The market value of Bear Electric Appliances has been halved. How can the small home appliance industry, which has slipped from its heyday, break out again?

With the rapid development of the "stay-at-home economy", more and more products have more segmented consumption scenarios: although I am alone, I want to eat both hot pot and barbecue - multi-functional all-in-one pot; there are too many additives in the yogurt sold outside, and it is too troublesome to make yogurt by myself - yogurt machine; I like to eat fried food but worry that too much oil is unhealthy - air fryer...

Before 2020, small household appliances with increasingly subdivided categories were already popular in the market. Affected by the epidemic, consumers spent more time at home and the types of takeout decreased, and the demand for small household appliances changed from "petty bourgeoisie" to "rigid need". A number of small household appliance companies have bright "money prospects", not only with a sharp increase in operating income, but also with great favor from the capital market. The stock price of small household appliances represented by Bear Electric Appliances has soared to a historical high, and sales performance has increased by more than 90% year-on-year.

However, by the third quarter of this year, the 2021 mid-year financial report released by Bear Electric Appliances showed that operating income decreased by 4.89% year-on-year, and profit attributable to shareholders decreased by 45% year-on-year. The stock price has fallen by three-quarters compared to its highest point in mid-2020.

What caused the Cubs’ poor performance in the post-epidemic era?

Over-reliance on the power of marketing

From the perspective of production input, small household appliances have a low entry threshold and are mainly sold online. They generally show the problem of high marketing investment and low R&D investment.

From 2017 to 2020, Bear Electric Appliances' sales expenses increased from 247 million yuan to 440 million yuan. According to the financial report for the first half of 2021, sales expenses increased by 31.44% year-on-year. In contrast, operating income did not increase but decreased by 4.89%. This shows that consumers are beginning to lose interest in Bear Electric's soft and hard advertising.

Product quality is the lifeline. Compared with the high marketing costs, Xiaoxiong's R&D investment accounts for less than 3% of its revenue. The direct consequence of neglecting R&D is the decline in product quality. There are many negative reviews and complaints about Xiaoxiong products on shopping platforms.

As a product with cost-effectiveness as its selling point, the brand premium of Little Bear has not yet been formed. If it continues to "fail" in terms of quality, its future development will indeed be worrying.

This is not just a problem for Xiao Xiong alone. There has always been a consensus in the field of small household appliances that "it is better to shift positions as soon as possible rather than building technological barriers." Because there are too many subcategories of small household appliances and the updates and iterations are too fast, only a few of them can have relatively considerable sales. For most small household appliance manufacturers, it is better to go for big and comprehensive and cover as many categories as possible than to bet on hot products and cultivate them intensively.

From the category perspective, the highest proportion of Xiaoxiong's operating income is from small kitchen appliances such as pots, electric appliances and kettles, all of which are low-tech products, in other words, they are easy to imitate. It can be seen that the revenue of electric appliances has dropped by 35% year-on-year, and although the revenue of kettles has increased by 20% year-on-year, considering that there are too many homogeneous products on the market and consumer loyalty is low, the revenue growth is difficult to sustain.

Little Bear is just one of the representatives of many small appliances. From the perspective of the overall market demand for small appliances, as the epidemic situation improved in the first half of 2021, consumers spent more and more time outside their homes, and gradually returned to school, work, dinners, and travel as normal. The demand for small kitchen appliances weakened, and the resumption of takeout, the opening of restaurants, and the rapid development of the fast food industry have all seized the market for small kitchen appliances.

On the production side, small kitchen appliances also face the problem of insufficient product innovation capabilities. For example, the "kitchen star" wall-breaking machine, which achieved rapid sales growth through price wars in 2020, overdrawn the market in advance, resulting in a year-on-year sales decline of 8.6% in 2021. After all, price wars are not a long-term solution. Only continuous technological upgrades and innovations can lead to a sustainable growth path.

Corresponding to this is the rise of small household appliances for cleaning and personal care. "Cleaning", "health" and "disinfection" have become rigid demands under the background of the epidemic. The lazy economy and the demand for epidemic prevention have led to a continuous increase in the sales of small household appliances such as steam mops and sweeping robots. People born after 1985 and 1995 have gradually become the main force of small household appliance consumption. These new generations of young consumers have an increasing pursuit of beauty and health, giving rise to popular small household appliances such as "household fascia guns", "beauty devices", "eye care devices", and "laser hair removal devices".

From January to May 2021, sales of small household appliances such as personal care and cleaning, such as sweeping robots and cleaning appliances, increased rapidly. For example, sales of a certain projector increased by 94% year-on-year in the first half of the year.

From this, we can see that consumers' demand for small household appliances in the future will increasingly show high-end, intelligent, and quality characteristics. Small household appliance companies represented by Xiaoxiong need to seek breakthroughs in R&D, quality, and consumer demand insights.

Institutions run faster than “leeks”

The performance of the capital market is not optimistic either. In July 2020, Bear Electric Appliances reached a historical high of 165.9 yuan. Not only Bear Electric Appliances, but also Xinbao Shares, Stone Technology, and old home appliance brands Supor and Joyoung were popular. However, when the semi-annual report was released in August 2021, Bear Electric Appliances had fallen to 48 yuan, almost three-quarters of the price. Xinbao Shares, a fellow sufferer, is not much better. The 2021 semi-annual report shows that Xinbao Shares' profit attributable to shareholders in the first half of the year fell 27.04% year-on-year.

The wind direction of the capital market is much more sensitive than consumers. Almost since reaching its peak last year, Bear Electric's stock price has been falling, and by the end of 2020 it had fallen to 113 yuan.

The withdrawal of the capital market is mainly due to several considerations. On the one hand, in the post-epidemic era, consumers spend less time alone at home, and the demand for small household appliances will gradually decline. On the other hand, the data of Bear Electric's 2021 semi-annual report is even more bearish than that of the first quarter. In the first quarter, it only increased revenue but not profit. The operating income was good, increasing by 22% year-on-year, and the net profit attributable to shareholders of the listed company decreased by 12.82% year-on-year. By the time of the semi-annual report, the operating income also fell, down 4.89% year-on-year, and the net profit attributable to shareholders of the listed company decreased by 45.3% year-on-year.

The reaction of institutional investors is not optimistic. In the interim report last year, the number of funds holding Bear Electric Appliances reached 129, accounting for 23.53% of the circulating shares. But in the interim report this year, the number of funds holding Bear Electric Appliances was only 24, accounting for 2.70% of the circulating shares. This shows that although both are retreating, institutional investors are retreating at a faster pace, while some retail investors are still waiting and watching.

Changing their thinking, the "little bears" are trying to break the deadlock

From the perspective of cost, the global price of raw materials for small household appliances has risen recently, with aluminum rising by more than 30% and copper rising by more than 38%, resulting in raw material expenditures accounting for more than 70% of total expenditures for household appliance companies. This has caused small household appliance companies to increase revenue but not profits, which has put great pressure on companies in the short term, especially small companies.

The small home appliance industry has a significant head effect. In the context of the epidemic, the online advantages of Internet brands are highlighted, and they can also seize market share from giants. In the post-epidemic era, head companies will exert their offline marketing capabilities, and the survival space for small companies is very limited. For small home appliance companies, it is either to grow big or to perish.

In addition to competition from peers, small appliance companies are also facing more external competitive factors. The market size of my country's catering industry and takeout market has been growing rapidly every year, but the growth rate has slowed down in 2020 due to the impact of the epidemic. As the epidemic becomes normalized, the catering industry and takeout are gradually recovering. For young people who are the target of small appliances, whether they are still willing to cook by themselves may be a difficult choice.

If small household appliance companies want to break through, they must start by understanding consumer needs.

The survey results show that product practicality is the primary factor for consumers to choose small household appliances, followed by appearance and average price. 67% of consumers believe that small household appliances have too many functions, and many flashy functions are basically not used. Some consumers also complain that the operation is complicated and the sensitivity is poor.

These product pain points from users undoubtedly put forward more requirements for enterprises to focus on product research and development, functional innovation, and quality assurance. Perhaps, only by building user reputation through product quality and improving brand loyalty can the "little bears" break through.

The small home appliance market is currently in a development shift. The frenetic growth under the epidemic may be difficult to reproduce, but the market still has strong demand. Both young small home appliance brands and comprehensive home appliance giants are actively deploying small home appliance market segments. To break through in this track, it is necessary not only to understand the real needs of consumers, but also to establish certain technical barriers. Relying solely on marketing and low-price promotions is ultimately an unsustainable development path.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.