Smart revolution hits the home front
We took a while to embrace smartphones – but analysts believe everything from washing machines to aircons are suddenly about to become a lot brighter
First smartphones took on desktop phones, and won.
Now it’s the turn of smart washing machines and televisions to challenge traditional home appliances, with analysts predicting their future growth in China could be huge.
Fridges syncing up to your smartphone might sound like something from a sci-fi movie but they could soon be a fixture of Chinese households, if companies can make smart technology more useful, according to UBS research.
China’s growing interest in smart home appliances could end up boosting profit in the home appliance industry, and that’s just one aspect of a rosy picture for the market which is set to expand 25 per cent in the next three years, UBS analyst Xinyu Liao said in the report.
Smart home appliances connect to the internet, allowing consumers to control them by voice, hand gesture or devices like cell phones, tablets and computers – and in a smart home, different appliances can “talk” to each other.
Almost 95 per cent of Chinese consumers are either ‘extremely’ or ‘somewhat’ interested in buying smart home products, according to a UBS Evidence Lab survey of 3,017 Chinese consumers in tier-one and two-cities in May and June.
Sales of smart air conditioning units, washing machines and refrigerators have been growing only a few per cent annually since 2012, although growth has accelerated in the first five months of this year, Liao said.
The disconnect between passion and purchasing is down to the functionality of smart appliances which, Liao added, currently aren’t adding enough convenience to convince consumers to buy them over a traditional product.
“If new smart functions can solve consumers’ pain points in appliance usage, we believe more consumers would consider smart functions when they make purchasing decisions,” he said.
Smart homes are the future, and will boost gross margins...we believe [consumers] are willing to pay a premium if smart functions provide a good consumer experience
Smart air conditioning units, washing machines and refrigerators still only accounted for 15.8 per cent, 7.7 per cent and 6.5 per cent of total sales, respectively, in the first five months of this year, much lower than smart televisions for the same time period, with traditional appliances making up the rest of the sales.
“Smart homes are the future, and will boost gross margins,” Liao said.
“Consumers are well aware of smart appliances, and we believe they are willing to pay a premium if smart functions provide a good consumer experience.”
Chinese consumers said they were prepared to pay around a 1,600 yuan (HK$1,868) premium for smart fridges, washing machines and air conditioning units, but smart modules that enable the technology cost less than 100 yuan, he added.
Smart technology also provides an opportunity for television manufacturers to reverse the hit from smartphones and laptops by boosting sales of smart television sales, or those that can connect to the internet, allowing viewers to stream, use apps and surf the web, Liao said.
Last year less than 40 million smart televisions were sold in China, but the report expects this figure to grow to 77 million, or 260 billion yuan in sales, by 2020 as the market picks up sales from consumers looking to replace their traditional TV.
According to National Bureau of Statistics of China data quoted in UBS’ research, per capita disposable income of urban residents increased 197 per cent between 2005 and 2015, from 10,493 yuan to 31,195 yuan.
Four home appliance makers have been tipped as the biggest winners from the analysis: smart home leader Haier, air conditioning maker Midea, China’s biggest smart TV brand Hisense, and kitchen appliance manufacturer Robam.
In some ways the current global smart home market is analogous to the smartphone market in 2006, before the devices had become a hit worldwide, when people still weren’t sure how the new technology would help them, according to market research company GfK UK’s head of technology research Ranjiv Dale.
“People hadn’t been sold on what the benefits would be,” Dale told South China Morning Post.
GfK’s Smart Home survey of 7,000 people in September and October last year found China has the highest rate of smart home device ownership among all markets: 46 per cent own at least one smart home device, compared to 35 per cent in the United States, 25 per cent in the United Kingdom, and 13 per cent in Japan.
Dale said there was huge interest and opportunity for smart home products in the China market, although he cautioned that those surveyed had internet access, meaning they were likely to be younger, more technology savvy and more affluent than the general population.
UBS’ report comes as China’s biggest electronics retailer Gome Electrical Appliance’s first half net profit dropped 90-100 per cent year on year, and it closed 39 major stores for revamp in the second quarter.
But HSBC consumer analyst Lina Yan says the company is going in a positive direction and recommended holding the stock, giving it a 90 HK cents target price, a HK$1.41 bull case and a 81 HK cents bear case.
