFTA) went into effect in 1994 and eliminated or reduced tariffs between the U.S. and Mexico. Duties charged on shipments between the U.S. and Canada were eliminated under the U.S.-Canada Free Trade Agreement in 1989 and tariffs between these two countries are expected to be eliminated completely this year. Asia has become more committed to open-market economic policies in the past ten years and posted the most rapid growth rate in the world in 1995. There is also a possibility of a comprehensive free trade agreement with Chile

The major export markets for U.S. appliance manufacturers are Canada, Mexico, Japan, South Korea, and the United Kingdom. These five countries accounted for about 50% of total appliance exports in 1996. Exports totaled $2.9 billion in 1996, an increase of 7% from 1995.

The U.S. major appliance industry has been fully consolidated since the 1980s, but consolidation continues in Europe due to a stagnant and increasingly competitive market. Recently, Bosch-Siemens acquired Gaggenau and Electrolux acquired AEG Hausgerate. The dominant companies in Europe are Electrolux, Bosch-Siemens and Whirlpool, which acquired Philips N.V.'s appliance division in the early 1990s. Matsushita and GE are also global players. There remain, however, nearly 35 other appliance companies on the continent which could be available for acquisition or joint venture agreements. Consolidation is expected in other world markets as well, as markets mature and trade and investment barriers are lifted. Companies which have gained a foothold in these developing markets are benefiting from a growing consumer demand for appliances and low labor costs. They are expected to reap the benefits of these new global markets for many years to come.

The population of Europe exceeds that of the U.S. by almost 25%, but the saturation levels for many major appliances are only half of what they are in the U.S. Obviously, Europe presents a very attractive opportunity for U.S. appliance manufacturers. Central and eastern Europe, Africa and the Middle East offer immense prospects of growth in the coming years. However, winning over European consumers is not a simple task and products must be tailored to fit their needs and desires. For example, induction cooking is popular in western Europe and horizontal-axis washers dominate the market.

Whirlpool and Maytag have begun to penetrate the Southeast Asian market and it is estimated that in 10 years, this market could consume as many appliances as North America and western Europe combined. Joint ventures have provided the quickest and most successful way to

enter the Southeast Asian market. Whirlpool entered into four joint ventures in China in 1994 and 1995. Maytag negotiated a joint venture with a Chinese washer manufacturer in 1996. Maytag is not convinced that sales growth has translated into higher profitability and is being cautious.

Shipments to Latin America are expected to increase 6% to 8% over the next decade. The market is currently highly fragmented with about 65 different home appliance manufacturers. Whirlpool and its partners control about 25% of the market and are by far the largest major player.

The major appliance industry is a stable and profitable industry. Although it is mature and saturated in the United States, there are many growth opportunities available abroad. The industry will always be affected by interest rates, new housing construction, kitchen remodeling and the market for replacement appliances, but as long as consumers need take care of clothes and prepare foods, there will always be a market for major household appliances.

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Hoover, Robert and Hoover, John, An American Quality Legend, How Maytag Saved our Moms, Vexed the Competition, and Presaged America's Quality Revolution, New York, NY: McGraw-Hill, Inc., 1993.

This is a very interesting book, written by a lifelong Maytag employee and his son. It chronicles the history of the Maytag Corporation and explains how the name became synonymous with quality in the appliance industry.

Hardyment, Christina, From Mangle to Microwave - Tile Mechanization of Household Work, Cambridge, England: Polity Press, 1988.

This book provides a history of the mechanization of household appliances in Great Britain and the United States. It was written by a woman who was obsessed with knowing how things worked and who assembled here references relating to the invention, design, development and cost of domestic appliances.

Appliance - Appliance Industry Purchasing Directory. Dana Chase Publications, Inc. Annual.

Appliance Manufacturer Buyers Guide. Business News Publishing Co. Annual.

European Electrical Appliances Marketing Directory. Gale Research Inc. 1993.

Provides detailed information on manufacturers, retailers and wholesalers in Europe. (I was unable to examine any of these directories.)

Appliance. Dana Chase Publications, Inc., monthly

Special issue includes a list of Who's Who in the industry and what appliances they specialize in.

Appliance Manufacturer. Business News Publishing Co., monthly

This is one of the two top trade publications for the appliance industry. It provides data on the overall appliance industry as well as in - depth articles on specific companies. Special annual issue provides statistics on every aspect of the appliance business, by providing market share totals by company for specific industry segments, such as major appliances, small electric appliances and consumer electronics. It further provides market share information by company within these segments. It compares market shares from 1991 to 1996 so analysis of trends is facilitated. Coverage of the international market is minimal. There is a good section on the components/material consumption of the various parts used to construct each appliance (e.g. how many dishwasher motors were manufactured).

Appliance. Dana Chase Publications, Inc., monthly

This publication also provides good industry information in an annual report published in the September issue. In 1997, it was titled "A Portrait of the U.S. Appliance Industry". This issue provides statistics again on every aspect of the appliance business, listing market share by company for each industry segment and then market share by company for specific industry segments. It compares numbers from 1993 to 1996. It also charts life expectancy for specific appliances and projects units to be replaced in the next two years. Another interesting feature is the statistics it provides on market saturation which show what percentage of households owned or own each specific appliance from 1978 to 1996.

Appliance Service News. Gamit Enterprises, Inc., monthly.

This periodical is billed as the number one source of information for the appliance service industry.

Global Appliance Report: A Monthly Digest of International News Affecting the Home Appliance Industry Association of Home Appliance Manufacturers, monthly.

This publication appears to relate to the global aspect of the industry with a concentration on international news.

Appliance. Dana Chase Publications, Inc., monthly

Each issue features statistics on factory shipments. Special issues through the year provide projections of sales of specific appliances 5 years in the future and a 10 year review of the total sales of each appliance product.

1995 Survey of Media Markets- supplement to Sales and Marketing Management New York: Bill Communications.

Survey provides information on retail appliances sales in U.S., metro and state markets.

1996 Cost of Doing Business Report, by North American Retail Dealers Association (NARDA)

This source reports on dealer statistics, rather than manufacturing statistics. It provides data on average financial and operating expenses for dealers as well as profitability statistics by region, dealer size and sales

Gas Appliances and Shipments, from the American Gas Association.

Major Home Appliance Industry Shipments, Association of Home Appliance Manufacturers, monthly.

This monthly report provides statistics on shipments of major appliances and also includes a narrative summary. There are tables for the month being covered, year-to-date shipments and comparisons with the same period in the previous year.

Appliance Sales by Distributors, States, Association of Home Appliance Manufacturers, annual.

Factory Shipments of Appliances - Historical Data, Association of Home Appliance Manufacturers, annual.

Manufacturing U.S.A, 5th edition. Detroit: Gale, 1996.

This source provides general statistics by SIC code from 1982 - 1998 (e). It tracks employment, compensation, and production statistics for the industry and lists the major companies. It also provides industry data by state.

Major Household Appliances - 1996. Current Industrial Reports, United States Department of Commerce, Economics and Statistics Administration, Bureau of the Census.

This annual report is available on the Internet at www.census.govlindustrylma36j96.txt. It provides a myriad of production statistics for each type of major appliance.

Census of Manufacturers. United States Department of Commerce, Bureau of the Census.

This report divides the appliance industry by SIC Code and provides an overview of each, with information such as total shipments and leading states of employment. SIC’s reviewed include 3 63 1, Household Cooking Equipment, 3 63 2, Household Refrigerators and Freezers, 3633, Household Laundry Equipment, and 3639, Household Appliances, Not Elsewhere Classified.

U.S. International Trade in Goods & Services. United State Department of Commerce.

Appliances, Garden Care and Photography, Find/SVP, 1996.

This is a survey of over 20,000 adults that estimated the number of people who use specific products and brands. ($5,000)

Standard and Poor's Corporation. Standard and Poor's Industry Surveys - "Household Durables".. December 4, 1997.

This is an excellent, comprehensive and current source of information on the appliance industry. It provides information on trends, market share and key industry ratios and statistics. It is must reading to anyone researching the appliance industry.

Value Line Inc. Value Line Investment Survey - Home Appliance Industry, March 13, 1998.

Value Line is another excellent source for timely information. Industry timeliness is ranked 71 out of 94. The report also contains specific information on Whirlpool and Maytag-

Chapter titled Household Consumer Durables provides good information on the U.S. and international home appliance industry.

Household Durables - Industry Report. CIBC Oppenheimer, October 13, 1997. This industry report features information on various companies, trends and activities within the household durables industry. The only major appliance company covered is Whirlpool.

Appliance Monthly Statistics: November 1997 - Industry Report. Salomon Smith Barney, December 31, 1997. This report gives total industry unit shipments for the first 11 months of 1997.

Brazilian Appliance Market. Merrill Lynch Capital Markets, October 6,1997. This provides an industry update for Brazil and a third quarter preview. It provides some good international information.

Consumer Durables Quarterly. Salomon Brothers, Inc., September 11, 1997. This report covers more than just the appliance industry, but did provide some good information on trends and sales projections.

Investext also provides reports on specific companies in the appliance industry, such as General Electric, Whirlpool and Maytag.

This database of general business and trade periodicals provides access to many of the industry trade publications, such as Appliance Manufacturer and Appliance. The articles are available in full text.

This online database provides access to thousands of newspapers, newsletters and magazines nationwide. A search on household appliances generates articles not only from trade publications, but also from regional newspapers and magazines. These can provide a valuable insight into the workings of the appliance industry as well as specific company information. Dow Jones also provides easy access to PR Newswire, a good source for up to the minute information. Full text news releases report on companies and trade associations and issues such as pending litigation, mergers and earnings reports.

All of the major appliance manufacturers have internet web sites. They all provide financials, press releases, excerpts or fall text of annual reports and specific information on company products. Electrolux's site is the most innovative. It uses family members such as "Daddy Ralph" and "Mona" to explain the features of the company's products.

www.ge.com

www.whirlpool.com

www.maytag.com

www.raytheon.com

www.electrolux.se

www.boschsiemens.com

The two major trade publications also have good web sites. Both provide access to current industry news and statistics.

Appliance Magazine www.appliance.com

Appliance Manufacturer www.bnp.com/am

The trade association for this industry is the Association of Home Appliance Manufacturers. It is a thirty year old international organization consisting of 28 major appliance members, 37 portable-appliance members and 111 supplier-division members.

Its web site, www.aham.org, offers a wealth of information on the appliance industry, including current news on the industry and companies, research, standards, and comprehensive industry statistics. It also provides good links to other relevant appliance sites and provides samples of reports it has sponsored which can be purchased.