After the stock price peaked, Midea’s market value has fallen by 300 billion yuan, but Midea is far from the worst. In response to the layoffs reported on the Internet, Midea Group recently responded, “In view of the judgment of the internal and external environment, the company has ordered to shrink non-core businesses and suspend non-operating investments.” Before that, in a midea group management exchange meeting in early May, when Fang Hongbo, chairman and president of Midea Group, explained the company’s strategic plan for 2022, he said pessimistically: “The next three years will face relatively large challenges. The difficulty is an unprecedented cold winter.”
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What’s more worth thinking about is that the internal testimonials of a laid-off employee also aroused the attention of the industry and the sadness of everyone. In response, Fang Hongbo, chairman and president of Midea Group, responded by saying: “I am a little sad, but also deeply ashamed. It is a difficult choice made in the struggle.”
In the next three years, what is the cold wave that makes Midea also worried?
Home appliance price hikes discourage consumers from replacing
“Midea has gone through different cycles in its history, and we can be a prophet of spring river plumbing. I judge that the next three years will be the coldest three years in my career. I personally study the past 300 years of civilization history and industrial history. Multiple factors are superimposed on At the same time, no matter what kind of stimulus policy can be changed.” This is what Fang Hongbo said when he answered a reporter’s question at the above-mentioned management exchange meeting, and his pessimism about the home appliance industry in the next three years is beyond words.
On the one hand, the new crown epidemic is still having a lasting impact on a global scale. On the other hand, the international situation is changing all the time. Prices of bulk commodities, shipping logistics, and energy have soared, pushing up the cost of manufacturing.
Sinolink Securities pointed out in an analysis report that the main raw materials for home appliance production are steel, copper, aluminum and plastic. As of March 18, 2022, the spot prices of copper, aluminum, and steel were US$9,944/ton and US$3,233/ton respectively. , 8952 yuan / ton, up 86%, 116% and 40% respectively compared with the second quarter of 2020, and the price of steel also increased by 36%, all at historical highs.
Affected by the continuous increase in the price of raw materials, the prices of major household appliances have been gradually increased since the first quarter of 2021. According to Aowei Cloud, the online average price of all home appliances in 2021 will increase by 22.95% year-on-year, and the offline average price will increase by 17.07% year-on-year.
Starting from March 2022, several home appliance brands have successively increased their prices. Among them, Haier announced that from March 16, the prices of air conditioners and other products will be raised by 8% to 10%. Midea also announced that starting from March 16, the prices of various categories will be raised one after another. Among them, the price of air conditioners will start to increase from the 16th. The price adjustment range is 8% for household air conditioners, 5% for refrigerators, more than 5% for washing machines and 20% for small appliances.
On the other hand, the situation faced by home appliance manufacturers is that the popularity of domestic home appliances is already very high. According to data from the National Bureau of Statistics, air conditioners, washing machines, refrigerators and other major appliances are highly saturated, with the number of households approaching or exceeding 100. This also means that major appliances have entered the era of stock competition. According to data from Aowei Cloud, as of November 2021, the cumulative retail sales of China’s home appliance market was 702.2 billion yuan, a year-on-year increase of only 4.9%. Excluding the factors affected by the epidemic in 2020, if compared with the same period in 2019, the growth rate will drop by 7.4 percentage points.
The increase in the price of home appliances may directly inhibit or delay consumers’ demand for home appliance replacement, resulting in less stimulation of the already weak home appliance consumption, which is obviously not good for the entire home appliance industry.
“In the case of bad market conditions, as an industry giant, Midea can properly allocate risks to the entire industry chain by virtue of its influence and bargaining power over the entire home appliance industry, so as to maintain its profitability above the industry average. However, when the entire industry begins to slow down, it is impossible for Midea to develop rapidly.” An analyst in the home appliance industry told Sina Technology.
Is the high-end transformation blocked?
In order to cope with the poor growth rate of the domestic home appliance market, Midea has accelerated its high-end, overseas and To B transformation and upgrading in recent years to support its future development space. But as far as Midea is concerned, the business development in these directions is also facing challenges.
At present, Midea’s high-end lines are mainly COLMO and Toshiba. Taking COLMO as an example, according to Midea’s 2021 financial report data, the overall annual sales of Midea’s COLMO series products reached 4 billion, a year-on-year increase of 300%. The growth rate is gratifying, but this only accounts for 1.1% of Midea’s total revenue of 343.4 billion.
Carrying out high-endization and replacing the price war model of “small profits but quick turnover” with the high value-added model of “push up high and sell quality” is one of the means of Midea’s transformation, but from the current performance, it wants to quickly build Midea’s business through high-endization. The second growth curve of growth is obviously still difficult.
Midea’s overseas business layout was relatively early. Its financial report shows that Midea’s overseas business contributed 35.5% of its revenue in 2015, and it remained at 42% from 2017 to 2020; in 2021, Midea’s overseas business revenue was 137.65 billion yuan, a year-on-year increase of 13.7%. The proportion of income was 40.3%.
Against the background of overall revenue growth, the revenue contributed by Midea’s overseas business, for example, experienced a slight decline. Based on this growth rate, Midea will struggle to achieve its target of US$40 billion in annual revenue from overseas business by 2025. In addition, the overseas competition of Chinese home appliance companies, including Haier, Gree and TCL, will undoubtedly increase the operating expenses of enterprises for channel expansion and marketing.
The To B business, which is still growing at a high speed, is also one of the directions of Midea’s transformation. At the midea group management exchange meeting, “firm To B transformation” was mentioned again.
In 2016, Midea launched an acquisition offer to KUKA, which was also the starting point for Midea to start its To B business transformation. By 2021, Midea Group has established five business segments: smart home, industrial technology, smart buildings, robotics and automation, and digital innovation. Except for smart home, the other four business segments are To B business.
According to Midea’s financial report, in 2021, Midea’s To B business, excluding internal transactions, will have a revenue of 75 billion yuan. But this business, which contributes 22% to 22% of total revenue, is still in the process of seeking profitability. In the eyes of Midea’s executives, “To B business is still in the foundational stage, and no revenue and profit targets have been set in 2022.”
“Although the To B business has solid revenue and a high moat after its establishment, its early development is heavy on investment and slow in development. The early pursuit of commercialization is not conducive to long-term development.” An industry insider said. As the 2C HVAC and consumer appliance businesses, which contribute more than 80% of revenue, have begun to enter the stock market, and the new To B business has yet to be profitable, “slow down and become the main theme of Midea’s corporate development.”
Layoffs are inevitable?
Based on a pessimistic judgment on the industry, “reasonable income and recovery of profitability” has become Midea’s new goal. “Although the revenue and cash flow in 2021 are good, we still need to shrink, and we need to further focus on efficiency, structure, products, and organization optimization.” Midea’s executives pointed out in their speeches at the communication meeting.
The adjustment of organization and personnel structure is one of the important means for Midea to seek changes and deal with future uncertainties.
On April 25, Midea issued a notice of “shutdown and transfer” requirements for some non-core businesses, and Zhong Zheng, the group’s CFO, took the lead in promoting relevant business adjustments. In response to this “business downsizing”, Midea responded externally at the time, “In view of the judgment of the internal and external environment, the company has ordered to shrink non-core businesses, suspend non-operating investments, and take multiple measures to further consolidate growth potential and improve operating performance. “
Under the business adjustment, layoffs are a by-product. On social media such as Maimai, there have been revelations about Midea’s layoffs. According to the breaking news, 100% of Midea’s new business has been laid off or required to be transferred, and about 10% of its employees have been laid off in other departments such as mothers, babies, and pets. Another employee of Midea’s kitchen and bathroom division broke the news, “At present, the 10% layoff target of the department’s R&D department has been set, and the second round of layoffs has also begun.”
Regarding layoffs, on May 19, Midea Group’s official account responded to the news of layoffs. “In view of the judgment of the internal and external environment, the company has contracted non-core businesses in an orderly manner, suspended non-operating investment, and took multiple measures to further consolidate growth potential and improve operating performance.” Midea did not admit the company’s layoffs, but it did admit that the company Doing business contraction and adjustment.
Judging from Hong Bo’s pessimistic judgment on the future and the notice of “shutdown and transfer” for some businesses, “slimming down” has become an inevitable choice for Midea. Foreshadowing that the cold winter is coming, Midea started the winter for herself in advance.