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Electrical Appliance Market Zapped by Price War
The small electrical appliance market is being hit by the price wars triggered by manufacturers of TVs and air conditioners.
Guangdong-based Kangbao Electrical Co, which leads the home sterilizing cabinet market, has taken the initiative by slashing prices by 30 per cent.
The cabinets are containers used for sterilizing items of germs. They have applications in both domestic and hospital environments.
The eight models on the Kangbao hit list account for 60 per cent of the company's annual sales.
Kangbao's move immediately sparked the concern of industrial insiders.
Fu Jiaozhi, a director of the China Household Electric Appliance Commercial Association, said the sterilizing cabinet makers may face the same consequences as the TV manufacturing industry.
He said: "The story of domestic TV makers has indicated that lower prices will have a negative impact on manufacturers' technological research, product quality and long-term development.".
The TV industry suffered a loss last year, a situation widely attributed to the price war.
However Luo Xiaojia, chairman of Kangbao's board of directors, claimed the price cut in sterilizing cabinets is different from those witnessed in the TV and air conditioner markets.
The manufacturers of TV and air conditioners were struggling in a market where the capacity had been fully explored, Luo said. On the other hand, the market for sterilizing cabinets in China had great potential yet to be tapped.
"A lower price will help attract more consumers,'' he said.
Last year, the country sold 4 million sets of sterilizing cabinets.
Luo admitted the price cuts would squeeze profits and reduce the profit margin from 20 per cent. But he predicted the market share would increase by 10 per cent.
He said the competition on price would lead to smaller companies selling shoddy products being kicked out of the market.
Currently, there are more than 200 domestic companies competing in the industry.
Fu, from the association, said Kangbao is also attempting to solidify its leading position in the industry before the makers of TV and air conditioner rushed into the field.
Because of the lasting price war, TV and air conditioner sales have seen a relatively meagre return compared with the 20 per cent mark ups seen in the sterilizing cabinet market.
Analysts point to the massive room for growth in the cabinet market.
Only 17 per cent of urban families own sterilizing cabinets compared with 85.4 per cent who have air conditioners and 99.3 per cent with TV sets.
Wanhe, another leading company which follows Kangbao as second in the market, has hinted it too may reduce prices.
But Haier, the giant in large home electrical appliances and a new comer to the field, said it will not lower prices.
Haier targets the top end of the market.
Fu predicted a price war is inevitable because more appliance makers are shifting their focus to the market.
Source: chinadaily.com.cn
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