Household Appliances, NEC

SIC 3639

Companies in this industry

Industry report:

This industry includes establishments primarily engaged in manufacturing household appliances, not elsewhere classified, such as water heaters, dishwashers, food waste disposal units, and household sewing machines. Major product groups include water heaters, dishwashers, food disposers, trash compactors, floor waxers, and sewing machines. Laundry equipment, refrigerators, and other major household goods are classified separately, as are commercial appliances.

Industry Snapshot

A uniquely American innovation, electric and gas household appliances became commonplace in U.S. homes during the postwar economic expansion of the 1950s, 1960s, and 1970s. By the early 1980s, miscellaneous appliance makers in the United States were shipping about $1.5 billion worth of goods each year and employing a workforce of more than 14,000. Continued rapid growth in the 1980s pushed industry sales past $3.2 billion by the early 1990s. In the late 1990s, industry shipments were valued at $3.7 billion. By 2008, this figure had grown to $4.7 billion, according to the U.S. Census Bureau. Employment, however, had fallen to 11,100. Factors that limited the industry's growth included manufacturing consolidation, intense competition, and market maturity. Although the U.S. household appliance industry suffered from the economic recession of the late 2000s--including the resulting decline in housing starts--some predicted a recovery as the nation headed into the 2010s.

Organization and Structure

The largest segment of this household appliances category is water heater manufacturing, which accounts for roughly 40 percent of industry sales. Dishwashers, the second largest product category, are trailed by trash compactors, disposers, floor waxers, sewing machines, and related supplies and attachments.

Appliance sales are driven primarily by three factors: replacement sales; product market penetration, particularly in the case of completely new appliances; and new construction, which generates demand by builders that perform first-time installations. Because most product categories have achieved almost full market penetration, miscellaneous appliance sales are highly dependent on replacement sales and new construction and are closely linked to housing starts and economic growth. Pricing is very competitive. Manufacturers attempt to keep costs down by more efficient manufacturing and restructurings and work to build brand loyalty, especially in the replacement market.

The appliance industry can be differentiated from other manufacturing sectors by its production characteristics. Appliance manufacturing is essentially an assembly-line process whereby ready-made components are assembled. Because it has low fixed costs and is labor intensive, appliance production offers abundant opportunities for manufacturing efficiency gains. This characteristic contributes to a high weight-to-value ratio that limits overseas appliance imports into the United States, causing prices to remain effectively fixed during the 1980s and into the 2000s.

Appliances are mainly sold through retail outlets, which have trained workers. Manufacturers usually ship products to warehouses from which they are distributed to retailers. However, some large retailers, such as Sears, Roebuck & Co., establish agreements with manufacturers for shipments directly to their warehouses. While manufacturers generally used the Internet only for providing product information to consumers, with the rise of e-commerce in the 2000s, retailers like Sears were using the Internet to offer products for sale online.

Products.
The two main types of water heaters are electric- and gas-powered. Gasheaters made up over half of all residential water heater sales in the early 2000s. Although electric heaters were often priced lower, gas heaters were less expensive to operate. Most water heaters consist of a tank that is made of galvanized iron or aluminum alloys and holds between 20 and 140 gallons. A glass or plastic liner is used to reduce corrosion inside the tank. Water temperature can be adjusted between 100 and 200 degrees Fahrenheit. In 2002, U.S. producers sold about 4.99 million gas water heaters and 4.39 million electric water heaters.

The two main categories of household dishwashers are portable and built-in. Built-ins were by far the major type. Manufacturers shipped a total of 6.2 million dishwashers in 2002. Most dishwashers use pumps and impellers to throw the same water against dishes over and over to clean them. Fresh rinse water is then used. The cycle is typically completed by heat-drying the dishes. About 50 percent of all U.S. homes had a dishwasher in the early 1990s, up from 45 percent in 1980. However, in the late 1990s, dishwashers still were not considered a must-have appliance by homeowners, and they had a low market saturation in comparison to other major appliances. Shipments continued to show steady annual growth in the early 2000s, as the dishwasher became a standard appliance in U.S. households. According to Appliance Design, more than 356,000 dishwashers were shipped in the United States in January 2010.

Garbage disposal units are motor-operated grinders that are installed in kitchen sinks. These devices allow food to be washed down the drain. Approximately 50 percent of all U.S. homes were equipped with a disposal unit in the early 1990s, and nearly 4.0 million units were sold in 1993. In 1998, 4.9 million units were shipped, and in 2002, that number had increased to 5.8 million. About 447,800 trash disposals were shipped in January 2010, according to Appliance Design. Although a standard in new construction by the late 2000s, trash compactors represented a negligible share of the appliance market in the 2000s; in January 2010, only 3,100 units were shipped.

Floor polishers and sewing machines also accounted for a meager share of U.S. miscellaneous appliance output. Most sewing machines were manufactured in Japan. In 1997, 1.56 million household sewing machines, with a value of $232 million, were imported, and 50,000 machines, with a value of $14 million, were exported.

Background and Development

Many of the appliances classified in this industry have existed for centuries. Not until the twentieth century, however, did self-contained electric- and gas-powered household appliances appear. A primary impetus for the development of such tools was the almost total disappearance of full-time domestic servants.

Appliances available in the early 1900s included electric clothes washers, water heaters, refrigerators, and sewing machines. In the second half of the century, during rapid postwar U.S. economic growth, a demand emerged for dishwashers, clothes dryers, food disposers, floor polishers, and similar devices of convenience. A rise in discretionary income, growth in the number of U.S. households, and desire for more recreational time were major factors contributing to the rise of the miscellaneous appliance industry from the 1950s to the 1970s.

By the early 1980s, miscellaneous appliance manufacturers were shipping about $1.5 billion worth of goods each year and employing more than 14,000 workers. Strong industry growth continued during the 1980s as housing starts surged and growing home renovation markets spurred replacement sales. In addition, an increase in the number of working women boosted market penetration by some products.

Although industry revenues shot up more than 100 percent between 1982 and 1990, reaching approximately $3.3 billion, unit shipments grew at an even faster rate, and industry profits climbed. Manufacturers were able to achieve such growth through economies of scale and productivity gains. Indeed, as revenues and shipments more than doubled during the 1980s, industry employment remained steady. Hefty investments in automation and information systems permitted these efficiency gains.

Economies of scale were attained primarily through mergers and acquisitions, which characterized almost all appliance sectors throughout the 1980s and early 1990s. As manufacturers joined forces to increase investment capital and reduce research and production expenditures, the number of competitors in the miscellaneous appliances industry lessened. Antitrust legislation enacted during the 1980s slowed the rate of consolidation by the early 1990s.

Sluggish economic conditions, which suppressed housing starts and replacement sales, battered manufacturers of miscellaneous appliances in 1990. Home building and consumer expenditures picked up in 1992, though, prodded by low interest rates and pent-up demand. After plunging to $3.1 billion in 1990, industry revenues climbed to $3.3 billion in 1991 and grew about four percent annually during 1992 and 1993. Unit sales volume climbed even faster. Dishwasher shipments, for example, jumped almost eight percent in 1993, and water heater orders increased by about six percent. Export growth augmented the domestic recovery.

About 26 percent of industry revenues in the early 1990s was garnered from individual consumer purchases. Residential builders consumed approximately 20 percent of aggregate output, while commercial and institutional developers made up about 24 percent of the market. Roughly five percent of production was exported. The remaining 25 percent of sales was made to the armed forces, state and local governments, mobile home builders, and other sectors.

Although appliance makers of the late twentieth century lacked major new product offerings that could broaden their industry, they were having some success enticing new buyers to the market by adding new features to established products. Manufacturers also were benefiting from generally positive demographic trends. For instance, aging baby-boomers were investing an increasing proportion of their income into their homes, reflecting a desire for products that make the lives of two-income families more convenient and comfortable. In addition, large numbers of appliances sold in the early 1980s were rapidly approaching replacement age. In an effort to exceed forecasts of modest growth, producers in the mid-1990s strove to accelerate replacement sales by developing more energy-efficient, convenient, and versatile machines.

While opportunities prevailed in rapidly unfurling Asian markets, U.S. producers were largely avoiding that region in the early 1990s. Three successful Japanese conglomerates--Hitachi, Toshiba, and Matsushita--had established a strong grip on much of the Asian market and posed formidable entry barriers to even the most savvy American competitors. Likewise, Japanese producers were avoiding North American markets for fear of their U.S. counterparts, which maintained a lead in production efficiency, distribution, and marketing know-how--U.S. producers supplied more than 75 percent of domestic demand for all types of appliances in 1993. Japanese companies had succeeded in penetrating the sewing machine market, though, and were supplying more than 70 percent of global demand in the mid-1990s.

U.S. appliance exports jumped 16 percent in 1992. Canada and Mexico consumed about 46 percent of those shipments, while European countries purchased about 15 percent. East Asian and South American consumers accounted for 12 percent and 6 percent of U.S. exports, respectively. In the short term, the Canadian and Mexican markets continued to grow, particularly in the wake of the North American Free Trade Agreement (NAFTA) that Congress passed in 1994. Exports to Mexico jumped 18 percent in 1993, while shipments to Canada ballooned 20 percent following a 1992 reduction in tariffs.

As domestic appliance makers continued to boost exports, imports surged. Imports increased by an uncharacteristically high 28 percent in 1992, despite a weak U.S. dollar, and imports rose steadily during the 1990s and early 2000s. The main reason for import growth was the proliferation of U.S.-owned manufacturing plants in foreign countries. U.S. producers were shifting production to low-cost countries, such as Mexico and China, which offered cheap labor and materials. Imports from Mexico, for example, grew by 40 percent in 1993.

Several trends were contributing to favorable conditions for the industry at the close of the twentieth century. The pool of likely buyers was increasing as a large segment of the population was reaching its peak spending years. Because employment was high, more consumers had disposable income. In addition, available credit and lower interest rates spurred housing activity and remodeling, and thus, appliance sales. Home ownership reached a record level of 66 percent. Homeowners purchased appliances to furnish new houses, to replace those in houses new to their buyers, to replace worn-out appliances, and to renovate their kitchens with modern appliances. Four or five appliance units were bought for each new housing start. Approximately three-quarters of all appliance sales were to replace broken or worn-out appliances.

The appliance industry was globalizing as many countries lowered their tariffs, thus enabling appliance imports and exports to increase about six percent between 1996 and 1997. Also, appliance companies invested in foreign companies through acquisitions and joint ventures, particularly in the former communist countries and in industrializing countries in Asia and Latin America. China, Mexico, Canada, Taiwan, and South Korea accounted for 66 percent of imports in 1997. Mexico and Canada were benefiting from NAFTA and the U.S.-Canada Free Trade Agreement; China was benefiting from low labor costs. In 1998, imports caused U.S. appliance producer prices to decline. Fifty-three percent of U.S. appliance exports went to Canada, Mexico, the United Kingdom, Japan, and South Korea.

The steel tariffs imposed in the early 2000s hurt many U.S. manufacturers, and the appliance manufacturing industry was no exception. The industry annually consumed more than three million tons of steel, and the increase in price, as well as the sharp drop in employment, hurt appliance manufacturers by association. The tariffs were repealed in 2003.

Government environmental regulations continued to be one of the greatest hurdles facing appliance makers. The Department of Energy's (DOE) National Appliance Energy Conservation Act of 1987 set new standards that limited energy consumption by new appliances. The act required manufacturers to cut product energy consumption by 25 percent every five years. Other regulations were aimed at reducing harmful gas emissions.

While most industry participants achieved compliance with all regulations on schedule, and some manufacturers had boosted sales with environmentally friendly products, some appliance makers resented the new regulations, citing the capital investments required to meet the stipulations of such legislation, as well as the small amount of energy consumed by appliances--only four percent, according to the Association of Home Appliance Manufacturers. By 2003, manufacturers had more than doubled the energy efficiency of their appliances over those of 30 years prior, but at great cost to the industry in both dollars and employment, particularly for smaller firms.

Current Conditions

In 2009, 455 establishments employed 9,100 workers in this $2.3 billion industry. Although most firms were small, a majority of sales came from companies employing more than 100 people. Although the industry slowed along with the economy in the late 2000s, world demand for major household appliances was predicted to increase 2.8 percent annually through 2013, reaching 490 million units, according to The Freedonia Group. India was expected to be the fastest growing market, due to low penetration rates and rising standard of living. China was also a growing market, as were Eastern European countries. In the United States, the replacement market, especially with more energy-efficient machines, was expected to boost sales throughout the 2010s.

Responding to the increase in interest in appliances with lower operating costs, and in cooperation with environmental groups, appliance manufacturers signed the Energy Efficient and Smart Appliance Agreement of 2010, which promoted improved efficiency standards and tax policies for industry. Targeted appliances included refrigerators, freezers, washers and dryers, dishwashers, and room air-conditioners. The goal for the dishwasher segment of the industry was to meet standards that represented a 14 percent increase in energy savings and a 23 percent increase in water savings beginning in January 2013. Participants included industry leaders Whirlpool, Electrolux, LG Electronics, General Electric, and others.

Industry Leaders

The appliance industry remained highly consolidated into the early 2010s, when the top few firms supplied a large majority of all U.S. appliances. Whirlpool, based in Benton Harbor, Michigan, was one of the world's largest major home appliance producers, marketing its products under such names as Whirlpool, KitchenAid, and Amana. The company added the Maytag, Jenn-Air, Magic Chef, and Performa brands when it purchased Maytag Corp. in 2006. Products included dishwashers, washers, dryers, freezers, microwave ovens, ranges, trash compactors, refrigerators, and other household appliances. With 67,000 employees, Whirlpool recorded 2009 sales of more than $17.0 billion.

Based in Louisville, Kentucky, GE Appliances & Lighting (GEAL) made refrigerators, freezers, dishwashers, and ovens under such brand names as GE, Monogram, and Profile. GEAL was a division of manufacturing giant GE, which had total sales of $156.7 billion in 2009.

Electrolux Home Products North America, in Augusta, Georgia, a division of Sweden-based AB Electrolux, manufactured dishwashers, microwave ovens, stoves, refrigerators, and vacuums. Brand names included Frigidaire and Eureka. With 22,000 employees, Electrolux Home Products had sales of almost $5.5 billion in 2009.

Some smaller product segments were dominated by niche firms. For example, InSinkErator of Racine, Wisconsin, was the world's largest food waste disposer manufacturer in the world. The company was a division of St. Louis-based Emerson Electric Co., which had overall sales of $20.9 billion in 2009. Another top maker of trash disposals included California-based Anaheim Manufacturing Co., whose brands included Waste King, Sinkmaster, and Whirlaway.

The Singer Company, founded in 1851 and headquartered in LaVergne, Tennessee, was the world's leading producer of sewing machines. The firm became a part of Kohlberg & Company in 2004. Water heater manufacturers included State Industries Inc., which operated seven factories in 2010, and A.O. Smith Corp. of Milwaukee, Wisconsin, which had annual sales of almost $2 billion in 2009.

America and the World

Because manufacturers have achieved close to maximum market penetration with most miscellaneous appliances in the United States, they increasingly focused their expansion efforts on foreign markets that offered a greater potential for growth. Asia, and especially China and India, promised to be the world's largest market in the twenty-first century. Whirlpool had entered this market through joint ventures in China and as a major distributor to India, Pakistan, and other nations. According to the Association of Home Appliance Manufacturers website in 2010, trade with China, the fastest growing export market for many manufacturing industries, was particularly important to cultivate in the 2000s, because growth would be assured "not from selling to saturated, developed markets, but instead from trading with emerging markets and developing countries."

U.S. imports of other major household appliances reached $1.4 billion in 2009, according to Supplier Relations US LLC. These imports were shipped from 75 different countries. Exports were lower, at $800 million.

Research and Technology

Technological advancements in the 2000s centered around compliance with environmental regulations and the development of more efficient appliances. Producers were striving to retain the cleansing power of dishwashers, for example, while reducing water usage. Meanwhile, water heater manufacturers continued to search for more efficient heating, insulation, and distribution technology.

The industry received more incentive to increase the efficiency of appliances when the federal government approved a $300 million state-run rebate program for consumers who purchased household appliances that had Energy Star approval. The Energy Star symbol was created by the U.S. Environmental Protection Agency (EPA) in an attempt to reduce greenhouse gases and promote the purchase and use of energy-efficient household devices. According to the EPA, appliances with the Energy Star seal are 10 to 30 percent more efficient than comparable products.

Another trend in the industry involved producing a noise-free dishwasher. Manufacturers from all continents were trying to develop a soundless machine. Frigidaire, for example, was offering three sound-blanketing packages with its dishwashers that incorporated vinyl-backed fiberglass, quilted foil-backed fiberglass, and asphaltic sound-damping materials. Manufacturers also were experimenting with quieter motors and noise-cancellation frequency generators. In the mid-2000s, Bosch came out with a dishwasher that was so quiet that one of its features was a beam of light that shone onto the floor to show it was running. In the early 2010s, the quietest dishwashers on the market ran at about 45 decibels, quieter than a normal conversation.

Advances related to all types of appliances were being achieved through the increased use of plastics. New thermoplastics, for example, were being used to reduce heat loss that occurs in appliances encased in metal. Other plastics were helping manufacturers reduce shipping weight and increase the strength and durability of their products. Waste King, for example, switched from a stainless steel housing on a garbage disposal to one made of an engineered polymer compound. This reduced the unit's weight by five ounces, made it smaller, and decreased its noise level by five decibels.

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