Whirlpool’s recent Q3 results showed a sharp decline in sales in the European market. It is struggling to gain ground following the weaker pound and diminishing consumer confidence in its Indesit brand, which it acquired in full in October 2014, after its tumble-dryer fire-risk issues. Cristina Baus (pictured), analyst at Euromonitor International, considers what this means for the company in the next quarter and beyond
Third-quarter 2016 results for Whirlpool were out recently, but failed to meet investors’ expectations. Globally, sales were down 1% in value from Q3 2015. The company pinpoints three reasons for this: softer demand in the US because of the uncertainty caused by the coming presidential elections; intensive promotional activity by competitors in washers in the US; and a weaker demand for Whirlpool products in the UK, caused by price increases that were not fully absorbed by the market, coupled with a weaker British pound due to Brexit.
In Europe, the Middle East and Africa (EMEA), sales were $1.3 billion (£1.06bn), down 9% on the previous year. Excluding the impact of currency fluctuations, value sales were down 6%. Operating margins were also heavily hit by the weaker British pound – the impact reaching $40 million, according to the company’s officials. The weaker demand in Russia and MEA are not really attributable to Whirlpool’s own actions, but is rather the result of the economic and political environments in those markets.
The softer demand in the UK, on the other hand, is the direct result of price increases that took place earlier in the year and that were not welcomed by consumers, as other companies did not follow suit – and this was at a time when confidence in Whirlpool’s recently-acquired Indesit brand was faltering. Yet these price increases were, in part, the company’s strategy to offset the direct costs of imports that they faced in the UK, and which are eroding margins, given that close to 90% of products they sell in this market are produced elsewhere.
Are these shortcomings to extend to Q4 or even 2017? According to the company, the softer demand in the US is basically caused by consumers being distracted by upcoming elections – an effect that is due to pass in the not-so-long term as the macroeconomic fundamentals for demand to keep going strong have not changed. These is, for example, a strong housing sector, low unemployment, high consumer confidence, etc. The effects of the increased promotional activity are expected to smooth out – if not in Q4 then at the beginning of 2017, particularly if, as according to Whirlpool, the results from the US Department of Commerce are positive to the company.
The difficulties in Europe, on the other hand, could linger on for a while longer. The effects of the weaker pound could also continue through to Q4, although to a lesser extent, and could also be somewhat offset by improving conditions in Russia and Ukraine, which are slowly starting to be felt. This will be key to Whirlpool, particularly since, after the acquisition of Indesit, exposure to these two markets is quite strong. According to Euromonitor International figures, these two markets together account for 12% of total volume sales in Europe. Softer demand in the UK, on the other hand, will be harder to overturn if Whirlpool’s products are not deemed competitive enough. The UK accounts for 5% of global volume sales for Whirlpool – 15% if we consider total European sales, according to Euromonitor International. Producing innovative products that consumers feel add real value will be key in sustaining the UK consumers’ interest in Whirlpool products, particularly in such a competitive environment, where price is a key deciding factor. This is especially true following consumers’ loss of confidence in Indesit-branded products after the safety notices issued on faulty tumble-dryers earlier this year.