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July 6, 2012

Eastern European Home Laundry: Sluggish Sales Mask Buoyant Production Growth

CA1_BlogAnalyst Insight by Lorenza Della Santa, Consumer Appliances Senior Analyst 

Euromonitor International's new research into production and trade flows of major appliances reveals that production of home laundry appliances in Eastern Europe increased by 70% between 2006 and 2011, reaching 13 million units, while output in Western Europe shrank by a commensurate 9 million units in the same time. Automatic washing machines and automatic tumble dryers are the big drivers of production growth in Eastern Europe, rising by 4.6 and 1.2 million units respectively.

This is particularly significant against the backdrop of sluggish consumer demand for home laundry appliances, with Eastern Europe suffering the worst decline globally in the turmoil of 2009, and where retail sales are still down 1.7million units compared to the peak of 2008. The region is benefiting from its lower cost base and crucially its proximity to the market that is on the mend: Western Europe.

Production and Retail Sales of Home Laundry Appliances in Europe

Home laundry chart

Euromonitor International

Cost reduction and distribution advantage

The relocation of production facilities from West to East was already evident back in 2006, well before the downturn hit. At the time relocation to Eastern Europe was mainly driven by the need for Western companies to establish operations in a region that up until the recession was not only a nearby low cost production base, but also the fastest growing major appliance market globally. Prior to 2009, retail sales of major appliances in Eastern Europe were growing at a volume CAGR of over 10%, faster even than today's growth engines, Latin American and Asia.

Compare this to Western Europe, where retail volume sales exceeded pre-recession levels just one year after the contraction in 2009, and have continued showing positive, if lukewarm, growth in 2011. But this relative resilience has not stopped Western European manufacturers relocating production from their domestic sites to low cost neighbouring Eastern Europe.

To improve profitability in a time of consumer austerity, Western manufacturers such as Indesit and Electrolux have had to push East, in the context of painful cost reduction and overall company restructuring. Both companies have relocated production to Eastern Europe to the tune of over half of their home laundry output.

German company BSH also increased its production capacity in the region, to become the biggest home laundry manufacturer in Eastern Europe, accounting for 27 per cent of the overall regional home laundry output increase between 2006 and 2011. Interestingly this was in addition to, not at the expense of, its Western European manufacturing, which also increased in that time.

Despite the slow recovery in consumer demand, Eastern Europe still represents an opportunity for sales as well as production. With retail sales set to grow by more than 20% in volume terms through to 2016, home laundry appliances in the long run offers good prospects for further expansion, especially as penetration in the biggest markets, Russia and Ukraine is still comparatively low. On the other hand it is also strategically close to Western Europe, which is also set to grow, excluding Turkey, by around 8%.

Euromonitor International's new research on production and trade statistics in major appliances will be live on Passport on July 9 2012.

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