Appliance business mulls a crossroad - home goods & housewares - more stores selling appliances

DSN Retailing Today, Nov 24, 2003

The appliances business is developing a split personality. With mass-market retailers taking a bigger role, the dichotomy between price-oriented and feature-driven sales will likely become more pronounced at retail.

Discounters have been nibbling at the edges of the large appliance business. They have added alternative products in several product categories, such as compact refrigerators and freezers. But these have been supplementary items for the most part or for use in specific applications such as college dorm rooms.

More ambitious tests have been launched, however, and Wal-Mart has been experimenting with major appliances for the past few years.

"We currently have seven core large-appliance items and a touch-screen catalog kiosk for customers in our Bentonville supercenter," said Melissa Berryhill, a Wal-Mart spokeswoman. "This is currently a one-store test still being modified and developed. I wouldn't speculate on any future decisions at this point."

Even if a big push isn't imminent in the discount store end, the rapid expansion of appliances in home centers particularly has had a major impact on the large appliance business.

While Sears continues to dominate the appliance business, Lowe's and The Home Depot have joined it and Best Buy among the top five major appliance retailers. Their advance has been rapid. While Lowe's has always carried major appliances, its rapid geographic expansion over the past decade has made it such a big player in the appliance business. For Home Depot, the advance, begun about three years ago, was different. "We never carried appliances," said John Simley, a Home Depot spokesman. "In time, we went from zero to the third-largest supplier of home appliances."

Appliances are succeeding in the mass market in part because many consumers now accept--or even prefer--taking a home appliance home themselves. Or they have grown accustomed to arranging deliveries through stores. For example, Lowe's is stocking high levels of carryout kitchen appliances, as 40% of its customers are leaving the store with the washers, refrigerators and stoves they just purchased, Lowe's president Robert Niblock said at the company's 2003 Analyst & Investor Conference.

Simley said that adding home appliances was simply a logical extension of Home Depot's business philosophy. "It has everything to do with offering a total solution. Our customers are coming into our stores to a do kitchen, not to just pick out kitchen wall coverings, lighting, countertops, appliances. We have to have everything they need to make a new kitchen. We can't be missing anyone. Before three years ago, customers were coming to us to do kitchen design and going to Best Buy, or worse, Lowe's, for appliances. We decided that this is a necessary extension if we're going to sell a whole kitchen."

With product in all channels of distribution, General Electric has been on the advanced edge of a major appliance evolution at retail. GE continues its effort with core goods at Wal-Mart. "The test has not been conclusive," Dave Bilas, gm, retail sales, said. "It's still under test. We're appraising it as every day goes by." Yet, even as it does so, it is working to improve the performance of existing product in the self-service environment typical of mass market, whether it be core products or ancillaries, such as the 9-cubic-inch freezers it sells at Wal-Mart.

"The change there for us has been more point of purchase on the carton," he said. "We're showing more features and advantages, self-communicating to the consumer."

Yet the activity in mass market doesn't necessarily mean that the sector is likely to take over the lion's share of the appliance business. Early this summer, Sears revamped its major appliance operation and got some evidence that the refreshed approach was going over well with customers. In August, the company said its above-expectation 3.9% comparable-store sales gain got much of its unanticipated strength from core major appliances. Besides its broadline locations, Sears has been testing major appliances in its freestanding hardware stores.

Yet both Sears and Best Buy have had rough patches as they've absorbed the effect of new competition, and it was an erosion of market share that prompted Sears to revisit its major appliance program.

Bilas said the price impression left by mass-market products has an effect, and that the dollar-conscious shopper is a reality of the marketplace. However, a significant number of consumers prefer products that are feature-heavy and meet specific needs or concerns. Those customers generally prefer the service environment and create opportunities for manufacturers and retailers to develop products that might have once seemed impossibly priced. Today, washer/dryer combinations that are designed for better cleaning and care of expensive clothing can fetch $2,000, Bilas said.

Convenience, resource preservation and timesavings speak to the feature-driven shopper. GE has developed Profile Ovens with Trivection Technology that permits consumers to cook favorite family recipes in a full-size oven in less time than was possible with a conventional appliance.