Consumer spending on home appliances and smartphones is showing signs of slowing as consumers close their wallets due to inflation. On the 22nd, a home appliance store in Seoul was quiet despite the peak summer season. Reporter Kim Beom-jun
Sluggish consumption caused by inflation is becoming a reality. Consumers’ wallets are firmly closed as prices rise sharply due to a sharp rise in raw material and oil prices. Companies that have benefited from ‘retaliatory consumption’ during the COVID-19 period, such as home appliances and smartphones, are also facing the turbulence of the COVID-19 pandemic first.
According to industry sources on the 22nd, sales in the home appliance and TV divisions of Samsung Electronics and LG Electronics fell by more than 10% in major regions of the world in the second quarter. It is known that the decline in sales is greater in Europe and other regions that have been directly affected by Russia’s invasion of Ukraine.
The domestic situation is similar. It is reported that the sales of home appliances at offline home appliance stores such as Lotte Hi-Mart Electronics Land decreased compared to the same period last year. “June is the peak season for air conditioner sales, but sales this month fell by 20% compared to last year,” said a representative of a home appliance distribution company. It is analyzed that this slump in sales is due to a surge in prices. The consumer price inflation rate in May was 5.4%, the highest since July 2008 (5.9%). Last year, wages increased mainly at large companies, but the ability to consume has decreased again due to a sharp rise in prices.
As shipments of information technology (IT) devices such as home appliances and smartphones decrease, there are concerns that the demand for semiconductors will also decrease. According to a recent report by Taiwanese market research firm TrendForce, DRAM and NAND flash prices in the third quarter of this year are expected to fall by 3-8% and 0-5%, respectively, from the second quarter.
Home appliance and semiconductor companies have entered an emergency response posture. LG Chairman Koo Kwang-mo is expected to hold a meeting with the CEOs of affiliates on the 23rd and prepare countermeasures for the recent deterioration of the business environment. On the 21st, Samsung Electronics also held a global strategy meeting for the first half of the year, attended by 240 people, including executives from the headquarters, including Vice Chairman Han Jong-hee, and heads of overseas subsidiaries.
‘Corona stay at home’ with retaliatory consumption… Appliances were sold
Inflation spreads and consumption decreases… Sales plummeting in the home appliance industry and mass retailers
“How can consumers buy home appliances that cost millions of won when the cost of living is tight due to the skyrocketing prices?”
An executive from a home appliance company I met on the 22nd said this. He said that despite the sharp decline in domestic and overseas sales, several meetings were convened, but no solution was found within the company. There is growing concern in the industry that a sales strategy centered on premium products cannot be a solution. The dominant analysis is that replacement demand, which has surged due to pent-up consumption due to COVID-19, is now over. As wages have risen by around 10% this year, the burden of labor costs has also increased. Accordingly, earnings forecasts for home appliance and semiconductor companies are being revised down one after another.
○Double highs in domestic and overseas sales
Domestic home appliance makers such as Samsung Electronics and LG Electronics, as well as Winia Electronics, have begun preparing a contingency plan due to their declining earnings due to sluggish global consumption. In the second quarter of this year, it is known that sales in North America and Central and South America countries such as the United States and Canada fell by about 10%. The situation in Europe is even worse. This is because consumer sentiment has shrunk significantly as the price of various raw materials and oil soared following the Russian invasion of Ukraine. An industry insider said, “In Europe, the decrease in sales reaches 30%.”
The domestic situation is not so easy. Sales of high-priced home appliances at offline home appliance retailers such as Lotte Hi-Mart and Electronic Land are sluggish. It is reported that sales of E-Land TVs decreased by more than 10% until May, and refrigerators showed a single-digit decline.
This is due to the fact that many consumers have replaced their home appliances due to the prolonged stay at home during the Corona 19, and inflation has also reduced consumption capacity. Considering that the consumption cycle of large home appliances is long, about 10 years, it is analyzed that the consumer sentiment will not be revived easily. Joo Won, head of economic research at Hyundai Research Institute, said, “Consumers are closing their wallets because prices are rising too much.
The sluggish sales of large home appliances have already been shown in the results of mass retailers in the first quarter. Lotte Hi-Mart’s sales in the first quarter of this year were 841.2 billion won, down 12% from the same period last year. This led to an operating profit loss of KRW 8.2 billion.
○ Sluggish consumption, affecting even semiconductors
The sluggish demand for electronic and information technology (IT) devices, centered on home appliances, is expected to affect the semiconductor industry as well. Taiwanese market research firm TrendForce predicted in a recent report that DRAM prices in the third quarter of this year would fall by an average of 3-8% from the previous quarter. NAND flash is expected to fall 0-5% during the same period. This is because the demand for semiconductors is expected to decrease as the global supply chain shrinks due to the Russia-Ukraine war and concerns about inflation spread.
Gyu-jin Lee, an analyst at DB Financial Investment, said, “In the second half of the year, sluggish IT finished products such as PCs and mobiles are expected due to global inflation. A decline in memory semiconductor prices seems inevitable.”
It is known that electronic and component makers, which are major customers of memory semiconductors, are adjusting their production volume in anticipation of a contraction in demand. Market research firm Counter Research forecasts global smartphone shipments to be 1.357 billion units this year. This is a decrease of 35 million units from the previous year.
The annual operating profit consensus of Samsung Electronics and LG Electronics (average of securities companies’ estimates) has also been revised downwards one after another since this month. This is because sales of not only semiconductors but also smartphones and home appliances are expected to be sluggish due to the prolonged economic downturn. Samsung Electronics’ operating profit forecast fell from 63.59 trillion won at the end of May to 62.207.7 trillion won on the 21st. LG Electronics was also downgraded from 4.79 trillion won to 4.75 trillion won during the same period.
Reporter Park Shin-young/Park Eui-myung/Lee Mi-kyung firstname.lastname@example.org