Irons in Argentina

Headlines

·         In 2008, the retail volume sales of irons drop 25% to 1.8 million units, while current value sales decline nearly 18%

·         With nearly 95% household penetration, the demand for irons is nearly saturated and volume sales suffer

·         The traditional steam iron format accounts for nearly 78% of retail volume sales in 2008

·         Inflation drives the 10% unit price increase in 2008

·         Retail sales of irons are expected to decline nearly 9% in volume terms over the forecast period due to a lengthening of the replacement cycle

Trends

·         Near saturation of the demand for irons, coupled with a deterioration of economy activity, were the main reasons behind the 25% drop in volume sales in 2008. Low- and middle-income consumers delayed the replacement of their existing irons since many had already traded up earlier in the review period when consumer spending was extraordinarily high.

·         Irons is clearly dominated by standard products due to the importance of middle-income Argentinians as the main consumer group. Renowned brands from companies like Groupe SEB Argentina and Philips Argentina maintained the leading positions as a result of their reputation as durable products.

·         Traditional steam irons remained extremely popular in Argentina as many middle-income families became accustomed to using them and were unlikely to trade down to traditional dry irons. Innovations like anti-wrinkle systems and a self-cleaning function helped this format achieve a 78% volume share of the retail sales of irons in 2008, up from 71% in 2007, and at the expense of the traditional dry format.

·         There was a 10% increase in the average unit price of irons in 2008, caused by rising raw material costs and the devaluation of the peso relative to the currency of source countries.

·         Traditional dry irons saw its volume share shrink to 22% in 2008, as middle-income consumers continued to trade up to steam irons that perform more effectively.

·         Chained electrical goods retailers (multiples) and hypermarkets accounted for most of the volume sales of irons in 2008. These were the dominant distribution channels for many years and are likely to continue to dominate in the forecast period. Their advantage lies in their ability to display a wide variety of products from which consumers can choose when making a purchase.

Competitive Landscape

·         Philips Argentina saw a huge jump in its volume share with an increase of nearly 20 percentage points to a 50% volume share in 2008. The company accomplished this by offering the widest portfolio of irons in the economy and mid-price segments, including the Philips GC 130, priced only ARS10 (US$3.30) higher than the private label products. Low-income consumers heartily embraced the company's economy products due to their bad experiences with private label products in the past. Philips Argentina's product portfolio also included higher-end products, like variable steam deluxe models, as well as more basic aluminium dry irons, all carrying the well-known Philips brand name, which was very popular among middle-income consumers.

·         Applica Americas Inc took the second leading position in 2008 with an 11% volume share (up from 4% in 2007), displacing Newsan SA, the producer of Atma irons. Applica Americas' success resulted from its efforts to include more distribution channels for its products. It added the most important electrical goods retailer chains (like Fravega) and popularised its products among the independent electrical goods retailers. The company's Black & Decker brand also benefited from the local perception that it had better construction and higher quality features than Newsan's Atma brand.

·         Groupe SEB Argentina SA held the fourth position in 2008 with an 8% volume share because of its well-recognised Moulinex brand products. This company was adversely affected by its limited distribution network that did not include the well-known electrical goods retailer chains, like Fravega, and the perception that its products were too expensive for the average customer.

·         The drop in the volume share held by private label, from 9% in 2007 to 5% in 2008, was the result of customers' poor experience in general with these irons including problems with ineffective temperature regulation, manufacturing defects and a short operating life.

Prospects

·         The replacement cycle for irons is expected to lengthen in the forecast period as consumers forestall replacing appliances like irons in the face of a deteriorating economy. Low- and middle-income consumers will be particularly mindful of spending, which accounts for the anticipated 9% decline in the volume sales of irons over the forecast period. Declining sales growth is expected to cause the unit price of irons to drop from ARS77 in 2008 to ARS72 in 2013 (in constant value terms). As a result, it is likely that well-known manufacturers like Philips Argentina, with a product portfolio that contains economy products with a perceived image of quality, will gain volume share at the expense of manufacturers of premium products (like Groupe SEB Argentina) or private label products. The latter will continue to suffer from consumers' perception that these are low-quality products. The share of private label will also suffer from expected agreements between retailers and the leading players that establish exclusive distribution rights for specific models as a way to enhance profit while maintaining customer satisfaction.

·         More than ever, technology and durability will be essential factors in differentiating products. As a result, irons that have a higher percentage of durable materials like steel and hard plastic, like the Black & Decker D5501, and that offer special features like anti-wrinkling technology are more likely to succeed than traditional irons.

·         Traditional steam irons will likely remain the dominant format for Argentinian consumers, who have preferred it for the last 20 years. Moreover, other formats lack the effective advertising that is essential for building sales.

·         Well-known brands like Philips and Black & Decker are expected to gain market share in the forecast period due to the growing importance of durability and quality for the mainly middle-income consumers who want their iron to last a long time before it needs to be replaced.