Vacuum Cleaners in Argentina

Headlines

·         Vacuum cleaner sales increase almost 15% in volume terms to nearly 528,000 units in 2008, while current value growth exceeds 34% due to inflation and the emergence of more complex models

·         Strong replacement sales among high-income consumers drive volume sales of vacuum cleaners in 2008

·         Handheld models are increasingly popular as a secondary vacuum cleaner among middle-income consumers, leading to 20% volume growth

·         The unit price of vacuum cleaners increases to ARS268 in 2008, boosting current value growth

·         Over the forecast period, retail sales of vacuum cleaners are anticipated to increase nearly 11% in volume terms

Trends

·         Retail sales of vacuum cleaners recorded 15% volume growth in 2008, driven by sales to high-income consumers replacing their older (10-year-old) units. Consumers traded up to models with more suction power, filters, variable speeds and a smaller, more compact size. In addition, more middle-income consumers were purchasing vacuum cleaners for the first time. Because of the downturn in the Argentinian economy, the majority of low-income households still prefer sweeping to vacuuming, viewing the former to be more efficient and inexpensive.

·         Leading players continued to launch smaller models without reducing suction power. For example, the Philips FC8254 model was well received by customers in 2008 due to the fact that it was easier to use and store in the smaller apartments typical of new construction that have less storage space.

·         Handheld vacuums grew more popular as a secondary vacuum cleaner among middle-income customers, with volume sales rising 20% in 2008. Upright vacuum cleaners recorded 16% volume growth in 2008 as a result of middle-income customers upgrading to more complex models with higher capacities, such as the Electrolux A13, which also absorbs liquids.

·         Vacuum cleaners saw its unit price rise 16% in 2008 mainly in response to inflation and increased raw material costs for steel and plastic. In addition, more consumers traded up to more expensive and complex models that offered equivalent power in a smaller size, including those with more attachments or of better overall quality.

·         Cylinder vacuum cleaners remained the appliance of choice for vacuum cleaner buyers in 2008, accounting for nearly 76% of retail volume sales. The well-founded popularity of cylinder vacuum cleaners is directly related to practicality, customer experience with previous models and low cost. In addition to being easy to manoeuvre, it gives consumers the option of adapting the head of its flexible nose to the type of surface being vacuumed. However, cylinder vacuum cleaners underperformed in 2008 with 14% volume growth, as high- and middle-income consumers sought new cleaning solutions in handheld and upright vacuum cleaners.

·         Electrical goods retailers (primarily multiples but also independents) and hypermarkets were the primary channels for sales of vacuum cleaners in 2008, accounting for more than 91% of retail volume sales. The expense entailed in storage and the lack of space to display the large variety of vacuum cleaners needed to satisfy consumer demand, effectively restricted its sales to the larger distribution channels.

Competitive Landscape

·         The leading company in vacuum cleaners was Applica Americas Inc, which held a 33% volume share in 2008, nearly a 20 percentage point jump from the previous year. A strong showing by its Black & Decker product line, which featured low prices and high quality, was responsible for the company's success. Applica Americas managed to revive the reputation of the Black & Decker brand as an easy-to-use, high-quality and functional product line. It offered improved performance, relative to previous models, and technological features not easily found in other brands, like a HEPA filter (Black & Decker VC3200). The company's expansion of its distribution network to include hypermarkets, supermarkets and chained electrical goods retailers (multiples) as well as independent electrical goods retailers, also helped to build its volume share.

·         Philips Argentina SA was the second leading company with a 22% volume share as a result of its product innovation and its strong brand recognition among consumers. Philips Argentina focused on the production of easy-to-handle appliances with a reduced number of features that were also easy to operate. The company responded to customer complaints that Philips vacuum cleaners were too complicated to use and incorporated solutions like products with larger buttons and controls.

·         The volume share of the third leading company, Groupe SEB Argentina SA, dropped seven percentage points to 4% in 2008. The decline in volume sales was a result of the company's increasing focus on the mid-price and premium segments. However, its vacuum cleaners were perceived as having less suction power and fewer functions than comparable models at the same price point.

·         Electropuntana SA led sales of upright vacuum cleaners in 2008. In fact, older Argentinians still use the word, Yelmo, as a generic term for all upright vacuum cleaners, confusing Electropuntana's brand name with the actual appliance.

Prospects

·         During the forecast period, retail sales of vacuum cleaners are expected to grow at an average annual rate of 2%, a significant drop from the 15% volume growth observed in 2008. The ability of manufacturers to reinforce the practicality and ease of use of vacuum cleaners, through marketing campaigns and product demonstrations, will be crucial for maintaining a positive performance in a deteriorating economic environment,

·         The unit price of vacuum cleaners is expected to vary but remain more or less stable, with single digit percentage deviations in the forecast period. The fact that consumers are trading down to economy or mid-priced models amid a deteriorating economy will likely offset any inflationary increase or the effects of a devaluation of the peso against the currency of exporting countries like Brazil and China.

·         Cylinder vacuum cleaners is expected to post the highest volume growth, nearly 13%, in the forecast period. Its low price, efficiency and consumer awareness will serve to boost sales during times of economic uncertainty. On the other hand, pricier upright vacuum cleaner models are expected to see a slight drop, 1%, in volume sales as deteriorating economic conditions during the forecast period take a toll on high-priced appliances. Predicted sales of handheld vacuum cleaners will grow nearly 7% over the forecast period to reach 27,000 units sold in 2013. However, handheld vacuum cleaners will remain a niche product, since its function could easily be achieved with a cylinder or upright vacuum cleaner.

·         Multinational companies, such as Applica Americas and Philips Argentina, with the highest brand awareness are likely to gain market share, as first-time buyers will prefer economy models of well-known brands over low-quality imported products and private label products.

·         As with other domestic electric appliances, vacuum cleaner sales are likely to be impacted by the expected devaluation of the peso relative to the Brazilian real and Chinese yuan. As import costs rise, more consumers will trade down to lower-priced models of vacuum cleaners.