Household equipment

“Smart” is priceless but it comes at a cost

Sector
value

USD3600bn

M

MEDIUM RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • New market opportunities, thanks to the rise of the middle class in emerging markets
  • Limited potential for disruption considering the importance of R&D and barriers to entry
  • Rising importance of digital products inside homes
  • High sensitivity to household incomes and savings rate expected on the rise
  • Reliance on the cyclical construction market
  • The Steinhoff group, among the ten first furniture players in the world, is still in trouble after being recently audited

What to Watch?

  • Smart home solutions :  Increasing importance of product innovation and digitalization 
  • Investment in R&D by industry players to make differentiated products
  • Protectionism of the US and retaliation to continue to weigh on global demand in 2019, despite lower uncertainty
  • Demand from emerging economies to be stronger in 2019 on the back of stimulus policies 

In 2019, the earnings of big household appliance players will be challenged by higher production costs due to increasing R&D expenditures related to smart house appliances combined with higher input prices linked to tariffs. Moreover, market sales are expected to decelerate in 2019 and 2020 alongside the world economy.  The household equipment sector is expected to see lower growth of sales at 1.8% y/y in 2019 and 3.9% y/y in 2020, compared with 4.5% y/y in 2018.

Consumer electronics will be severely impacted in 2019 (-9.4% of growth in 2019 compared with -2.9% y/y) in a context of demand fatigue for costly items and rising cautiousness among households being confronted with fiscal uncertainty (US) or political uncertainty (Europe). Domestic appliances should broadly follow the same pattern, with an expected recovery in 2020 alongside diminishing uncertainty and more support for households from governments (China and Europe in particular). Furniture sales should be more resilient (+4.1% y/y in 2019 and +3.9% y/y in 2020 compared with 5.5% y/y in 2018), thanks to a context of diminishing interest rates as central banks have already started to ease their monetary policies, bringing some support to real estate markets. 

Domestic appliances: White goods’ demand should remain resilient even during a decelerating trend of growth as we expect a soft landing globally

Consumer electronics: They should suffer relatively more in 2019 and 2020 as uncertainty will prevail in developed economies, triggering a rise of saving rates despite lower inflation. 

Key players

Country Role Sector risk
China

#1 producer

#1 exporter

#2 importer

B

Medium risk

Japan

#2 producer

#4 importer

B

Medium risk

United States

#1 importer

#3 producer

#5 exporter

B

Medium risk

Germany

#4 producer

#3 importer

#6 exporter

B

Madium risk

Contact

Contact Euler Hermes

Economic Research Team

research@eulerhermes.com

Sector Risk Analyst

Alexis Garatti

alexis.garatti@eulerhermes.com

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