Wash, Rinse, Rebrand: Electrolux Spiffs Up Appliances in China; Company Has Been Stuck in Slow Sales Cycle

September 19, 2013, 7:09 p.m. ET

Wash, Rinse, Rebrand: Electrolux Spiffs Up Appliances in China

Company Has Been Stuck in Slow Sales Cycle



Fifteen years ago, Electrolux AB ELUX-B.SK +2.30% dreamed of being a major mass-market supplier of washers, refrigerators and other home appliances in China. Now, conceding that its initial strategy was a flop, the Swedish appliance maker is preparing to reintroduce itself in China as a premium brand. Before year-end, Electrolux plans to launch a variety of appliances aimed at people seeking more style and features. The company says it will apply lessons it has learned in Brazil, where it has been far more successful.“We had a flawed model” in China, Keith McLoughlin, chief executive of Electrolux, said in an interview. The plan was to “build factories to make cheap white boxes better than the Chinese.” The result was merchandise that didn’t strike consumers as special. Making things worse, Electrolux’s production costs were far higher than those of Chinese rivals.

“They had scale,” Mr. McLoughlin said. “We were starting up from scratch. We’re making 10; they’re making a million.”

Electrolux’s share of the Chinese market for major appliances was 0.5% last year, according to Euromonitor International. The Chinese market is dominated by local manufacturers, led by Haier Group and GD Midea Holding Co. The only foreign brands with more than 2% of the market last year were Japan’sPanasonic Corp., 6752.TO +0.42% at 4%, and BSH Bosch & Siemens Hausgeräte GmbH of Germany, 2.8%.

To reduce costs, Electrolux closed three of its four factories in China. Its remaining plant, in Hangzhou, concentrates on cooking appliances. It will rely on imports of other appliances from an Electolux factory in Thailand and on outside contractors in China.

Electrolux, the world’s No. 2 appliance maker, provided few details about its new products in China, but Mr. McLoughlin said ventilating hoods will be powerful to cope with the greater heat and steam involved in wok cooking.

Stockholm-based Electrolux still must persuade Chinese shoppers that its appliances merit a premium price. Laurel Luo, a 30-year-old editor who was shopping at a Gome appliance store in Shanghai recently, said an Electrolux fridge on display was attractive but added: “I suppose the quality is about the same as Chinese brands.”

China’s appliance market, the world’s largest in terms of unit sales, is growing faster than those of the U.S. or Western Europe. Euromonitor forecasts 2014 unit-sales growth of 1.3% in Western Europe, 3.8% in the U.S. and 5.2% in China.

Electrolux isn’t alone in recasting its China strategy. U.S.-based Whirlpool Corp.,WHR -0.07% the world’s largest appliance maker by sales value, also has a puny market share in China and concedes that some early joint ventures there didn’t work out. In its latest attempt to implant itself, Whirlpool in August agreed to buy 51% of a small Chinese home-appliances maker, Hefei Rongshida Sanyo Electric Co.,600983.SH +0.31% for $552 million.

Whirlpool mainly sells premium appliances in China now, a spokeswoman said, but the acquisition should allow it to reach a broader range of customers.


At Electrolux, Mr. McLoughlin, a New York native who took over as chief executive in January 2011, points to its model in Brazil, where Electrolux is the No. 2 player, with a 22% market share, trailing only Whirlpool’s 32%, according to Euromonitor.

Unlike in China, Electrolux was able to buy a large Brazilian manufacturer, Refrigeração Paraná. For years after that 1996 acquisition, results were weak. “You had to be patient,” Mr. McLoughlin said. “We kept investing till we got enough scale.”

More important, he said, managers at Electrolux Brazil, led by Ruy Hirschheimer, a Brazilian of German descent, were systematic in their efforts to understand consumer preferences. The company interviews about 5,000 Brazilians each year and has developed what it calls the “70% rule.” When a new model is being considered, Electrolux creates a prototype and shows that to consumers alongside the most popular rival offering. At least 70% of the consumers must prefer the proposed Electrolux model before the company proceeds with a launch.

Among new features offered by Electrolux’s Brazilian unit in recent years are washing-machine attachments that remove stains ultrasonically and touch screens on kitchen appliances that can display recipes.

To speed innovation, Mr. McLoughlin said, research-and-development spending has risen to about 3% of annual sales from 2% a few years ago and may rise further. “Ultimately,” he said, “what we’re going to get paid for is consumer-relevant innovation at a faster rate.”

To a large extent, that effort will be aimed at faster-growing markets in Asia and Latin America. Because of emerging market growth, Mr. McLoughlin said, “the appliance market is going to double or triple going forward. It’s going to happen. The only question is: Are we going to participate to get our fair share.”

—Fanfan Wang contributed to this article.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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