The roller coaster of durable goods is coming to an end – housing equipment purchased at the beginning of the pandemic will sooner or later (with emphasis on sooner) be replaced, which will be facilitated by lower global credit costs, better availability – the end of disruptions in supply chains or technological innovations in new generations of equipment.
After a large resumption of demand for durable goods in 2021, a significant slowdown followed in 2022 and 2023, due to the saturation effect of the market, further exacerbated by higher interest rates (and credit costs).
In 2024, sales of durable goods in Germany (+2%), France (+3%), the United States (+2%) and Italy (5%) are expected to remain at a low level, with a slight slowdown in the United Kingdom (-1%).
However, five factors are preparing the ground for a strong recovery in 2025:
1. financing (credit) costs are falling
2. consumers moving away from expensive services
3. goods purchased in 2021 will soon have to be replaced
4. technological innovations will stimulate demand, especially for devices powered by artificial intelligence and
5. disruptions in the supply chain are also receding.
The roller coaster for durable goods is coming to an end. In 2021, the pandemic changed consumer spending habits, lockdowns and social distancing measures prompted households to modernize their living space, invest in new computers and electronics to facilitate remote work and purchase home entertainment systems, as travel and recreation expenses inevitably fell. As a result, according to Allianz Trade analysis, aggregated spending on durable goods increased by about +17% y/y in the United States, +13% in Italy and +7% in France. However, the saturation effect led to a significant slowdown in 2022 and 2023, exacerbated by higher interest rates, which discouraged consumers from making large purchases, such as high-end electronics and household appliances. Global personal computer sales saw a sharp decline of -16% in 2023, the biggest drop since the beginning of the 21st century. Similarly, global shipments of smartphones fell by 11% over the same period.
Allianz Trade expects that in 2024 sales of durable goods will still be in a slowdown phase, growing only by +2% in Germany, +3% in France, +2% in the US, and 5% in Italy, while the UK should see a slight slowdown of -1%. However, in 2025 the situation is expected to reverse, due to the positive winds resulting from consumption cycles post-pandemic and more favorable economic conditions.
Lower interest rates and moving away from spending on services will aid demand for durable goods in 2025. As inflationary pressure declines, central banks worldwide (almost) are loosening monetary policy, improving consumer access to financing and facilitating the purchase of large items. Inflation-adjusted wages are also still rising. Furthermore, consumption patterns are shifting away from services towards goods. After a strong post-pandemic recovery, current spending in the service sector, including travel, gastronomy, and leisure, has started to lose momentum. In the eurozone, service spending slowed to a mere +0.5% y/y in Q2 2024, compared to +2.3% in the summer of 2023. Similarly, in the United States, consumer spending on services shows signs of saturation, and growth is significantly slowing as suppressed demand for leisure from the era of the pandemic fades. It is expected that this slowdown in service spending will channel disposable income back to durable goods.
Replacement, innovation, and smoother supply chains means higher sales. The natural life cycle of durable goods, many of which have a lifespan of three to five years, suggests that the replacement cycle will begin again by 2025, driving a new wave of demand. Another factor attracting consumers to durable goods, especially new electronics, computers, and smartphones, are the latest technological advances, especially in the field of artificial intelligence, smart home devices, and advanced computing technologies. They not only create new product categories but also drive demand for replacing older models. The emergence of artificial intelligence-based devices, such as smart refrigerators that can manage inventory or artificial intelligence-based washing machines that optimize water and energy consumption, encourages consumers to upgrade existing appliances. Moreover, advances in the computer and electronics sectors, including the adoption of chips supporting artificial intelligence and increased computing power in laptops and desktop computers, are expected to drive a significant upgrade cycle. It is expected that global shipments of artificial intelligence-based devices, including smart speakers, home security systems, and connected devices, will reach 1.5 billion units by 2025, compared to 1.1 billion units in 2023, highlighting the potential for growth of these products. The resilience of the supply chain, which has been a major challenge for the sector, is also improving. Serious disruptions observed during the pandemic, including semiconductor shortages that plagued the electronics and household appliances industry, have largely receded. Despite some lingering issues (e.g., crisis in the Red Sea region), easing supply bottlenecks allows manufacturers to better meet demand and avoid extended delivery times, which have frustrated consumers in recent years. For example, the time to fulfill semiconductor orders has shortened from an average of 26 weeks in 2022 to just 12 weeks in mid-2024. Smoother supply chains should allow the sector to increase revenue in 2025.
Michał Modrzejewski, Director of the Industry Analysis Office at Allianz Trade, assesses the situation on the local market – in Poland: – It is hard to speak at the moment about reviving demand for durable goods in Poland. Household appliances are still selling poorly and increases are minimal and that mainly in terms of value, not quantity (as a result of higher prices). Similarly, demand for furniture or lighting: it is still not growing in the country, it is reportedly starting to revive on export markets, but without any specifics. Meanwhile, the flow of receivables from the market on behalf of suppliers of household appliances or components for furniture production does not look good – instead of revival, one could rather talk about regression or even a crisis in the liquidity of their customers compared to last year. The level of difficult debts, i.e. de facto growing losses for deliveries from past months and quarters, is particularly telling. The question remains open as to how many distributors and manufacturers will endure in good condition until the expected revival. Let’s hope that the expected sales increases on export markets will result in larger orders, and over time the domestic market will also feel the increase – with a delay, as the mentioned loosening of monetary policy and lowering of financing and loan costs are bypassing Poland at the moment.
Source: https://managerplus.pl/koniec-spowolnienia-na-rynku-dobr-trwalych-ale-wszystko-na-to-wskazuje-ze-nie-w-polsce-15644
