CHINESE

  China’s air conditioner market started to rally in Q2 after a sluggish first quarter. In August, FY 2020 (from August 2019 to July 2020) or the so-called Cold Year 2020 of Chinese air conditioner industry ended with a 10-year low plunge in market size.

  Market performance of air conditioner industry for FY2020

  The industry started to rally in April driven by warm weather and April promotions. In June, online retail sales value of air conditioners surged by 19.0% year-on-year thanks to the June 18 Shopping Festival. But entering July, the industry descended into a downturn again with retail sales value down by 31.2% year-on-year.

  Hit by the pandemic, the industry posted domestic retail sales volume of 99.1 billion Yuan from January to July 2020, down by 27.7% year-on-year, according to omni-channel statistics from All View Cloud. For FY2020, the industry saw combined domestic retail sales value down by 18.2% year-on-year to 160 billion Yuan, the biggest dive in 10 years.

  Amid the pandemic, the industry switched its major battlefield to online channels when most stores closed in response to the government’s covid-19 prevention and control requirements. Compared with offline market, online market has an edge in price. This, coupled with the popular live streaming sales mode, sped up the channel shakeup of the industry. From January to July 2020, online market took a share of 53% by retail sales volume, which was the first time that online market had surpassed offline market by retail sales volume.

  To turn around sales, industry players have been racing to gain ground to consolidate their positions. Midea claimed the top seller position at offline market by offline retail sales value of air conditioners for two consecutive months (February and March) thanks to its active marketing strategy. In April, Gree took over from Midea as top offline seller with its April promotion activity launched. From January to June, Haier squeezed itself into the top 3 air conditioner sellers with a market share of 11.1% by retail sales value. With leading players trading price for sales volume, the market competition got fierce. It’s worth noting that the combined retail sales value of the top 3 brands took a market share of 81.9% from January to July, up by 5.5% year-on-year, which means the market space for other brands gets further squeezed.

  The intense market competition pushed the industry into a price war once again. In February, the average price of air conditioners sold at online channels fell to 2,350 Yuan with some channels even rolled out promotion models at around 1,000 Yuan. But as covid-19 gradually gets contained and the economy recovers, the average price of air conditioners pick up along with the coming of high season. Statistics from All View Cloud show that, the shrinkage of average price of air conditioners sold at online and offline market narrowed to 3%-6% year-on-year in July, which indicates that the price war is going to an end.

  The implementation of new national standard on energy efficiency

  On July 1 2020, Minimum allowable values of the energy efficiency and energy efficiency grades for room air conditioners, numbered GB 21455-2019, kicked in. As the most stringent national standard on the energy efficiency of air conditioners, it will knock out 99% of fixed-frequency air conditioners and 70% of variable frequency air conditioners on the current market.

  Driven by the standard, energy-efficient products are increasingly favored. The SKU of grade 1 products by new standard has been jumping starting June and hit 358 in July, according to All View Cloud. Meanwhile, the market share of grade 1 models is rising too, posting a share of 13.3% online and 17.1% offline of the floor standing air conditioner market, and more than 10% online of the overall air conditioner market in July.

  To optimize product mix, air conditioner enterprises hold fire sales to clear their inventory of low energy efficiency products, which intensifies the price war. But the considerable profit margin of grade 1 products and their contribution to sales actually bring back the average price gradually. It is learned that leading brands have significantly increased their grade 1 products on the market. In July, grade 1 air conditioners of Midea, Haier and Aux all accounted for around 15% of sales of each company. The implementation of the new standard is expected to hasten the expansion of energy efficient models.

  The rising popularity of health-oriented products

  The healthcare awareness of consumers gets improved after the pandemic. Health-oriented air conditioners featuring air ventilation, self-cleaning, PM2.5-removing, bacteria-removing, dust-removing, humidification and oxygen level increasing are gaining traction.

  Air ventilation becomes a function in large demand after the outbreak, leading to a surge in sales of conditioners with air ventilation function. From January to July 2020, the category saw a whopping rise of 461% year-on-year in offline retail sales value, a highlight of the sluggish air conditioner market. Currently, the number of industry players involved in air ventilation is rather few. Most products on the market come from leading brands with Hisense and Gree being the top 2 in sales of floor standing models starting February and Midea top 1 in sales of wall-mounted models. In recent 3 months, the growth of the category slowed down. At this point, market expansion and product optimization are issues to be considered down the road.

  As consumers get more and more concerned with health issues, the market share of models with self-cleaning function rises with offline penetration rate reaching 77.5% in July. During the pandemic, Haier rolled out an air conditioner with 56ºC bacteria removing function, capable of removing 99.7% of dusts and 99.4% of bacteria; Aux released a model with a removable panel to allow the cleaning of the inside.

  To address the pain point of direct blowing, enterprises have rolled out a number of tech-powered products. Air conditioners boasting comfortable breeze are gaining ground on the market, accounting for 41.4% of offline high-end market in February. Comfortable breeze, self-cleaning and air ventilation are being integrated into high-end products.

  Smart products are gaining popularity too. WiFi-enabled products are estimated to reach a penetration of 54% as of 2020, according to All View Cloud. On March 1 2020, State Administration for Market Regulation defined smart air conditioners and offered a rating system. It said AI-powered smart products capable of self-learning and human-machine interaction can be called smart. These products are not the mainstream currently, but are believed to have great potential to be tapped with the development of 5G and smart home.

  Outlook for 2021

  The prospect of air conditioner market is hardly optimistic despite the signs of economic recovery domestically. With a jump in raw material price starting Q2 and a saturated market, industry players might need to put more thoughts into digging replacement needs. Entering the slack season of year, they also need to capitalize on promotions such as National Holiday, Singles’Day (Double 11 Day) and Double 12 Day to make a good start for the coming new Cold Year. In addition, as domestic sales of central air conditioning systems hit 100 billion milestone with a year-on-year rise of 9.3%, the market space left for residential air conditioners is getting smaller.

  All View Cloud estimates that domestic retail sales volume of air conditioners would reach 53.06 million units for year 2020, down by 12% year-on-year, while retail sales value 157 billion Yuan, down by 20.7% year-on-year. For the coming FY2021 (Cold Year 2021), it estimates that domestic retail sales volume would reach 62.22 million units, up by 16.3% year-on-year, retail sales value 199.4 billion Yuan, up by 24.6% year-on-year, and average price 3,206 Yuan, up by 7.1% year-on-year.

   

  Click the following link to visit the website of China Household Electrical Appliances Association for more information:

  http://en.cheaa.org/


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