LG’s Signature Appliances Deliver Big Margins OS, As OZ Retailers Struggle In OZ
Is the future for LG Electronics a store within a store or their own standalone stores as the Company gets set to launch their new Signature Styler steam cleaner in Australia?
The premium end of the appliance and consumer electronics market is delivering big profits for LG Electronics, with Australia slow to adapt to the Companies Signature range which is selling “Extremly well” in department stores overseas according to LG management.
The local Company has already had several cracks at trying to sell their premium Signature range in a unique environment.
A store at Bing Lee in Rhodes NSW failed and an approach to David Jones failed when the department store suggested the top floor of their Elizabeth store in Sydney which was seen as a no-go area with consumers.
The Company has also had a falling out with Winnings with one insider labeling the specialist appliance retailer as “arrogant”.
To convince people to buy an $8,000 refrigerators and similarly expensive washing machines, South Korea’s LG Electronics chose to invest in their own department store showrooms in the USA and the UK and the results are a massive lift in operating margin.
“Offering top-of-the-line premium products had the effect of lifting LG’s overall brand value,” says Song Dae-hyun, head of LG’s appliances business.
LG said they do plan to bring its Signature collection of appliances to more markets, according to Song, a challenge likely to determine the company’s growth prospects.
At this stage it’s not known whether Australia which is seen as an affluent market having the highest penetration in the world of premium smartphones is one the Countries currently being researched for a premium LG store, the issue appears to be finding the right partner and one who former LG General Manager of Marketing Angus Jones said is “Not going to put a discount sticker” on the products within weeks of it being ranged.
In the UK and the USA, LG avoided brand-damaging discounts by skipping volume retailers, partnering instead with upmarket department stores such as Bloomingdale’s in the U.S. and John Lewis in the U.K.
The company gained sales floor space dedicated to its Signature collection, as well as access to shoppers willing to pay higher prices.
In Australia, the Company is already seen as having one of the best TV’s in the market, with their OLED range and now their NANO TV’s on back order with retailers.
As a result of the move to sell direct in select markets such as the USA, LG is now generating operating profit margins twice as high as those of rivals according to analysts.
The company’s margin stood at 9.3% in fiscal 2019, eclipsing the 4% at China’s Haier Group, the world’s largest appliance manufacturer the Korean Herald recently reported.
LG also topped domestic arch-rival Samsung, which earned 5.8%.
The company’s operating margin increased even amid the pandemic-induced global economic slowdown, climbing past 12% in the April-June quarter of this year.
The big question now is whether LG Australia will take the plunge and sell direct.
Tony Brown the Head of Home Entertainment Marketing was not available to comment on the success the Company is getting in overseas markets.
At this month’s IFA consumer electronics show in Berlin, LG put its Styler steam cleaner for clothing on display along with other new products, this proved popular with virtual attendees.
At LG refrigerators, washing machines and other appliances are the biggest driver of the company’s sales, generating 40.6% of the total compared with 31.4% from TVs and 12.2% for smartphones.
LG’s sales of new-model appliances and sanitizing products such as air purifiers will continue to grow, South Korean brokerage Kyobo Securities predicts.
According to the Asian Nikki major brokerages project the manufacturer will enjoy a record margin of 9.5% to 10.5% for 2020 — including the second half, when marketing costs tend to rise.
The pivot toward higher profitability for LG came in 2016, when former CEO Jo Seong-jin created the Signature brand, a collection featuring a stylish designs and matching colours. Jo, the head of the appliance division at the time, believed that building a high-end brand was the only way to contend with the rise of Chinese rivals.
Research shows that consumers believe that LG has a superior product, and this is contributed to the fact that LG moved to manufacture motors, compressors, and other core parts in-house and offered a 10-year warranty on almost all products.
South Korea’s second-largest electronics maker assembles appliances at its own plants in China, Southeast Asia and the U.S. using components made at its Changwon factory in South Korea.
Producing core components also enhanced innovation. LG now owns over 1,000 patents on steam technologies used in dryers and dish washers.
This accumulation of technology has led to development of the new Styler clothing care system which is set to go on sale in Australia next month.