LG On A Roll, Despite Retailer Reluctancy To Range Signature Appliance Range
LG Electronics has had a stellar run during COVID-19 with their TV’s and in particular their appliances which is now the most profitable part of LG’s business, in Australia retailers have been reluctant to stock the Companies Signature range despite big demand overseas.
While Samsung dominates in the TV market LG dominates in the appliance market worldwide due in part to strong sales the US and Korean markets.
In Australia, their appliances on back order despite retailers only ranging a small percentage of their range.
In the three months to March 2020 the Korean Company posted a record operating profit in its home appliance business though they do expect this to “slow significantly” during the next quarter due to COVID-19.
One area that has significantly improved is profit margin, back in 2016, the Company was only managing a margin of around 2.6% in their appliance category this now hovers between 7.4% and 8% due to the Company investing in premium appliances such as their signature range which Australian retailers have been reluctant to range.
This margin compares with 2019 margins at Samsung of 5.8%, Panasonic at 2.1% and Haier Electronics Group at 4.5%.
In 2016, LG steered away from mass-market products and began focusing on high-end consumers, introducing Signature, its premium appliance brand for refrigerators, washing machines and clothes dryers.
For TV sets, the company focused on high-definition OLED products, shifting from liquid-crystal displays.
LG also rolled out its Styler clothing-care system — a completely new type of home appliance — after nine years of research and development, this range was rejected by Australian retailers for several years despite getting excellent reviews at CES and despite the range proving popular in the USA.
The thin, tall cabinet uses steam to remove wrinkles and odour from clothes while sanitizing in the process.
The popularity of Styler prompted rivals, including Samsung, to follow suit with a similar product at CES 2020, the archrival failed to reveal the new product in their press announcements.
In a conference call following the announcement of January-March results on Friday, Scott Sim, head of the company’s investor relations, said the impact of the virus on its business will be limited if infections peak in mid-May.
Consolidated net income at LG Electronics grew 88% from a year ago to US $907 million. Helping was the won’s depreciation against the dollar in March which boosted profits.
“We’ve expanded the weight of premium products,” said Kim I-kueon, head of financial planning for the company’s home appliance and air conditioner unit. Kim said LG has established itself as a high-end appliance brand, mainly in the U.S. and South Korea. Premium products, including Signature appliances, now account for over 50% of revenue in the business.
Despite the improved performance of its mainstay business, LG Electronics’ share price failed to move.
While revenue reached about $50 billion, the company’s market cap is still below $10 billion, due mainly to a prolonged slump in LG’s smartphone business which many claims should be given to a distributor in Australia.
In contrast, Samsung Electronics’ cap is nearly $280 billion.
LG’s smartphone business recorded an operating loss of $29M in the three months to March. Unit sales have continued to slump in the face of stiff Chinese competition.
As a result, the company has cut back on research and development funds.
LG Electronics has tried to reduce costs by shifting production to Vietnam and relying more on outsourcing, but its smartphone business has recorded consecutive operating losses over the past 19 quarters.
In addition to its smartphone business, LG Electronics is struggling to compete with Samsung with their LG Display business in which it has a 38% stake this has also led to losses.
Analysts claim that LG Electronics needs to drastically reform its smartphone and display businesses while continuing to focus on premium appliances.