LG Electronics who have openly admitted that their future is more b2b and enterprise services than consumer retailing, due in part to the business struggling in the TV and appliance market from intense price competition with Chinese manufacturers, is now moving into the TV and appliance leasing market for the simple reason that it’s easier money than selling via a retail store.
What’s not known at this stage is whether the concept that is being rolled out overseas will be implemented by retailers or whether consumers will have to sign up via an LG direct web site, no date has been given for a potential Australian launch.
The new deal will allow consumers to be able to lease 23 different kinds of LG products including televisions, washing machines, vacuum cleaners and air purifiers.
The lease deals currently sold overseas, vary from three to six years, with consumers given the option to own the product at the end of the contract similar to what automotive Companies are currently doing in Australia.
Currently subscriptions revenues are already hitting 4% of total revenue with management recently admitting at a press conference in South Korea that they are looking to hit double digit within the next two years.
The Company has already introduced the service to Malaysia and Taiwan, and plans to start offering it in Thailand, India and other markets this year with larger markets such as Europe, Australia and the USA next year according to insiders.
According to South Korean analysts who like the direction that LG Electronics is going in dishwasher subscriptions are already proving to be a popular subscription item.
Currently Subscriptions account for 70% of the company’s dishwasher sales by value with insiders telling ChannelNews that global management are “fed up” with the high retail margins in particularly in markets such as Australia that retailers are asking to sell an LG Electronics product.
Subscriptions include a variety of amenities, including installation, free replacements and filter cleaning. There is also a paid option for grocery deliveries.
A dishwasher suitable for a six-person household can be leased for around $25 per month under a six-year contract.
The payments add up to roughly 60% more than buying the dishwasher outright.
Nikki Asia claims that despite the added costs in the long run, the subscriptions have caught on in South Korean and that’s what’s driving the move into foreign markets for the Company that is also stripping data on consumers using LG TV’s and appliances in Australia, and then selling it to third parties who then target Australian consumers with advertising. In some cases when watching LG content advertising based on captured data is inserted into a program or on the home screen.
LG has been a pioneer in subscription services among South Korean electronics manufacturers.
Back in 2009 the business started offering a water purifier subscription, this quickly evolved into other products.
ChannelNews has been told that LG Electronics whose revenues from sales via retailers fell last year by 20% in Australia have been researching the concept of subscription selling along with the logistics costs associated with the exercise.
Analysts claim that LG is already making more money selling data and a subscription directly than selling a TV and appliance via a retailer who they believe have got themselves into discount wars resulting in margins being eliminated due to the heavy discounting of products.
Last year, subscriptions generated A$1.3 billion in revenue, up roughly 30% from 2022. This year’s figure is expected to top A$2.2 billion an increase of 60%.
Talk to LG management and they will tell you that it’s not just high retail margin demands that are impacting their consumer sales also contributing to the reductions in profits is rising logistics costs and stiff price competition from Chinese brands.
Subscriptions are expected to lead to higher sales of premium-priced artificial intelligence-powered devices they claim, the only problem is whether the Company will continue selling via retailers or whether it will become a consignment sell with retailers ranging LG Electronics products and then getting trailing revenue from subscriptions.
The operating profit margin of the subscription business is more than 10%, according to an estimate by a South Korean brokerage.
That is higher than the 7% margin for the consumer electronics business overall for 2023.
LG envisions subscription electronics linking up to each other through smart connectivity, helping keep consumers in an LG ecosystem of paid content and services.
But the company also faces the prospect of competition in the subscription space with Samsung Electronics was looking at entering the subscription business, with the recent move to drop their Tizen operating system for the a new One UI.
Currently Samsung is now rolling out One UI for its 2025 line of smart TVs. Bundled with the Tizen OS 8.0 update, One UI transplants Samsung’s smartphone design language to other devices including TV’s and appliances.
ChannelNews understands this will allow them to engineer new services into products delivering more efficiency than what they could do with their Tizen OS.
Recently LG Electronics updated their WebOS so that they could capture and sell more confidential data on people who buy their products.
Samsung announced that One UI would come to all of its major product lineups at its annual Developer Conference earlier this month.
In the TV market Samsung is delivering a redesigned interface, a new Game Bar, and other UI changes that align with One UI.
The new Home screen that includes a “For you” tab for personalised suggestions.
It also includes a dedicated Live tab, and Apps tab with Samsung capturing data at every point of engagement.
Samsung management claim that no official decision has been made on when Australia will start seeing their new services.
