Source: MEGA WAVE

Author: Xiao Luyu

China's home appliance industry has entered a slow growth cycle. According to statistics released by the National Bureau of Statistics, from January to July 2024, the industry's total operating income reached 1.1 trillion yuan, a year-on-year increase of 4.6%, slightly lower than the GDP growth rate.

While the top companies in the industry have not shown significant growth in revenue, there is still room for profit growth. On October 30th, the leading company in the home appliance sector$MIDEA GROUP (00300.HK)$,$Gree Electric Appliances,Inc.of Zhuhai (000651.SZ)$,$HISENSE HA (00921.HK)$Many companies have announced their latest financial reports, showing that the company's net profit for the first three quarters increased by 9%-15% year-on-year.

In this situation, this year's singles' day sales is even more important for home appliance companies in terms of boosting performance, especially with the national subsidy policy and larger platform subsidies this year.

On October 25th, at the Ministry of Commerce's special news conference on consumer goods replacement, Li Gang, Director of the Ministry of Commerce's Consumer Promotion Division, highlighted that the Ministry of Commerce will seize important consumption nodes such as "november 11 shopping festival-related" to achieve greater results.

From platforms to enterprises, and then to the policy level, this year's singles' day sales is considered a very important topic to promote consumer spending and maintain growth. As a result, this year's singles' day sales has been quite significant for several years. For consumers, there are now more reasons to reignite their enthusiasm for consumption.

However, driving industry growth is not only government subsidies, but also the follow-up investment from brand merchants and the preferential mechanisms of the "singles' day sales" platform, multiple layers of subsidies providing many consumers with the motivation to place orders.

Universal

Online channels are boosting the rapid implementation of national subsidies.

Due to factors such as the countercyclical nature of real estate and insufficient consumer confidence, domestic demand for household appliances has been relatively weak this year. In order to reverse this trend, a new round of old-for-new policies started in March, with various regions issuing subsidy policies to support consumer spending at the national level, but with limited effects.

It was not until mid-August that the old-for-new policy for household appliances gradually rolled out nationwide, with e-commerce platforms and social media joining in the promotion, reigniting the interest of many consumers in buying new home appliances.

Many users enthusiastically shared their 'National Subsidy Usage Strategies', introducing the categories covered by the policy subsidies, notes on receiving subsidies in different regions, the extent of subsidies on different platforms, and how to address issues such as subsidy eligibility being already taken up.

On platforms such as Tmall, by searching for keywords like 'government subsidies', consumers can be directed to dedicated pages for relevant products, or by searching for specific household appliance types. The labels on the products will also indicate if they include government subsidies for consumers to consider.

The efforts of online channels have significantly accelerated the implementation of household appliance subsidies. By around September 29, the central subsidies had only consumed about 6.4 billion yuan in the first one and a half months, while in about two weeks starting in October, 6.767 billion yuan of central subsidies were spent.

Looking at different categories, according to AVC Cloud, from October 14 to 20 this year, the online retail sales and sales volume of air conditioners, refrigerators, and washing machines increased by 296.27%/289.58%, 548.03%/273.98%, 250.27%/127.64% respectively compared to last year. On average, the prices rose by 1.72%, 73.28%, and 53.87% compared to the previous year, respectively.

Overall, as of October 25, 14.203 million consumers have purchased 20.726 million units of 8 major categories of household appliances, enjoying 18.04 billion yuan in central subsidies, driving sales of 95.07 billion yuan.

The implementation effect of this round of national appliance subsidy policy has been better than expected. Cities like Yuyao have even announced that the subsidy funds for appliance replacement in 2024 have been used up ahead of schedule, causing some consumers to worry about not being able to use the subsidy in time.

According to the information released by Tmall platform, since the sale of home appliances in stock on October 14, the top 5 provinces and cities for ordering old-for-new on the platform are Guangdong, Zhejiang, Shandong, Sichuan, and Shanghai; On the day of the stock sale on October 21, the top 5 regions for ordering old-for-new on the platform were Guangdong, Zhejiang, Shandong, Shanghai, and Hebei.

The time left for the 'wait-and-see party' in these areas is probably not as much as imagined. After all, this year's Tmall November 11th stock sale saw 224 home appliance and home furnishing brands being transacted in the first hour, exceeding last year's total for the day.

The rapid transactions are mainly due to Tmall not only responding the fastest to the home appliance renewal policy this time, but also collaborating with thousands of brands to invest an additional 6 billion in subsidies through issuing category vouchers, official brand discounts, etc., dedicated to ensuring that Tmall users receive the most subsidies and have the widest range of commodities to choose.

As China's largest e-commerce platform, Tmall has clearly recovered from the intensive strategic adjustments during the rise of live streaming sales and low-price strategy, and has redefined its advantages, having the most comprehensive brands, new products, and popular products on the entire internet, catering to the most valuable core consumer groups.

Aggregate

The platform consolidates brand strength to benefit core customers.

A careful observation reveals that although the national subsidies landing has ignited consumer enthusiasm, driving an increase in sales of home appliances, home improvement, 3C, and other industries, not all brands and companies can benefit from it. The industry concentration is further increasing along with the 'Matthew Effect'.

First, the policy itself has a screening mechanism, allowing home appliance brands eligible for national subsidies to take advantage, and also continuing to increase the penetration rate of first-tier energy-efficient products.

And in many regions, businesses participating in trade-in programs first need to provide partial pre-financing for national subsidies, which is relatively high in terms of both threshold and risk for small and medium-sized businesses with insufficient financial strength.

For top home appliance companies that are not too worried about pre-financing issues, they mainly participate in this round of trade-in programs through the self-operated stores of major e-commerce platforms to attract as many customers as possible.

Secondly, e-commerce platforms have a traffic diversion mechanism, platforms like Tmall are more willing to reserve opportunities for high-quality, branded products, thereby encouraging businesses and brands to increase investment, allowing the platform's core customer base to enjoy a sufficient number of new and popular products at discounted prices.

Primary energy-efficient products receive a subsidy of 2000 yuan, along with a 15% direct discount from the brand, and an additional 400 yuan off from the home appliance industry category voucher, making the discount on Tmall's home appliance products during this year's Singles' Day sales as low as 40% off. When consumers have subsidies, they are more likely to act from the perspective of actual benefits, following their true intentions.

From the results, the guiding role of national subsidies and platform support is very evident. At 8 p.m. on October 21, during the first 4 hours of Tmall's Singles' Day sales, brand merchants participating with both government subsidies and Singles' Day discounts showed a growth rate 102% higher than that of the home appliance and home furnishing industry.

Among them, the growth of small home appliance category brand merchants with added subsidies leads the home appliance and home furnishing industry by 424%, while the growth of home furnishing brands leads by 146%.

This year marks the first time that small home appliances have been included in the scope of national subsidies for trade-ins. After all, the last "home appliance to the countryside" policy was in 2008, when many people in the country had never used or even seen small home appliances.

Today, a variety of kitchen and bathroom small home appliances, as well as continuously evolving floor cleaning robots, have become common in households. Leading brands of smart home products are sought after by consumers everywhere,$Ecovacs Robotics (603486.SH)$Also, Ecovacs Robotics and Midea Group Co., Ltd. have risen to the top 2 spots on the Tmall Singles' Day sales list of small appliances.

Looking back at Tmall at the beginning of the year, the reorganization of the home appliance, home furnishing, and home decoration industries into a unified "home enjoyment" industry based on home scenes has reshaped the industry's operations and marketing actions, revealing deeper implications.

As expected, for small appliance brands that rely more on scenario-based marketing and core consumer groups, November 11th is their most important annual battlefield.

Walking into the live broadcast room of Zhumai Furniture and Ecovacs Robotics' Tmall flagship store, you will see that the background has been set up as a home scene with beds and furniture. In addition to introducing and demonstrating product functions, store anchors will also show live customers how to receive national subsidies and combine platform and brand subsidies, which is quite attractive to consumers.

Just as expressed by Jialuo, the President of the Tmall Business Unit, at this year's Tmall Singles' Day sales conference, "Unlike in the past, the biggest difference now is that it promotes consumption, boosts overall consumption enthusiasm, and even effectively stimulates a key time window for increased consumption power and domestic demand promotion."

Promoting "Consumption"

Brands and platforms are moving from promoting sales to promoting "consumption".

Observing the situation of this year's singles' day sales, it is not difficult to find that when high-priced brand products have significant discounts, the advantages of low-priced and unknown brand products are not so obvious.

In this year's Tmall singles' day sales, during the first hour of sales, brands like Haier, Midea, Little Swan, Dyson, Ecovacs Robotics,$Xilinmen Furniture (603008.SH)$and other nearly 20 well-known home appliance and furniture brands such as Lin's Furniture quickly exceeded one billion in sales.

In the first phase of Tmall singles' day sales, among major home appliance brands, Haier, Midea, and Little Swan took the top three spots. Compared to the same period last year, Xiaomi rose by 3 ranks to reach 6th place, while Rongsheng and Casa Di entered the top 10 rankings for the first time this year.

The latest weekly report from Bai Chuan Ying Fu home appliance industry also shows that the best-selling white goods on the market come from Haier, Midea, Gree, Siemens, and Casa Di, while the top-selling black goods come from Hisense, Samsung, Changhong,$Panasonic Holdings (6752.JP)$,$Sony Group (6758.JP)$Wait for well-known brands, and the prices are definitely not low.

These data actually imply one thing, that customers with consumption ability and mature rationality do not really need absolutely low-priced goods, but prefer products that are practical and affordable. After all, when the selling price of a product is already significantly below the cost bottom line, consumers find it difficult to ensure that they are buying qualified products instead of products with potential safety hazards.

So, the attractiveness of 'low price' in the market is starting to decline, and this decline begins with high unit price products.

Therefore, businesses with differentiation and brand strength, especially those producing and selling durable goods such as home appliances, home furnishings, and electronics, do not necessarily need to involve themselves in endless low-price competition, but can provide practical and affordable products to the core consumer group within a reasonable profit margin.

However, how can businesses find and maintain these core customers with consumption ability and mature rationality? The e-commerce paid membership system promoted by Taobao and Tmall may become a path.

Taobao's 88VIP membership system aims to achieve a logical deduction from 'high threshold (88 yuan annual fee + 1000 Taohui value) to high net worth (target middle-class users) -> high conversion'. Because the value of the 88VIP customer group is high, they are more active compared to non-members, and purchase product categories about 5 times more than other users.

From Q3 2023 to Q2 2024, in nearly a year, the number of 88VIP members on Taobao increased by 40% from over 30 million to 42 million, the rapid growth behind this is Taobao's focus this year on increasing and deepening the benefits of 88VIP members.

Currently, Taotian 88VIP members enjoy the same benefits as Prime members.$Amazon (AMZN.US)$which have a significantly high renewal rate (about 90%), which well demonstrates the high stickiness of Taotian's core users. The core customers accumulated through Taotian's membership system are most likely the type of customers that premium brands should increase investment in and carefully maintain.$Costco (COST.US)$In fact, the annual cooperative brand scale of 88VIP has grown by more than 300% year-on-year, with over half of the business of top brands being contributed by 88VIP members.

Gathering brand consensus, leading brands to invest sufficient resources and subsidies at the right time is one of the most important tasks for the platform. For consumers, getting practical and affordable products, maintaining consumer enthusiasm and confidence, also requires the platform to play a more proactive role.

Because many have already seen too many so-called promotional activities, it is now very difficult to generate interest and confidence in most ineffective discount activities. It is the right time to do things that can truly promote consumption.

Because many have already seen too many so-called promotional activities, it is now very difficult to generate interest and confidence in most ineffective discount activities. It is the right time to do things that can truly promote consumption.

Editor/Rocky