24 Dec 2014
Big TVs and Small Kitchen Appliances Boost European Electronics
Comparative normality was restored to the European electronics market in 2014, with consumers now enchanted by ever-bigger televisions, bijou kitchen appliances, smartphone music in every room and the chance to buy online.
While electrical retailing across Europe remains a crowded market, consumers continue to demand and embrace the latest technology. This, inevitably, means there are distinct opportunities for those Asian manufacturers looking to enter the European market.
After a slowdown caused by the global economic crash, the European electrical market is finally beginning to return to a state of comparative normality. According to German market research group GfK, demand for small domestic appliances (SDAs), tumble-dryers and smart TVs all helped to boost the electrical consumer goods market over the last 12 months. Overall, the market in Western Europe grew by 4% year-on-year, reaching €47.3 billion (£37.7 billion) in the quarter to September.
Among the strongest performers in the UK, for instance, were the SDAs, which experienced broad growth across a number of categories, including kitchen machines, premium vacuum cleaners, and small kitchen appliances. In Western Europe, the sector grew by 9.8% to €3.2 billion, driven by strong sales in the UK, Austria, Portugal and Germany.
Sales of major domestic appliances (MDAs) were up 5.4%, accounting for €8.2 billion worth of sales in Q3, with all products seeing positive growth, although there was a particular demand for tumble-dryers with heat-pump technology. Prices, particularly for built-in appliances, fell slightly, though not in the UK and the Netherlands.
In terms of consumer electronics (CE), turnover for the quarter came to €6.9 billion, up 3.4% year-on-year, led by strong demand for 50 inch-plus UHD and smart TVs. The audio segment also continued to grow, driven by smartphones and wireless music systems. The only poorly performing segment was photography, which fell 14.9% to €1.4 billion.
Taking an overview, Nigel Catlow, Business Group Director of Consumer Electronics at GfK Retail and Technology UK, said: "The decline in consumer electronics across Europe's 10 biggest markets has clearly ended."
A common trend across Europe is that consumers are opting for larger screen sizes, as sets have become slimmer, smaller in physical size, and more affordable. Reflecting on this, Catlow said: "Volume has settled to a flat position, so the value is being created by a rising average price thanks to increased screen sizes."
In Harrods, arguably the world's most famous department store, for instance, the Samsung 85-inch, 4K set (UE85S9STXXU), is proving popular – even though it comes with a massive £34,999 price tag.
Catlow said: "The key segment of the TV market going forward is going to be the 50 inch-plus arena. This will continue to grow as few people have them in their homes. Historically, sales of this size have been low."
Having access to new content – for example, American TV series, or the latest blockbuster movies via internet-enabled sets – has seen watching TV return to favour with consumers. In terms of traditional markets, though, the DVD is still very much in decline as penetration of the product is already very high. Conversely, the home audio market is continuing to grow.
Explaining this, Catlow says: "Here you should contrast traditional systems that are still in decline and connected systems that are growing – particularly the multi room audio systems. Consumers want to have their music on their smartphones and have that linked into Wi-Fi speakers at home."
Ongoing increases in smartphone ownership have also diminished demand for lower-end photography goods. Tablets are driving computing demand, but computers, tablets and smartphones face persistent deflation as relentless innovation makes products more affordable.
In terms of retailing, online shopping has grown to such an extent that, for the first time, it now accounts for almost one-third of household purchases, apart from groceries. According to research from the British Retail Consortium (BRC), one-in-three home appliances, items of clothing and furniture are now bought via the internet.
Overall, more than £1 in every £5 of all non-food spending in the UK is now being spent online. This latest increase – a 12% rise on last year, was revealed in statistics for last month. These figures included those for Black Friday – 28 November – when £810 million was spent online in a single day.
Citing the growing importance of e-tailers, Helen Dickinson, Director General of the BRC, said: "Online sales will help to drive growth for retailers this Christmas and are a crucial element of their overall strategy."
David McCorquodale, Head of Retail at KPMG, broadly agrees: "After years of slow growth, this Christmas could be a cracker for the retail sector, with sales surpassing last year's levels. Online sales will be launched as early as Christmas Day and shoppers will be able to pick up a bargain while tucking into their turkey."
In terms of developments among retailers, the merger of Carphone Warehouse and Dixons Retail earlier this year created a company that is of particular interest to all mobile phone companies – largely because of its disproportionate influence in the face-to-face sales and mobile phone care sectors. The fact that the newly combined company offers the largest and broadest shop window for mobile and smart devices, along with tablets, has given it huge leverage with suppliers.
Statements from the merged company, Dixons Carphone, in September pointed towards a boost in TV sales, something driven by the football World Cup in Brazil. As Dixons Carphone continues to evolve, it will also be interesting to see how the refocussing of the big four UK food retailers affects the market. A number of them are said to be considering dropping the cross-selling they have previously done with white goods and focus back onto the food market.
Another interesting performer this year was AO World, a UK-based online retailer that sells washing machines, refrigerators and other big-ticket household appliances. It floated back in February and, ahead of its biggest trading day in 2014 – Black Friday – the company already had reported a 25% revenue growth during the first half of the year.
The company, whose shares have traded below its IPO price for much of the year, has announced that its full-year performance would be in line with expectations. It did add, however, that trading losses in its recently launched German business would reduce operating profits.
Commenting on its 2014 performance, John Roberts, AO World's Chief Executive, said: "The UK growth was delivered at the same time as management resources were also focussed on launching our proposition in Germany. This we achieved in October, some six months earlier than we had initially anticipated."
Overall, the company's revenues grew 25.1% to £217.1 million for the six months to 30 September, although operating profits fell 62% to £900,000. Sales from AO.com, though, grew by almost 40%, while third-party sales fell as the company focussed more on its own website.
Beyond the UK, Media Markt, Germany's biggest retailer of consumer electronics has reviewed its development strategy in Russia. This has seen the retailer cutting floor space and focussing on online services. Reports from Moscow suggest that Media Markt may reduce its floor space in Russia by 50%. The company launched its online store in February 2013 – the last of the major offline retailers of consumer electronics in Russia to do so. It now has 67 stores across Russia.
As Europe continues to ride the post-recession wave, the consumer appetite for new technology shows no signs of abating. Couple this with consumers now opting to refurbish their kitchens, rather than move house, and this presents great opportunities when it comes to replacing major domestic appliances. At the same time, stylish, small domestic appliances are giving consumers the chance to add some functional bling to their kitchens.
While 2014 certainly sent out some mixed messages as to the health of the European electronics market, it would not be unrealistic to take a generally optimistic view. As to 2015, while a recovery is apparent, confidence is fragile. After a number of years of uncertainty and austerity, European consumers bruise easily – even those with a budget for big tellies.
Simon King, Special Correspondent, London