B2B, home appliance giant LG's new money spinner

A sense of crisis gripped South Korean home appliance giant LG Electronics Inc. two years ago when consumers tightened their purse strings on growing concerns over the economic recovery in the aftermath of the COVID-19 pandemic.

There were even signs of the spending cliff amid the inflation-driven sticker shock, further wreaking havoc on the company’s appliance sales.

But that story is now history, with the success of LG Electronics’ prompt decision to bolster the business-to-business (B2B) sector, which usually generates steady revenue, to offset weak home appliance demand.

According to sources in the industry, B2B sales accounted for 21% of the entire sales of LG Electronics’ Home Appliance & Air Solution (H&A) division from January to August this year.

If its sales increase at the current pace, its share in the entire H&A sales is expected to top 20% this year for the first time. B2B sales made up 16% of the division’s total sales in 2021 and 19% in 2022.

This also has heightened expectations that LG H&A division would rake in more than 6 trillion won ($4.4 billion) in B2B sales this year, up from 5.6 trillion won in 2022 and 4.3 trillion won in 2021.

The rise in B2B sales has reduced LG Electronics’ overall inventory assets to 8.6 trillion won as of June this year from 9.4 trillion won in 2022, 9.8 trillion won in 2021 and 7.4 trillion won in 2020.

AIR SOLUTIONS AND BUILT-IN

LG H&A’s B2B business mainly focuses on air solution products for commercial buildings and built-in appliances for multiplex apartment buildings.

Sales of its eco-friendly and highly efficient air-to-water heat pump (AWHP) have surged over recent years as fossil fuel-run heating systems have gradually been losing ground amid growing calls to reduce greenhouse gas emissions in Europe and North America.

LG Electronics also started supplying its appliance parts, such as motors and compressors, to other washer and air conditioner producers. Its sales of motors and compressors to non-LG companies grew at a compound annual growth rate of 20% from 2020 to 2022, according to the company.

LG Electronics is actively seeking to expand its presence in the built-in appliance market in Europe, estimated at more than 30 trillion won, to enhance its B2B appliance business.

Lyu Jae-cheol, head of LG Electronics’ H&A division, earlier this month vowed at IFA 2023 in Berlin to take over the European built-in appliance market by focusing on the “volume zone” market, which refers to the market for low-end and mid-range products.

The B2B expansion is part of LG Electronics’ plan to transform into a platform service company from a traditional appliance company.

For its B2B expansion, LG Electronics aims to double sales for its heating, ventilation and air conditioning (HVAC) business by 2030, while seeking to lead the global commercial display market.  

It has also set a goal to double its electric component parts sales to more than 20 trillion won by 2030 while seeking new opportunities in future mobility areas.

Write to Ik-Hwan Kim at lovepen@hankyung.com


Sookyung Seo edited this article.