The local market is lagging behind in terms of average spending, as a Romanian spent EUR85 for computer and electronic products last year, three times less than the average Czech person, almost twice less than a Hungarian and eight times less than a German.
Sales of computer and electronics products in Romania can increase further. Romania is not lagging behind only in terms of average spending per capita, but also in terms of such product penetration. Whereas Western countries like Germany no longer publish any statistics about the refrigerator or washing machine penetration because it already is 100%, Romania has not reached the maximum level for any of these products.
The development of the local computer and electronic products market and of the home appliances market, is still influenced by the state of the economy in general and by the trend of the real estate market, affected by the crisis in the last few years. The increase in the number of computer and electronic products depends on infrastructure investment, if looking at the penetration rate of washing machines and any other electronics and home appliances in rural areas, where almost half of Romania’s population lives and many homes do not have running water.
This underdevelopment of the local market is what keeps it growing, considering the number of households that have a washing machine is less than 80%, and only 36.5% of the households have a microwave oven and 6% a dishwasher.
“The growth potential comes from this underdevelopment of the market but a stable economic climate is needed if long-term consumer confidence is to be rebuilt,” said Dan Ostahie, owner of Altex, the largest computer and electronics retailer in Romania.
“Consumer spending will increase steadily only after the GDP gets back everything that it lost in 2009-2010.”
The computer, home appliances and electronics market will continue to increase in 2014, as well, but at a moderate pace.
“The upward trend is very important, because it is the most important sign that consumers’ confidence in the economy is returning. We will see even stronger growth in 2015 and 2016.”
The computer and electronics market would grow by as much 20% a year during the boom days, driven by consumer loans, the first to dry out right after the crisis started. In 2006-2008, readily available cheap money made many Romanians decide to buy products like fridge freezers and flat screen TVs.
When the crisis started, this market was among the worst hit, dropping to almost half of what it once was. Whereas Romanian consumers spent EUR2.5 billion on electronics, home appliances and computer products, in 2009, the market fell to EUR1.4 billion, and decline continued over the coming years.
During the boom days, 70% of the sales of the specialist retailers were fueled by loans, now only 20% of them are and the percentage is on the rise.
Dan Ostahie, who owns Altex, a computer, home appliances and electronics retailer with more than EUR250 million revenue a year, has previously said that December 2013 was the best December in five years, as consumer spending increased on the back of a consumer lending thaw-up and an improvement in purchasing power. He says there was more money on the market at the end of the year.
December is the best month of the year for the computer and electronics market, when retailers may make as much as 30% of the year’s sales. Moreover, specialist retailers and the hypermarket and cash & carry chains fought a war of special offers in the last few months of 2013. Consumer spending received a boost from such events as “Black Friday”, which some retailers extended over more than a week. Under the circumstances, the sales of the main mortar and bricks retailers Altex, Flanco and Domo increased in 2013, though at a single digit pace.
The growth in durable goods sales last year showed in consumer spending, which went up 0.5% for the entire 2013 after a year-end growth of 7%. On the other hand, retailers say Romanian consumers did not spend more on food, which means the growth was because the non-food products, such as computer, home appliances and electronic products, purchases postponed again and again over the last few years.
Romania could become more than a market for home appliances, it could turn into a manufacturing hub, as several major producers have announced interest in expanding plants or opening new ones in the country. The 20 largest home appliances manufacturers in Romania are making some EUR600 million revenue a year, according to the latest available data and the top three companies account for 80% of the market.
Cheap skilled labor, the favorable geographic location and the development of related industries could help home appliances production develop, after slowly increasing over the years thanks to Arctic, Electrolux and Philips.
Arctic is the largest home appliances manufacturer in Romania, with 1.42 billion lei (EUR321 million) revenue in 2013, which is set to increase after the company invested EUR24 million (EUR10 million of which as stated aid) in expanding production capacity to 2.5 million refrigerators a year.
Its general manager Monica Iavorschi told Business Magazin earlier this year that the increase in production capacity turned the manufacturer into the largest refrigerator manufacturer in Europe. Most (85%) of the production of Arctic, a company held by Turkey’s Arcelik, is exported to about 40 markets throughout the world.
Arctic Gaesti has been in the business of manufacturing refrigerators for almost half a century, having been established in 1968. Turkey’s Arcelik bought it for EUR20 million in 2002. Another plant with a long tradition, the Satu Mare based Samus was acquired by Electrolux, which makes about EUR100 million worth of cookers a year there.
While the Turkish owners kept the Arctic brand, Electrolux chose to drop Samus and use its own brand instead. Other well-known Romanian brands, such as the Albalux washing machines made in Cugir and the Fram refrigerators did not survive.
While several Romanian brands disappeared, international manufacturers like Philips started production in Romania. Other manufacturers, such as Miele, make home appliance components in this country.
Philips started manufacturing operations in Romania in 2009, when it bought the espresso machine manufacturer in Orastie from Italy’s Saeco. The business has constantly increased since takeover to EUR72 million in 2012, according to the latest official data. The plant had posted EUR22 million revenue in 2009.
Philips has recently expanded production in Orastie and is now also making oral care products such as airfloss, a product that uses water to replace dental floss. The greater the product sales, the more Philips will develop production thereof in Romania and the more people it will hire, the company officials said.
Germany’s Kaercher, a group with almost EUR2 billion sales and 10,000 employees, is considering expansion of manufacturing in Romania. It already has a partnership with local manufacturer Electroarges signed more than ten years ago, which makes vacuum cleaners in Curtea de Arges. Electroarges production under the partnership stood at RON140 million in 2012 and about RON160 million last year.
The options considered include boosting capacity at Electroarges and building a plant on a 5 hectare plot the company has in Curtea de Arges.
One of the main reasons Western companies start manufacturing operations in Romania is that salaries are four or five times lower than in their home countries. Still, a Romanian in the home appliances manufacturing industry makes RON2,100 in net amount per month, almost 30% more than the average wage of the country.
(English version by Loredana Fratila-Cristescu)