Sun Qian’s team of home appliances of Tianfeng Research Institute summarized and answered two major questions of the home appliance industry concerned by the market recently, and gave investment suggestions:
(1) looking at the future development trend of household appliances from CES exhibition?
(2) how to view Gree’s channel reform?
see the future development trend of household appliances from CES exhibition?
From January 5 to January 7, 2022, CES 2022 (International Consumer Electronics Exhibition) was held in Las Vegas, the United States. The new home appliances at the exhibition over the years represent the product trend of that year and even the next few years. There are also many highlights in the new home appliances displayed this year. We sorted out and summarized the new household appliances at this year’s exhibition, mainly showing the following trends:
the brand of Chinese floor sweeper appeared with new self-cleaning products, and the product structure of overseas market was upgraded. at this CES exhibition, stone first introduced the 2022 new self-cleaning + dust collection two in one high-end sweeper S7 maxv Ultra. S7 maxv series includes three products: S7 maxv (stand-alone) / S7 maxv plus (dust collection) / S7 maxv ultra (self-cleaning + dust collection). According to the data on stone’s official website, there are three main changes in S7 maxv series: 1 The cleaning capacity is improved, and the suction is increased from 2500pa of G10, a new self-cleaning flagship machine in 21 years, to 5100pa; 2. The product is LDS laser navigation + AI structured light obstacle avoidance (G10 is only equipped with LDS laser navigation); 3. The charging time is reduced and the charging speed is increased by 30%. Among them, the S7 maxv ultra model is a high-end new product integrating self-cleaning and dust collection, with a price of nearly 1400 US dollars, which is about 47% higher than the price of the existing overseas high-end S7 + (with dust collection bucket) of 949.98 US dollars. At the same time, the company also plans to launch the Q7 MAX + model, focusing on the mid-range price segment. Both S7 maxv series and Q7 MAX + will be launched in 2022q2. On the one hand, the new products released by stone this time complement the price band layout of the company’s overseas high-end series, and the price of 1000 yuan surpasses the price of iRobot high-end models, the global leader of floor sweepers; On the other hand, at present, most of the overseas floor sweepers are in the form of products equipped with dust collection buckets. The self-cleaning + dust collection models are new to the market. In addition to stone, Ecovacs Robotics Co.Ltd(603486) and pursuit also brought the self-cleaning products X1 Omni and W10 that have been sold in China, priced at US $1549 and US $1089 respectively, which are high-end models with more than 1000 yuan. we believe that the joint efforts of Chinese enterprises to promote self-cleaning sweepers in overseas markets will promote the upgrading of the product structure of overseas sweepers market, and the overseas market is expected to achieve an increase in the average price in 22 years.
black power technology has diversified development paths, and product quality has evolved to higher definition and larger screen. major color TV manufacturers continue to uphold their own technical advantages and launch large-size products based on their own technical advantages. Most of the new products have a screen size of more than 65 inches. At the same time, they show the characteristics of higher definition and richer colors on the screen display, which can display more details of the screen and improve and optimize the perception of consumers. It can be seen from CES 2022 that Ultra HD has become an indispensable part of future terminal products. Enabled by 4K / 8K technology, UHD display technology will enable more scene applications from TV to display.
home intelligent products are more diversified. in recent years, home appliances have been developing and expanding in the category of intelligent products, constantly expanding and enriching the scene of smart home. Refrigerator is a common intelligent category. After equipped with intelligent platform, it can not only realize food material management, but also carry out online ordering service through voice assistant to realize additional functions such as listening to music and watching video. In the past 22 years, there have been more intelligent categories of small household appliances, such as security cameras, smart doors, intelligent security alarms, etc., to create an all-round home intelligent space.
how to view Gree channel reform?
In the early era when offline channels were the king, with the rapid growth of air conditioning demand, Gree launched rebate policy and bound large dealers through joint agency mode. Since then, Gree further strengthened its control over channels by integrating national and regional sales channels. At that time, Gree’s channel network had a wide and deep coverage, superimposing the company’s brand premium, making Gree the leader in the air conditioning sales market. However, with the rapid growth of e-commerce channels, the flattening trend of offline logistics infrastructure, and the growth rate of air conditioning market gradually entering the mature stage, the existing Shengshi Xingxin system and rebate distribution model encounter bottlenecks, and the company’s channel reform is imperative. The company improves channel efficiency by streamlining channel levels; The sales mode has changed from rebate incentive oriented part to terminal price difference incentive; Vigorously promote the three ways of the new retail model to carry out channel reform for the company from many aspects. At present, from the market share of total sales volume and year-on-year data of sales volume in 2021, Gree’s competitiveness is gradually restored. The following will start with the history of Gree channel construction, and explain in detail the reasons, measures and achievements of the channel reform.
\u3000\u3000 2.1. Historical review of Gree Shengshi Xingxin system
from the late 1980s to 1996: professional dealers were born. the national air conditioning industry policy has changed from restricting development and consumption to market liberalization; The production capacity of air conditioning has expanded rapidly, and the product sales are in short supply. Professional dealers have gradually grown into the main force of sales channels.
1995-1996: Gree rebate and discount mechanism formed. the demand dominated by household consumption began to increase sharply, the market competition intensified, and the sales of air conditioners entered the mode of regional large dealers. In 1995, Gree launched the “off-season rebate” policy to attract large dealers; In 1996, the “annual rebate” policy was launched to improve the capital turnover of dealers to cope with the inventory pressure of dealers under the background of cool summer and further deepen the adhesion of dealers.
1996-1998: the sales company system was initially established. the regional sales network has expanded, and the scale of some large dealers has further expanded. In order to compete for regional share, large dealers have pressed prices and sold goods, disturbing the market order. Gree launched a joint agency model to coordinate and unify the interests of multiple dealers in the region. In 1997, Hubei sales company was established in Hubei on a pilot basis, which was shipped by the sales company, and the large dealers enjoyed the company’s dividends. After that, more than 20 Gree regional sales companies have been cultivated, covering more than 30 provinces, cities and autonomous regions in China, and Gree has fully entered the stage of professional agency.
2003-2007: fully self built channels. the competition in the air conditioning industry has further intensified, the brand concentration has increased rapidly, and the number of brands has decreased sharply. The channel presents a pattern of coexistence of professional dealers, large chain home appliance stores, department stores and other business forms.
In 2004, the “Gome dispute” made Gree start to build its own channels in an all-round way, relying on sales companies in various provinces to build a gree store system nationwide. In 2007, Jinghai guarantee, the shareholding platform of Gree’s core dealers, undertook Gree Electric Appliances Inc.Of Zhuhai(000651) 10% of the shares held by Gree Group. Jinghai guarantee’s shareholding in Gree further deepened the binding relationship between listed companies and channels.
2007-2013: Shengshi Xingxin system was finalized. under the catalysis of real estate and household appliance policies, the penetration rate of air conditioning continues to increase, and the industrial duopoly pattern is basically stable. Beijing Shengshi Hengxing was established in 2009 and began to integrate national channels in 2011. After nearly two years, it completed the integration of Gree’s national regional sales channels and became the only national agent of Gree Electric Appliances Inc.Of Zhuhai(000651) . Gree further strengthened its control over channels.
2013-2018: Shengshi Xingxin system resonated with the high growth rate of the industry. the scale of the air conditioning industry has expanded rapidly under the catalysis of the improvement of per capita disposable income and the shed reform policy. The annual shipment growth rate of the industry has reached 6.4%, the growth rate of Shengshi Xingxin system and industry has been strong, the sales scale of Gree has expanded rapidly, and the annual income growth rate has reached 5.0%.
2019 to present: Wuxi Online Offline Communication Information Technology Co.Ltd(300959) integration period. the real estate policy regulation is superimposed with high ownership, the industry has gradually entered a mature period, and the growth rate will be reduced in the future. At the same time, the rapid growth of e-commerce channels and the flat trend of offline logistics infrastructure make the existing Shengshi Xingxin system and rebate distribution model encounter bottlenecks, and channel reform is imperative.
\u3000\u3000 2.2. Why initiate channel change?
\u3000\u3000 2.2.1. After the mixed reform, the interest binding between management and listed companies deepened
Gree Electric Appliances Inc.Of Zhuhai(000651) has long been limited by the state-owned status of Gree Group, the controlling shareholder, the lack of incentives for core management and employees, and the weakness of corporate governance. On December 2, 2019, in the share transfer agreement signed by Gree Group and Zhuhai Mingjun, it was agreed that Zhu Haiming Jun would transfer Gree Electric Appliances Inc.Of Zhuhai(000651) 902359632 shares held by Gree Group (accounting for 15% of the total share capital of Gree Electric Appliances Inc.Of Zhuhai(000651) ) at the price of 46.17 yuan / share. After the equity change, Gree Electric Appliances Inc.Of Zhuhai(000651) the actual controller will be changed from the state owned assets supervision and Administration Commission of Zhuhai Municipal People’s government to no actual controller. Zhuhai Hillhouse, HH Manson, pearl brilliance and Gezhen investment agreed to promote the equity incentive plan with the total number of management and key employees recognized by the management entity at the level of the listed company not exceeding 4% of the shares of the listed company after the completion of the transaction. After the completion of the mixed reform, the existing management structure remains stable and more closely bound with the interests of listed companies.
the employee stock ownership plan released by Gree not only strengthens the interest binding between the management and the company, but also plays an incentive role for employees. On June 21, 2021, Gree Electric Appliances Inc.Of Zhuhai(000651) issued the first phase of the employee stock ownership plan. The holders of this ESOP include the company’s directors (excluding independent directors), supervisors and senior managers, as well as the middle-level cadres and core employees of the company and its holding subsidiaries who are recognized by the board of directors as important to the overall performance and medium and long-term development of the company. In order to reflect the equivalence of incentives and constraints, effectively bind the interests of the company and employees, the employee stock ownership plan sets performance evaluation indicators at the company level and individual level, so as to achieve the performance evaluation indicators as the conditions for the ownership of rights and interests of the employee stock ownership plan, so as to make employees pay attention to the development of the company for a long time, so as to better realize the incentive effect. As Gree Electric Appliances Inc.Of Zhuhai(000651) continues to promote the employee stock ownership plan, its management will greatly enhance its voice over Gree Electric Appliances Inc.Of Zhuhai(000651) . Therefore, this is actually the follow-up of Gree Electric Appliances Inc.Of Zhuhai(000651) mixed reform.
We believe that as the company further improves its governance structure and effectively combines the interests of shareholders, the company and employees, and with the steady progress of the company’s channel reform, it is expected to develop in line with the changes of the channel mode of the large household appliance industry and enjoy the growth of the air conditioning industry efficiently.
\u3000\u3000 2.2.2. Efficient channel development makes dealers’ cash flow problems under the original model
Due to Gree’s special high rebate policy and the existence of high channel inventory, Gree has the highest profit margin and cash return in dealer channels, and the profit margin of dealers is also significantly higher than that of other channels.
When the profit margin of dealers is significantly higher than that of other channels, the cash return rate of dealers is low. We believe that even if the cash flow of dealers is weak, Gree dealer system can maintain strong stability on two premises: 1) the industry will not decline for a long time. According to our estimation, if the retail volume decreases, without the support of special rebate policy, dealers will experience a decline in retail volume for about two to three years, resulting in insufficient funds and withdrawal from the market. 2) Gree gives additional support to dealers in the year of industry recession. Gree’s rebate policy for dealers is more flexible. Gree’s huge reservoir (sales rebate of nearly 62 billion in 1h19) enables Gree to give greater support to dealers in the year when shipments decline.
In the context of the overall slowdown of the industry, the retail channel structure of the superimposed industry has changed significantly, and the retail channels are switched to online. The retail volume and shipment volume of the offline dealer system will face greater pressure than that of the industry. For Gree dealer system, the increasing shipment is the basis of its sustainable development. When the growth rate of offline shipments slows down or even declines, the cash flow pressure of offline dealers will become greater. When the growth rate of the air-conditioning industry slows down, the dealers can’t cash in, and the demand for rebates increases 456} when the growth rate of the air-conditioning industry slows down.
\u3000\u3000 2.2.3. Under the original mode, the price increase rate is too high and loses competitiveness
Gree’s price increase rate is too high and the terminal price is high due to its layered distribution system; In contrast, Midea vigorously develops online, streamlines the channel structure and promotes the T + 3 model, resulting in a large price difference between Gree and Midea and no advantage at the price end.
Therefore, in the current consumer demand-oriented market, when the price of Gree’s own products does not have a significant advantage, if the dealers still pick up the goods according to the previous model, they will face the situation that the products are difficult to sell and their own inventory is high. At the same time, at present, the terminal price changes rapidly. If the dealer’s inventory is high, there will be greater business risks. Based on this, the enthusiasm of dealers has weakened and the market competitiveness has further declined. Accordingly, it can be seen that the first position of Gree’s offline market share (KA caliber) has been occupied by Midea for many times since 2020.
\u3000\u3000 2.3. Interpretation of the new model and its current situation
\u3000\u3000 2.3.1. Embodiment of channel reform
One of the changes of : streamline channel levels and improve channel efficiency. Gree’s channel reform has made its sales system flat. On the one hand, weaken the reservoir and policy regulation function of the sales company, and gradually turn it into a regional service provider; On the other hand, cancel or significantly reduce the secondary agents. The functions of warehousing and logistics are taken over by the headquarters, and the agents are transformed into service functions.
therefore, by promoting the transformation of the functions of sales companies and agents and promoting their transformation to service providers and operators, we can reduce the channel level, promote the flat development of channels and improve the efficiency of channels.
At present, Gree has started channel reform and improved channel efficiency, which is reflected in the terminal price difference: since 2021, the offline price difference between Gree and Midea has narrowed to 8% – 25% (10% – 32% in the cold year of 19).
The second change of : the sales model has changed from rebate incentive oriented part to terminal price difference incentive , which makes the profitability of dealers more deterministic and enhances their sensitivity to the needs of end consumers. in this channel reform, the headquarters reduced the past sales rebate, but allowed terminal dealers to obtain their main profits through sales with price difference. This model enables dealers to clarify their own profit level in time; In the past, under the rebate mode, there were many goods under pressure. Under the change of terminal price, the inventory value of corresponding dealers fluctuated, which also increased the difficulty of judging their own profitability. At the same time, the dealer’s profits brought by the dominance of terminal demand make it more sensitive to the needs of consumers and promote the sales of its products. Based on this, the enthusiasm of dealers has increased, and the proportion of 21q1 contract liabilities has increased significantly.
The third change of : vigorously promote the new retail model , and the company is more diversified and flexible in the choice of channels. in addition to establishing the direct selling platform of “Gree dongmingzhu store”, Gree has also started to cooperate with tmall and jd.com to promote the new retail model. With the gradual reduction of the price increase rate under the channel reform, the product price under each channel mode is more unified, and the company will be more diversified and flexible in the selection of product sales channels.
\u3000\u3000 2.3.2. After the channel reform, the competitiveness is expected to recover
the price difference between Gree and Midea has expanded. At the same time, the requirements of the sales company for product structure do not match the market situation, resulting in the loss of market share and reduced competitiveness of Gree Wuxi Online Offline Communication Information Technology Co.Ltd(300959) . since the first quarter of 2019, Gree began to lose its share relative to Midea due to the widening price difference. The main reasons behind this are as follows: first, the excessive channel price increase after being transmitted to the terminal makes the price gap between comparable models and Midea too large; Second, the traditional cold year “planned task” model has low flexibility and does not match the market situation. When the above two points are combined, Gree will have high inventory, high channel inventory cost and high inventory commodity structure from 2019 to 2020, resulting in reduced competitiveness. Therefore, the main purpose of Gree channel reform is to improve the above two points and restore the competitiveness of terminals to Midea.
From the offline data, it can be clearly seen that 19 years ago, Gree’s brand premium relative to Meimei continued to rise, in which there was a small difference in the average price, and Gree was also in the lead in market share at that time. In 2019, the price difference between Gree and Meimei has expanded significantly, which makes Gree lose its retail share and brand premium.
From the online data, Gree’s average price is more than 40% ahead of Midea most of the time, while its sales share always lags behind Midea more. We believe that this is determined by Gree to take care of the pricing strategy of the offline distribution system. After the larger brand price difference and the epidemic, the response to online channels was slow from February to March, and the brand premium of Gree online channels changed from positive to negative.
after the channel reform, Gree’s competitiveness has gradually recovered from the market share of total sales and year-on-year data of sales in 2021. since 2019, Midea has relied on flexible price mechanism and diversified channel layout in terminal retail. The market share has increased from 22.9% in January 2019 to 38.4% in November 2021, with a large increase. After the channel reform, Gree’s total sales market share gradually rebounded in 2021, fluctuating between 22.3% – 36.1%, showing an upward trend as a whole, with strong competitiveness, and its market share still has room to improve. Comparing the year-on-year changes of sales volume between Gree and air conditioning market, before 2021, the year-on-year growth rate of Gree’s sales volume was generally lower than the industry level. In March 2021, the year-on-year growth rate of Gree’s sales reached 60.4%, far exceeding the year-on-year growth rate of the air conditioning industry, and remained higher than the year-on-year growth rate of the industry in the next few months.
With the future of Gree’s channel model more in line with the trend of the industry, based on its strong core competitiveness, we believe that Gree still has enough ability to efficiently enjoy the scale growth dividend of the air conditioning industry.
[investment advice]
Looking forward to 2022, the marginal improvement shown by 21q4 may continue in the first half of 22 years. At the same time, the individual stocks with sufficient stock price correction and determined profit improvement at the current time point deserve special attention. We believe that under the influence of demand and cost, the structural opportunities of the industry focus more on: 1) there is sufficient room for category penetration; 2) There is room for upgrading the product structure; 3) Domestic sales are dominant, and companies with such conditions. We are optimistic about the industry fundamentals of integrated stoves and clean appliances. We recommend Zhejiang Entive Smart Kitchen Appliance Co.Ltd(300911) , Ecovacs Robotics Co.Ltd(603486) , and we suggest paying attention to Zhejiang Sanfer Electric Co.Ltd(605336) , Beijing Roborock Technology Co.Ltd(688169) , Hisense Visual Technology Co.Ltd(600060) . In terms of traditional household appliances, the correction in 2021 has been relatively sufficient, and the valuation has basically returned to the central position considering the impact of cost. Under the background of maintaining stable growth of income and predictable repair of profitability, white electric faucet Haier Smart Home Co.Ltd(600690) , Midea Group Co.Ltd(000333) , kitchen electric faucet Hangzhou Robam Appliances Co.Ltd(002508) and civil electrical faucet Gongniu Group Co.Ltd(603195) are recommended.
[risk tips]
The real estate market, exchange rate and raw material price fluctuation risk, and the sales of new products are less than expected.
