The Innovation Age of Appliances
For all of the incredible innovation happening in the consumer technology world, the category that’s taken some of the biggest steps forward is, without a doubt, appliances. Smart home technology is cool. I’m a fan of wireless earbuds. And TVs today look about as true-to-life as ever. But the changes happening in the appliances space have been some of the most innovative, and perhaps some of the most important that consumers have and ever will see.
In the last three to five years we’ve seen tablets make their way onto our refrigerator doors. Cameras let us see what’s inside those same refrigerators while we’re out shopping, and some will even scan best-by dates and notify us when our milk is about to turn sour. Better yet, the fridge might even add milk to our existing shopping list or order it automatically.
Talking to your refrigerator may become commonplace in the next few years as more brands integrate Amazon Alexa or Google Assistant into their products—the kitchen is the “hub” of the home, so it only makes sense that arguably the most important appliance in that room should be utilized as a smart home.
A lot of what-ifs remain about the future of this category and the direction manufacturers want to take it. But the most important question that needs to be answered is how consumers will shop for these major household items. As retailing shifts more and more towards ecommerce, could appliance shopping really succeed in a digital environment?
“It has a shot,” Joe Derochowski, executive director and home industry analyst for The NPD Group, told Dealerscope. “The online curve—every product is going to be growing online. Major appliances are certainly way further down the curve than, say, small kitchen electronics. But in the long run there is still room to grow online.”
However, the category faces some enormous hurdles as it looks to achieve continued growth online, Derochowski said.
Brick and Mortar Still Rules
First, though, it’s best to understand where brick and mortar stands in all of this. By and large, consumers still prefer to shop for major appliances in an actual store—there’s no denying that. Recent data shared by Statista showed that 85 percent of consumers prefer to shop in-store for appliances; the other 15 percent said online. That was the second-best performing category from an in-store perspective, outdone only by automotive (88 percent).
Not only do consumers have a stated preference for in-store appliance shopping—they’re also actively shopping for appliances in stores more often than online. In 2017, the U.S. appliances market was valued around $46 billion. NPD data shared with Dealerscope showed that $3.78 billion of that was spent online—a 44 percent growth over the year prior, but still less than 10 percent of consumers’ total appliance spend in the U.S. last year. So, stated plainly, the need for brick and mortar appliance stores is absolutely still there. We’re not saying anything to the contrary. Consumers still have a desire to look at major appliances in person.
The shift towards online appliance sales has been interesting to watch, though. NPD’s sales data shows that the space is growing. And that narrative is only further supported by the deal announced last summer between Amazon and Sears to bring the retailer’s Kenmore line of appliances to the ecommerce platform. And the emergence of virtual and augmented reality technology in the online retail space could only further enhance consumers’ ability to actively shop for appliances digitally.
Huge Hurdles for Appliances
The question for appliance retailers then becomes how do they prep themselves for a world of selling appliances online? The biggest hurdles that appliance brands and appliance retailers are going to face, according to Derochowski, is developing a solid logistics strategy, which is way easier said than done.
“If I as a consumer try to put an appliance in my house and it doesn't fit, how do I return it and get one that does fit? You're relying on the consumer to make the correct choice, and this is where a lot of the planning, and the VR/AR will help the consumer buy the right product,” he said. “But if they end up accidentally getting the wrong thing and they want to send it back, can we do that in a way that's easy for the consumer and yet not run the manufacturer or the retailer out of business. That's where the magic is going to have to happen.”
We’re definitely early in that process, but it’s something that needs to be considered now if the industry hopes to improve the online sale of appliances. Amazon has conditioned the consumer to be able to expect a smooth returns or exchanges process—so much so that a recent report by retail research firm Narvar found that three quarters of shoppers would decide to give (or not give) a brand repeat business based on how smooth that returns/exchanges process is. Unfortunately, that means the industry is going to have to find a way to make exchanging a washer or dryer that was purchased online seem as simple as swapping a shirt for the next size up. It’s a tall order, and one that could ultimately be the undoing of online appliance sales growth.
Of course, installation of those appliances is going to have to be a part of the equation as well, but local retailers that have built out installation teams are already well positioned to provide those types of services.
Historic Growth Potential
Even as appliance manufacturers and retailers sort through those logistical challenges of online appliance sales, this is an industry, in general, that stands to have a rather historic year, according to Derochowski. He called the home industry—which includes major home appliances—one of the hottest, if not “the hottest” industry that his organization is tracking right now.
The reason for that is tied to a number of different demographic shifts currently happening in the marketplace. Aside from the unexpected purchase made when an appliance breaks down, major appliance purchases typically happen around one of three life stages: when you buy your first home, when you become an empty nester and up- or down-size, or as you hit retirement and move away to a new home.
“Mathematically, the number of bodies hitting these key life moments is growing,” Derochowski said. “So, mathematically, the revenue for this industry is going to have to grow, and the only question is how much and where we're getting it from—online or in store. We expect to see it grow dramatically over the next year or so in all categories.”
Drilling down into the market a little further, smart appliances in particular stand to experience some of the most significant growth. Currently, these Jetson-esque appliances are still considered to be in the early-adopter phase. Pricing reflects that reality, as does the amount of coverage by mainstream consumer tech media. People are excited about these smart washers and dryers, and talking refrigerators, but we’re still a few years away from mass adoption.
“[Appliance manufacturers] need to get that money while they can, but in the long run, for this smart technology to take off, it has to come back down to earth,” Derochowski said. “To the consumer, that product is replacing something, another product, that already exists. It has to be within spitting distance. You can't say, you're going to move from a $30 teapot to a $1,000 teapot because it's smart. No body is going to listen to that. What they may do is go from $30 to $50. Or they may go from an appliance that's $1,000 to $1,200 or $1,500. But they're not going to move to $10,000.”
That’s similar to what the industry saw with televisions as screens started getting larger and the video technology started drastically improving in a short period of time. Prices initially were set at a premium level, but they’ve since come down and are much more affordable to a larger portion of the population. Derochowski believes appliance manufacturers will eventually realize that and start lowering the cost of these smart appliances.
Talking to him about the technological advancements made in the appliance space, though, it’s easy to think Derochowski would be one of those early adopters. He’s completely sold on what appliance makers are doing from a smart home perspective—especially in the kitchen.
“The innovation that the major appliance folks have done is going to change society,” he said. “Innovation meaning that they're getting the concept that this is about planning, shopping, preparing, cooking, and cleaning up for every single meal. They’re focused on making that process easier and better for the consumer. The innovation that major appliance companies have done, the innovation that grocery retailers have done, the advancement of logistics, and the advancement of home automation, those things—we're at a transformational point that's going to be life changing for all of society.”
We experienced that potential earlier this year at CES during the LG Electronics keynote before CES officially opened. The company’s DeepThinQ artificial intelligence platform really stole the show and displayed the potential future of the appliance industry. In short, that platform will allow LG appliances to learn the habits of the consumer over time and adapt to better suit their needs.
For example, a washing machine with DeepThinQ technology will learn to understand that a consumer dropped workout clothes into the SideKick washer, so it’ll smartly change the different wash cycle settings to match the type of wash those clothes need. In the car, DeepThinQ will be able to recognize driver facial expressions and body gestures to sense when a driver might be getting tired, or it’ll adjust the music, lighting, or climate settings inside the car based on which passengers are currently in it.
One of the most useful cases for DeepThinQ that LG put on display, from a customer service aspect, was the smart diagnostics. LG appliances will be able to analyze how the system is operating, send updates to offsite LG tech professionals and make adjustments or tell the consumer to perform some sort of maintenance to avoid a possible breakdown. Or, if the issue is further down the road, the system can actively alert the consumer and suggest bringing in outside help.
The future of the appliances market has the potential to be life changing. But the future we’re talking about is already here.