As the cycle of rising prices for household appliance raw materials begins, many distributors, especially those in rural areas, face the risk of operating losses and inventory depreciation if they make even slight mistakes in their operations this year. This isn't meant to scare anyone, but rather to warn some business friends in advance: it's better to earn a little less profit than to fall into the trap of commercial risks.
For household appliance distributors, operating risks at different times are all products of price hikes!
This statement applies regardless of the era or cycle. Especially in 2024, many household appliance distributors are perilously close to operating losses.
For many rural distributors, the likelihood of sustained losses is significant. For example, there are classic cases of succumbing to the temptation of speculating on the rise in raw material prices to increase the selling price of household appliances. Some rural distributors, spurred on by both enterprises and merchants, may excessively stockpile goods. Eventually, they find that while raw material prices have indeed risen substantially, the prices in the retail market are actually declining. The stocked goods become unsellable inventory, leading to a very tight financial situation. Instead of making money, they end up burdened with heavy inventory.
Recently, the household appliance industry has seen another wave of raw material price hikes. Not only is the increase sharp and enduring, but the cycle may also be lengthy. It is widely expected that this round of price hikes, mainly driven by precious metals and crude oil, will exceed expectations. It is bound to push up the factory prices of a large number of household appliances by the end of the second quarter and the beginning of the third quarter.
Accompanying this round of household appliance raw material price hikes are familiar voices and tastes for many distributor groups: the factory prices of air conditioners, refrigerators, washing machines, and televisions are about to rise! Retail prices will soon follow suit! Therefore, the temptation for many distributors is to make more payments, take more deliveries, and lock in low prices once again. Should they seize the opportunity to stockpile goods in warehouses before prices rise, anticipating higher profits in the retail market in the coming months, or should they adopt a wait-and-see approach and focus on retail sales at the terminal?
The aforementioned is what the household appliance industry refers to as "risk" for distributors. The reasons are: firstly, household appliances belong to a mature industry, and speculative opportunities are diminishing year by year, becoming increasingly rare; secondly, household appliance products are durable consumer goods, with severe homogenization in product channel marketing, and declining profits are inevitable. It is difficult to rely on differentiated products or niche markets to make hefty profits; thirdly, the household appliance market competition is intense, user demand is weak, and the main mode is replacing old with new, making commercial competition full of uncertainties, and inventory backlog caused by sluggish demand is normal.
Therefore, for the group of household appliance distributors, especially those in the rural market, the biggest operational risks arising from this year's increase in raw material prices and the consequent rise in household appliance prices mainly come from two aspects. Firstly, external risks, namely the increase in raw material prices, but the retail prices of household appliances decrease instead of increase, and the household appliance market entering a period of reshuffling is full of uncertainties. Secondly, internal risks, namely the desire and craving that always linger in the hearts of distributors, always hoping to gamble and ignore the laws of business and the market.
Currently, while the prices of household appliance raw materials are rising, it is a trend with certainty and direction; however, the price changes in the household appliance terminal market are full of uncertainties. Next, in order to expand scale, increase shipments, and ensure the operation of production lines, many household appliance manufacturers do not rule out the possibility of counter-cyclical price reductions, and price erosion is definitely going to happen. In other words, stocking up before the factory prices of household appliances rise does not necessarily result in higher profits in the household appliance terminal market because now, in selling household appliances, distributors cannot just focus on "earning the price difference" but also need to consider the cost of capital and, more importantly, the speed of goods and capital circulation.
Therefore, compared to periods of stable raw material prices, distributors now have more time and energy to focus on market operations and user expansion. Nowadays, in the unstable situation of raw material prices, many distributors' energy is instead exhausted on "when to purchase, whether to hoard, and whether to speculate", lacking value. Therefore, facing this more complex market situation, when distributors make even slight operational mistakes, it's not just about making money, but the possibility of losses, even continuous losses.
In addition, over the years, many distributors, especially those in the rural market, have found it most difficult to resist the "desire for profit" and "speculative ideas", which easily lead to speculation and arbitrage in the frontline market. Many times, we say "learn from one's mistakes", but many rural distributors are often "losing money every year, without learning a lesson". They always believe that "good fortune will come from heaven" but do not believe in the laws of business and the market. They always feel they can "gamble" with mature markets and rational consumers and make some extra money from it.
Looking at the trend of rising raw material prices and the sluggish demand in the household appliance market, the hoarding opportunities spoken of by many household appliance companies must be balanced between "risks and opportunities." Strong household appliance distributors can hoard goods or even raw materials to make money, but those without strength can only stick to basic business and dare not mess around.
Copyright Notice: Original article from the household appliance industry, unauthorized reproduction is strictly prohibited.
Declaration: Personal original work, for reference only.
