Welcome to this Investor Day in New York. It's going to be an intensive two hours, but the thinking is that Keith and Tomas will kick off with presenting the results as we reported this morning. Short, maybe 10 minutes on that. Then I'm going to spend the rest of the time getting into the depth of North America and the business here by the management team of North America. After that, around one o'clock, just after that, we're going to serve some lunch, and you also have an opportunity to look at our products. Actually, I think you can buy them as well by the end of the day. I don't think we have an air condition here with us. We do.
We have some air condition, and I guess that's a hot item right now. I would like to start with our CEO and our CFO to come up to the podium and go through the Q2 results.
Okay, good afternoon, everyone. Thanks for coming today. It's great to see many of you that I know, and for those that I don't, pleasure to see you and meet you. I'll start with just the results for the group for Q2. Of course, this is what we reported. I'm sure many of you have already seen these results. I'll go through them quickly. If you look at the fundamentals, right, so the underlying, what's happening within the group, I'd bring a couple of points to your attention. One is good, strong, organic growth of almost 6% in the group.
As I look at that growth around the world, that growth is coming from improved price, mix, and volume, and it's also coming from growth in all regions of the world, North America, Europe, Middle East, Africa, Asia Pacific, and Latin America. It's a broad-based growth picture, and of course, is reflective of what we've been communicating to you and to the marketplace now for the past several years, which is the demand for appliances globally is going to double. As the middle class emerges around the world and the strength, and Jack will show you some things in North America, and in the, in the core markets. The opportunity for Electrolux is, are we going to participate? How strong are we going to participate?
As we've been diversifying our revenue base from 15% of our total sales represented by emerging markets, we're today in Q2, over 35% of our emerging markets, and shortly in the next few years, that'll be 50%. We expect that growth to continue. That's point number one. Point number two I'd make is if you look at our gross margins and our gross margin trends, they're positive and they're solid. That's because of the work that's going on within the operating units and globally around global operations, modularization, reducing fundamentally our cost per unit, purchasing, advanced purchasing, target costing, reducing our cost per unit, and improving our mix. In all of our key business units and from a product mix standpoint, we're seeing improvement. Strong top line, solid and strengthening gross margin. You see the earnings.
The earnings, again, on a operating underlying standpoint, online basis, excluding currency, we're up 10%. Six percent top line, 10% bottom line. You know, if you stood back and you looked at the global picture and said: Okay, what am I going to guess is going to happen? There aren't that many folks that say, Oh, yeah, that's what the global appliance market looks like. That was the overall result. I'm going to talk more in a minute about what's happening here and how pleased we are to hold this investor conference in the U.S. and in North America, and let you see and feel and talk to directly our operating team. Before I do that, let me ask Tomas Eliasson, our CFO, to talk about the bridge and the leverage for the company in Q2.
Tomas, will you come up and do that for us?
More than happy to. Good morning, everybody. It's still morning. At least here in the U.S. I'll just go through this one slide with you, the sales and EBIT bridge for the second quarter to give a little bit of a flavor what's happened behind the scenes here. The net sales was basically flat or minus 0.3%, all factors included. If you look behind the scenes, as Keith mentioned, the organic growth was strong, 5.9%, and then the currency took off 6.2% from the top line. The EBIT went from $1.1 billion to $1 billion. If we dig into these two buckets and talk a little bit about that and start with the organic growth, it might be a bit clearer for you.
The organic growth of 5.9% contributed with $1.5 billion in sales, and the drop-through was $106 million. That is a leverage of 6.9%, and that's a little bit on the low side. A normalized leverage for the group would be more around 15%-20%. Below, behind the curtain here, there's a widespread, if you look at the various business sectors. North America, of course, and small appliances had a very good leverage, very strong leverage. Latin America and professional were a bit weaker, and then, of course, EMEA put a lot of pressure on the leverage this quarter, because they didn't make any money at all. They were on break even.
Anyway, all in all, 6.9% in leverage meant 20 basis points in margin accretion. Organically, the results went up with 10% and the margin went from 4%-4.2%. We then look at the currency, SEK 1.6 billion off on the top line. The earnings impact of the currency, of the negative currency here was SEK 180 million, both if you combine translation and transaction. You can say that the negative currency effect is half-half split between EMEA and Latin America. In Latin America, it was the Real that went through another depreciation at the end of the quarter, 10%, or in excess of 10%, but it was also Venezuela and Argentina.
In Europe, the two largest negatives were the British pound and the Egyptian pound. The reason is that we have imports to these countries. And as these currencies weaken, it becomes more expensive. Together, the currency took off 40 basis points of the EBIT margin. That took it from four, you can say, to 4.2, and then back to 3.7 in EBIT margin. Yeah, I think that's it. I'll hand it back to you again, Keith.
Okay. Thank you, Tomas. That's kind of the short and sweet overview. You all got the details this morning, which is why we weren't planning to go again through all the information that we presented earlier today. The real highlight of the day, of course, is to showcase to you, our current shareholders, our future shareholders, and the analysts that follow us closely, is kind of a deeper look inside the tent in our North American business. We're very, very happy to have our North American team here and share with you the work they're doing. I have to admit that when we, about Peter, about a year ago, we said: Well, why don't we have our analyst meeting in New York this time next year?
We didn't exactly know what the results were gonna be in Q2, but sometimes it's better to be lucky than good, and we take that along. I think we've got a good team here, and I think I'm a little lucky that we're having this meeting right here based on the results. You don't have to be a math wizard to figure out that over half the earnings of the group were generated by one operating unit in this company in Q2, and that happens to be the North American business.
I'm very, very proud and pleased with the work that this team is doing, and I think you'll enjoy getting the opportunity to listen to their story, what they're doing, how they're doing it, and then, of course, we'll have time, and we'll make sure we have time for Q&A, so I can ask questions on what you see happening here. Let me start by introducing the President and CEO of Electrolux North America, a great colleague and a good friend, Jack Truong. Jack?
Thank you, Keith. Good morning, everyone. My team and I are very, very excited to be here today to tell you about the North American growth story. We have been transforming our company during the past two years to be a more consumer-driven company, and this is consistent with the global group strategy that Keith McLoughlin has been communicating. Transformation really focus on two areas: bringing out more relevant, consumer-driven innovations and promotions into the marketplace, while shortening the cycle time of product delivery for our customers. Thus far, the transformation is working. We have now delivered six straight profitable sales growth quarters against the backdrop of a very tough market conditions in appliance in North America. This is gonna be our agenda for today.
First, I will be sharing with you some of the key strength asset we have here in North America, of which we draw from as we transform our company. Then we'll talk about the market growth and why we are optimistic about the prospect of growth in appliance in North America. Then my colleagues will be coming up to really share with you in a little bit more details on what are the growth drivers that we have in our company in North America, how we building brand, how we sustain and build our brand to reach out to more consumers, to build more value to our two iconic brands in Frigidaire and Electrolux, and how we develop relevant consumer-driven innovations here.
Also, how do we gain new customers and enter new channel for growth, and how we transform our supply chain here to be a better service to our customers and consumers. I'll be coming back up and share with you how we take all those assets to go to market here in North America to drive price, mix, and volume. I'll summarize, and file three results and where we expect to go forward. If you don't know about us in North America, you really should. One out of every three cooking products shipped in North America come from our company. They are manufactured primarily in Springfield, Tennessee, L'Assomption, Canada, and soon to be in Memphis, Tennessee.
One out of every two top freezer refrigerators shipped in North America come from us, and they are manufactured primarily in our factory in Anderson, South Carolina. Six out of every 10 freezers shipped in North America come from us, and they are manufactured appropriately, primarily in St. Cloud, Minnesota. Now, building on that strength, we're also a full line supplier of major appliances, ranging from all type of refrigerators to freezers to dishwashers, to all type of cooking products, wine coolers, air conditioners, dehumidifiers, microwave, and laundry products. We are truly a full line supplier in major appliances. Many people associate Electrolux with the vacuum cleaner, but that is just one small part of our small appliance business. We market and sell a wide range of small appliances, ranging from toaster oven, coffee makers, all the way to panini makers.
What set us apart from other major appliance manufacturers in the world, around the world, is that we are the only one that has a professional division. Over half of Michelin-starred restaurants in Europe use our professional kitchen appliances. This is where we draw many leading cooking technologies and know-how and transform those into consumer-relevant innovations, some of which you will be seeing later in the presentation, as well as have a chance to touch and feel during the break. We also offer solution for commercial laundry applications. Now, in North America, we're fortunate to have two iconic brands that span across the whole spectrum of consumer markets, from mass in Frigidaire brand to premium in Electrolux brand. Frigidaire is about trust, reliability, and results. Electrolux brand is about style and performance.
During the past 12 months, we have been investing quite a bit in our two iconic brands to make sure that we create more value in our brands, and tell the consumers about the great innovations that we have launched and plan to launch in the coming quarters. I would like to tell you a little bit more about our company here in North America, how we are fully invested in North America. We have over 14,000 employees in North America that wake up every morning, all we do is think about what are the consumer needs, what are the consumer behaviors, how they buy, how they purchase, what really resonate with them, so that we can develop the right promotions that resonate with those consumers, the broad consumer segment targets, and provide them with the right solutions.
Also anticipate what are some of the changing consumer needs, so that we can fully deploy our design, our R&D, our marketing right here in North America to develop those relevant, consumer-driven innovations, and then we would manufacture them primarily here in North America and service our customers better every day. Just quickly, we have our headquarter for North America in Charlotte, North Carolina, and that's where we have a and a very extensive design center, some of which will be shared with you later by John Weinstock. We also have five R&D centers located right here in the United States. We have one in Kinston, North Carolina, that service north our dishwasher business. We have one in Anderson, South Carolina, that really service our refrigeration business.
We have one in Nashville, Tennessee, that really service our cooking business. We also have one in St. Cloud, Minnesota, that really service our freezer business and a global technology center. We also have a customer engagement center that's very extensive in terms of how we service our consumers, be it through phone, text, web, and then how we engage them to really make sure that they have the best service available. We also have nine factories right here in North America. One's in North Carolina, Kinston, for dishwasher, Anderson for our top freezer refrigerator, and a very large one in Springfield, Tennessee, for our freestanding cooking products. The L'Assomption, Canada, where we manufacture our premium built-in product and soon to be transferred down to Memphis, Tennessee.
Cloud, Minnesota, for all of our freezer products, and then in Juarez, Mexico, for our laundry products and the French door, bottom mount, and side-by-side refrigerators. Here are those manufacturing plants. What's very unique here, those blue dots that just show up on the screen, are the new expanded distribution centers, regional distribution centers, that we have been investing in to service our consumers across North America a lot better. You will hear a lot more about how we fully deploy our factory direct supply chain and regional distribution supply chain to really provide the right products at the right price and the right margin to our customers and consumer across North America.
Now, let's talk a little bit about our results. We had very good year in 2012. Our net sales grew 6.8% to $4.6 billion, while our EBIT dollars increased 440%. We delivered these results against the backdrop of a decline in the core appliance industry shipments of 2.2% in 2012. A profitable growth momentum continued in the first half of 2013. Our net sales increased 7.2% in the first half of 2013 to $2.5 billion, while our EBIT increased 89% to $171 million. Our EBIT margin improved substantially from 3.9% in the first half of 2012 to 6.9% in the first half of this year. We're building on six quarters of positive, profitable sales growth momentum in North America. Now let's talk about the market growth potential here.
As you are all well aware, consumer confidence has been on the rise, for the past 15 months here in the U.S., while unemployment rates continued to decline steadily during the past three and a half years. Housing inventory for both new home and existing home, has really hang around four or five weeks as of today, this is pretty close to a all through the 10-year low of 2005. Based on the recent trend, we expect that housing starts in 2013 will be around 980,000, and to reach 1.2 million by 2014. The combination of rising consumer confidence, more existing home sales and new home construction spell growth for the appliance industry.
If you look at the trend of the annual U.S. total core shipments in the past 10 years, it has not been a good picture. Essentially, we've seen a decline since 2006. If you look at the core industry shipment in the first half of this year, essentially grew 7.7%. Most recent was the second quarter of 9.2%. If you have to look back at the industry in the first half of last year, it's actually declined about 4.4%. The true growth in the first half of this year for core appliance shipments, about 3.3%-3.5%. Now we look at the second half of 2012, the core shipments in the industry was about flat.
What we are expecting is that the second half shipments for core appliance in the United States would be about 4%-5%. Therefore, if we take all that into consideration, a 4% or 5% growth in the second half, we then should expect the industry shipments for a total year between 5% and 7% up. It's really just a revised expectation for the industry shipment of core appliances in 2013. This is really also a nice growth momentum in the market.
Now with that growth in momentum in the market, it's really about now, we would like to share with you on what are some of the key transformational action that we have taken to position ourselves to really take advantage of the market growth and also grow faster as we going forward. This point, I would like to invite Mr. John Weinstock, who is the Head of Marketing for Major Appliances North America, to come up.
Well, good morning, everybody. As Jack mentioned, I'll cover two things that are really big drivers for us, both now as well as moving forward. That is, first, our overall brand portfolio and how we're bringing more consumers into our franchise across that portfolio. Then second, the innovation process, what we're doing to drive innovation, and specifically, how we leverage those differentiated brands with the innovation we bring underneath it. Before I do that, though, I thought it'd be helpful just to ground everybody in what we see as some of the bigger macroeconomic, macro consumer trends out in the marketplace right now, that are going to impact us right now, as well as moving forward, both mid and long term.
The first is something you're probably pretty familiar with, but we don't oftentimes think of in the context of appliances, and that's simply the population growth. Very simply, in the U.S., the projection for our population growth is that we'll add more than 100 million people into the U.S. population in less than the next 50 years. Keith was talking about opportunities for growth globally. We really believe there's an awful lot of opportunity to sell more appliances with more people in the market here, both near term as well as into the future. Underneath that are three trends or consumer dynamics that I think are equally noteworthy. The first near term, Jack talked about the overall growth for the marketplace. The segment that we see growing really at a disproportionate rate is the premium area of the business.
The reason for that is very simply that that area has been most closely correlated with the housing market and remodeling market. When it took a hit four or five years ago, it came down pretty significantly, and now as we see it coming back up, we also see this going to rise and rise significantly. Within that, I'll talk to you more about our Electrolux brand. Our Electrolux brand is, of course, our premium brand, and we really see a great opportunity to drive that Electrolux brand moving forward. From a consumer perspective, two things that I'd highlight for you. The first is around renters purchasing our products. I'm sure you're all very familiar with the trends in what's going on with more people renting homes and apartments.
What's surprising for us is that as we think about appliance purchases, we typically think about them in the context of homeowners. The reality is right now is that 20% of appliance purchases are being made by renters, and that's actually up pretty significantly. About three years ago, that number was 15%. The dynamic, there's a couple things. One is, consumers are thinking about being in their apartments or rented homes longer. They're doing more to customize their homes, or customize their rental space. They're also thinking about buying things that they can do that's going to make it more of their own space, both now as well as moving forward.
The last area to touch on is one that, again, I'm sure the macro trend you're very familiar with, and that's our population is getting older, both in terms of the sheer number of people that are senior citizens, as well as the % makeup of the population. We all know that we've got an aging population here. What's interesting, though, from a consumer perspective relative to the appliance industry, is two different things related to that. The first is when we survey people aged 45 and above and ask them whether or not they expect to remain in their home and age in place, a whole third of them say yes, but with making significant modifications to their home. Oftentimes, those modifications involve our products, whether it's the kitchen itself or where they've got laundry in the home.
All of those prevent, give us opportunities and present us with different things we can do with appliances. The second piece of that is around, it's almost the exact opposite of it, which is right now, the percent of senior citizens living in multigenerational housing, meaning they're living either with their kids or sometimes even their grandkids, is at the highest level it's been since World War II. We oftentimes think about appliances in the context of who's the one primary user in the home. The reality is, in situations like that, people are buying appliances and using appliances for multiple adults in different situations in the home, both in terms of cooking as well as doing laundry. That gives you a brief snapshot of some of the biggest trends we see out there.
As Jack mentioned, you know, we have got a diverse brand portfolio, and I think very importantly, it's also a portfolio that's very complementary in nature. Frigidaire, as Jack mentioned, is our mass market brand. If you're not familiar with the total brand, we start with a core Frigidaire brand and then step up to Frigidaire Gallery and Frigidaire Professional. Electrolux is a premium brand, and at the very high end of our Electrolux brand, we've got a super premium sub-brand called Electrolux ICON. All in, this portfolio covers more than 80% of the marketplace in terms of price point coverage. I think what's more important than just the price point coverage is the consumers we attract.
We really believe that one of the advantages that we have is that consumers connect in with brands for very different reasons, and the reason a consumer will connect in with Frigidaire is very different than the reason she will on Electrolux. Very simply, there's different psychographic profiles against the segments that are looking for those products. In the context of Frigidaire, this is a consumer that's thinking about it more in terms of the functional benefits of the product. Her home is a space that's a very well-run, organized home. She thinks of appliances in the context of: How do I keep that home running well, doing the chores, so I can ultimately spend more time with my family. She very simply wants the products to get the job done right the first time.
Electrolux, in contrast, is someone who's a more premium consumer. She's thinking about her home in terms of having the latest technology. She's thinking about in the context of: What does the design look like? Is it cutting-edge design, and what does it say about me? Importantly, the appliances she's bringing in, she's thinking about in the context of: How this give me the capability to do the best I possibly can, whether I'm cooking or doing laundry or anything within that? The latest technology is very important to her.
Also, when she's making selections around her appliances, while her family is very important to her, she's also thinking about in the context of: How is this going to enable me to be a great entertainer? This is a consumer who does a lot of entertaining, and oftentimes, that entertaining takes place in her home and in her kitchen, and involves cooking.
She's coming at it from the perspective of: How is this going to enable me to do more of that entertaining? As Jack mentioned, we are investing across both of our brands, and the brands really are very different life cycles here in the U.S. in the context of major appliances. Frigidaire has been out in the marketplace for over 90 years. You'll see more of that in just a second when I show you some of the advertising. The brand itself, interestingly, hadn't had major marketing support for major national advertising in more than 25 years until we launched a new campaign last year. We essentially dusted off the brand, if you will, and had a major campaign that went out. You can see the numbers up on the screen at the top there.
That gives you a snapshot of what happened to the brand metrics overall in just the first three months we ran that campaign. Importantly, awareness, consideration, and many of the attributes that are very important to us moved and moved significantly in a very short period of time. We're continuing to invest behind the brand. We've got new advertising this year, new programs across all the different consumer touch points, really with an eye towards: How do we drive mix? How do we drive people up, not just from the core Frigidaire, but up into the Gallery and Frigidaire Professional lines? I'm going to take a break for just a second. We're going to show you one of the ads from the campaign that was running just earlier this year.
Frigidaire. It means the first electric refrigerator. The first room air conditioner. It means a history of innovations that help make your home life better. Now, there's the Frigidaire Gallery Range with Symmetry double ovens. It's designed to cook multiple dishes at multiple temperatures, so you can prepare the entire meal at the same time. Frigidaire, over 90 years of legendary innovation.
We're really proud of this advertising. As I mentioned, it drove really strong in-market results. One thing you're probably not aware of is there's a group out there called Ace Metrix that does testing of virtually all the new ads that come out in the marketplace. Last year, they tested over 5,000 ads across everything, Super Bowl ads, Olympic ads, and the first ad that ran in this campaign was actually rated the number two most effective ad out of all those 5,000 that were tested last year. We really felt like we hit on something from a consumer perspective, and we're continuing to leverage it this year. Our other brand is Electrolux, of course, and this is, as Jack mentioned, you're probably very familiar with it, but maybe a little bit more familiar with it in the context of floor care.
Of course, we're in the floor care market for a very long time, but in the context of major appliances, this is a relatively new brand. It was launched in the U.S. marketplace five years ago. As I mentioned, for us, moving forward, we really see this as a prime growth opportunity. The market's coming back in this area, and it's a brand that we find connects in very, very well with consumers. Ironically, we've got a whole new marketing campaign coming out this week. New ads broke on Monday. We continue to use Kelly Ripa as our spokesperson behind it. It's part of a larger program that's got an all-new digital program, all-new in-store program. We've really expanded what we're doing in-store and also launching a new aftermarket program. With that, we'd like to show you the ad that just started running this week.
My new Electrolux French door refrigerator gives me a lot more entertaining possibilities. With features like the Perfect Temp Drawer that has a wide variety of temperature settings, I can store anything from desserts to deliciously fresh seafood at the ideal serving temperature. Everything is perfectly fresh and ready to serve. Tonight, I'm using the just the two of us setting. Electrolux, be even more amazing.
This just started airing. We'll have this running now during the third quarter, and we'll also have another new ad running during fourth quarter on our cooking business, our induction cooking business. The second part of what we're going to share this morning is around how we're driving innovation overall. It's great to have brands that connect differently with consumers. It also presents us really with the opportunity to develop different types of innovations that are relevant to them and position it in different ways. As you may have noticed in the Frigidaire ad, we are, as a company, a company that's got a culture really embedded in the idea of innovation. Going all the way back, almost 100 years ago, we invented the first electric refrigerator, and that's something that we organizationally are really looking to continue to instill across all our employees.
Jack mentioned that we're headquartered in Charlotte, North Carolina. Two things up on the screen here that I think are noteworthy about our headquarters as it relates to innovation. The first is we have got an industrial design center based in North Carolina, that's focused solely on North American consumers. Part of that is we've got a virtual reality consumer-aided design program there, which if you think about the size of this screen here, imagine that with 3D capabilities and imagine that with the opportunity to view prototypes of product in life-size, but computer-generated. The reason that's such a big deal is that we can quickly get feedback on products as we're developing them.
We can make changes very quickly without having to develop sort of the typical models, which can be very working or, real-life models, which can typically be very expensive as well as time-consuming. One of the things that we're doing to really speed the innovation cycle, specifically for our consumers here in North America. The second piece is, underneath this, we just opened up what we're calling the Electrolux Innovation Center. What that is, think of that as a very large showroom that also has got working kitchens in it, as well as a consumer research focus group facility.
Now, focus group research obviously isn't very novel or distinct, but I think what really is distinctive about that is that by having it on-site and being able to bring in consumers and customers to use our products, our hundreds of employees get the chance to see and hear firsthand how they're engaging with the products and learn from that. We really have got the opportunity to drive that innovation culture across the entire employee base in our headquarters there. Part of that as well is how we go about development, developing our products and the overall process. I'm not going to go through the overall stage-gate process. As you would imagine, we would have that in place.
The only reason I put this in here is to highlight, is one of the changes we have made has been really to get the consumer more involved throughout that, much more upfront and then checking in with her continuously through the process to really make sure that the products we're bringing out to market are going to win in the market and are going to connect in with the consumers when they're there. What I'm going to share with you now, just in closing, is some examples of things that we've launched, either in the last couple of years or things that are now coming out into the marketplace in the next six months, all of which we think really capture what I've been talking about in terms of who the brand is and what their consumer needs are.
Firstly, on Frigidaire, you saw the ad for the double oven. The insight around this was really the very simply, the Frigidaire consumer is looking to get meals on the table very quickly, and the ability to have a double oven where you can cook, as the ad said, multiple dishes at multiple temperatures, enables that. Think about that from a multigenerational housing perspective. If you've got somebody who may be doing different meals altogether for people, it enables that as well. We're the only maker out there who's got this 50/50 configuration, which very simply is two large oven cavities, so much oven so that you can actually cook 2 28 pound turkeys in each of the cavities. I'm not sure who needs that much turkey, but it underscores the size for you.
Second item is a new dishwasher that we launched last year. We refer to this as the OrbitClean dishwasher. You'll get a chance when you walk out later, we've actually got a clear door, so you can see this in action. This is a technology that we leveraged, a global technology, and brought to the U.S. market about a year ago. Very simply, the Frigidaire consumer, as I mentioned earlier, wants to get the job done right the first time. What this does is it significantly enables better cleaning performance. In fact, the water coverage with this OrbitClean technology is four times the coverage of an ordinary dishwasher. Finally, we launched a whole new line of French door refrigerators just within the last three or four months. A couple things I'd point out on this refrigerator.
First of all, one of the pain points for consumers has been the ability to organize a refrigerator as they're putting things into it and their needs change. I'm sure many of you have had a situation where you put product in the refrigerator, might be leftovers, might be something that's unusual in size, and when you go to rearrange, the shelving in there, it's very difficult to do it. Oftentimes, you've actually got to take all the product out of there, the groceries, whatever it may be, before you can move the shelves around. This actually allows you to adjust and move the shelving very easily, without having to unload it. We use the line 100 different ways to organize it, something that's very important to that Frigidaire consumer who wants her home to be organized.
I think what's even more noteworthy, though, on this refrigerator, as well as across the entire Frigidaire Gallery line, is an innovation we call Smudge-Proof Stainless Steel. I don't know how many of you have got stainless steel appliances in your home, but if you do, you probably know that they tend to get fingerprints, and when they do get dirty or smudged, for whatever reason, it can be really difficult to clean. This is a stainless steel, that is real stainless steel, looks like real stainless steel, feels like real stainless steel, but when you touch it's virtually impossible to get a fingerprint on it. If for any reason it does get smudged, it's ridiculously easy to clean. Again, if you think about the Frigidaire consumer wanting to have an organized, well-run home, this plays perfectly to who that consumer is.
I'll switch gears to just for a minute here and talk about some of the innovation on Electrolux. Electrolux, again, its latest technology and how is this going to enable me really to do what I want, particularly when I'm entertaining. If you're not familiar with induction technology, induction is a technology that we have had in the professional space for a long time. Jack talked about how we leverage innovation out of the professional arena and bring that into the consumer market here. Induction's been in the market for a while, it really hasn't been in the mainstream. It's caught on in other areas of the world. It's quite big in Europe, in the U.S., it's represented a very small portion of it. Two reasons for that. One has been price. Price has been very high.
We are now able to bring some scale to this and bring price points significantly down. The second has been really around consumers not understanding it. The needs for the consumer, what this addresses here is, first of all, induction is very powerful. The line we use is that it boils water in 90 seconds. The other piece of it is, it's also very responsive. You can adjust the heat up or down, it responds almost immediately, and for that consumer who's looking for very precise cooking, it really enables that. We really see this as a big opportunity to drive the induction market here. That's something that'll be a big part of the focus of the Electrolux campaign in the back half of this year.
The second area is around our built-in cooking. I could spend really the rest of the day talking about all the innovation we've got coming on our built-in cooking line. You'll hear in just a minute about the shift in manufacturing site that's going to Memphis. Really across the board, we've got a lot of great innovation coming around that. One area that I'd highlight here for you as I'm running through this is on Electrolux and our built-in wall ovens. If you've ever run self-clean on any oven, you probably know that it puts out a tremendous smell when you're running it. So much so that we hear consumers say that they evacuate the home with their family when they run the thing. What this has is a technology we call Fresh Clean Technology, and think of this as a catalytic converter for the oven.
Very simply, it nearly eliminates the odor associated with running self-clean. With that, we've heard consumers say they're very comfortable keeping people in the home, you know, doing things in the home when that's going on. We really think that, as well as many other things, are going to be driving our built-in business moving forward.
Finally, another French door example. I think this really goes back to my point around how we're able to take different types of products, customize them around the consumer needs, and then connect in differently with consumers across our very differentiated brands. You saw the ad for the French door French door refrigerator under Electrolux, and the feature that is highlighted there that is really very important to that consumer is what we call the Perfect Temp Drawer.
Perfect Temp Drawer allows you to keep food at its optimal serving temperature. If the average refrigerator runs at about 37 degrees, here you can take that drawer and set it anywhere from 42 degrees, because maybe you want to serve white wine at that temperature, all the way down to 28 degrees because you're storing seafood at that temperature. There's nine presets in between there, and you can also customize it as well. For that consumer that likes to do entertaining, likes to make a great impression, and also wants to serve food absolutely perfectly, this is really a big deal to her. That just gives you a snapshot of some of the innovation, where we'll be looking forward to sharing more of that with you a little bit later when we walk around the products.
Again, I think one of the big things we've got that'll drive our business moving forward is how we develop that innovation and then use our portfolio of brands to really reach different consumers in different ways with it. With that, I'm going to turn it over to Mark Chambers. Mark is our Head of Sales, and he's going to tell you more about how we're getting that innovation out into the marketplace through our channel partners. Mark, thanks.
Well, good late morning, everyone. As you may have figured out by now, it's really a lot of fun being in North American sales these days. Why is that? John just talked about two great iconic brands, Frigidaire and Electrolux. John talked about a broad portfolio of products that encompass all of those, both those brands, and really have strong appeal to the consumer. So it's a really fun time to be in sales, and oh, by the way, it's 98 today, so that helps, too. But we're really excited to be here and to discuss that with you. The other thing that we're excited to talk about today, and what I'll be very anxious to unveil, is how we're transforming our supply chain to drive commercial growth in two areas of business. The transformational supply chain that we'll be introducing...
Oops, let me get up here. Enabled us to win a new customer last year, and enables us to now grow that new customer, and the transformational supply chain will also enable growth in the fastest-growing part of the North American market today, and we'll discuss that more. A transformational supply chain, route to market, providing extraordinary customer service to a different market that we're serving today. Winning new customers and channels is all about our growth strategy. Let's take a look at the North American market and really look at what the data is telling us. First of all, isn't it nice to have some industry tailwind for change? It's really good to have that.
If you look at 2008, 2012, 2013, you see growth in 2012, and you see growth again in 2013 from the market. Where's the growth occurring? The big business, retail, from $17 billion to $18 billion. The developing business, the contract, the new construction and commercial replacement market, is also on a very rapid trajectory of growth. The market today has a positive level of demand in it. We expect that demand to continue, as we talked about earlier this morning, and we're seeing things, and it's telling us, it's giving us an idea that we need to be ready to serve the market in new and different ways. Let's look at how we are serving the market today. What does the Electrolux route to market look like?
What's that customer service look like, and what are we transforming to? For many years, we're very blessed that we have great North American manufacturing right here. The ability to connect our high-velocity customers, we all know who they are, big customers that have multiple stores, customers that span North America. We've worked very hard at connecting their supply chain to our factories, their processes to our processes, their metrics to ours, their systems to ours, and we've got a bonafide factory direct model that provides great customer service on high-velocity goods to high-velocity retailers. Those retailers, in turn, give great service to the end user, the consumer. What are we transforming in our route to market? An efficient regional distribution system, or RDC network.
That RDC network is in transformation and allows us to provide high margin, quality, mass premium products to not only the trade, but also to customers that have different supply chain needs. In order to win new customers, this is a critical component for growth. You must have the ability to give, as Jack pointed out, the right products at the right price, also the right time, and the right time is when the customer wants it. Those customers, using our RDC network and that inventory in that RDC, are going to be able to make that delivery to the consumer when the consumer has the order, when the consumer needs it.
Let's take a look at exactly who is using what supply chain from Electrolux. Again, the growth coming through our channel partners. If you think about broadly, talk about the retail market and who are the great retailers, we've got great retailers. Sears, Lowe's, Best Buy, a great network of independent regionals and dealers that make up almost all of the North American retail business. Wait, there was one major retailer that was missing from the equation, and the transformation of a supply chain enabled us to connect Home Depot.
Home Depot, obviously a big player, they only had three requirements. They want to make sure you have great brands. Frigidaire and Electrolux are great brands. They want to make sure you've got great product range across those brands. We've got great brand product range across those brands. They also have a different supply system model. We had to transform our supply chain in order to gain entry and win this customer, Home Depot.
At the in 2012, we were able to connect that great customer to our other great businesses that we have in North America. Now every major retailer in North America is represented by our brands. The tiebreaker for us was the transformational supply chain that engaged Home Depot. We think there's lots of growth opportunity, and the supply chain and the transformational supply chain providing great customer service, is going to be part of that winning formula. Okay, let's talk about another business. Where have you read recently that housing market isn't doing really, really well? It is doing really, really well. This takes you, gives you a look at what components of the housing industry are performing and outperforming.
If you will look at the red bar and go back to, say, 2011, the red bar representing multifamily, you will see for a couple of three years, multifamily actually led to growth in the contract channel or the new construction market. As you look at 2012 through 2015, look at the great trajectory that single-family home is representing in the contract or the new construction market. Really, the strongest and now the fastest-growing, the most lucrative, the best mix, is coming through the single-family home business, and that's a business that we want to participate in at a greater level. So our supply chain once again comes into play because it will help us capitalize on the growth of the single-family home starts. Take one more look at the new construction business and how it's served.
In 2010, nearly half of the business, if you look at the blue bar, nearly half of the business was served manufacturers direct, versus 52% indirect or through a reseller. That's what it was in 2010. In 2012, 57% served manufacturer direct versus 43% reseller. By 2015, we believe that number is going to be 63% served on a manufacturer direct versus 37% on an indirect basis. Why the gap in 2010? Why the white space in 2010? We could not serve that 48% because our customer service and our supply chain did not have the capability of reaching the job site, and that's the requirement for the single-family home business.
We're developing that, the transformational part of our supply chain will enable us to provide great customer service to this growing part of the business and become more important. We think there is a great growth opportunity here as well. Several hundreds of millions of dollars, we believe. Okay, transforming the business. We talked about the factory direct, having an efficient system that connects our retailers to the factory. We talked about the RDC connecting in an efficient way so that we can be just in time to those retailers and resellers also in the contract trade. Now we're adding to that an Electrolux delivery system, so that we can deliver direct to the job site before the closing. When the project is nearing completion, when the homes are being finished, we will now have that opportunity.
It's the transformational part of our supply chain that enables us to participate at a much higher level in this business. Just like we were able to win Home Depot, we're now able to grow our business using the same leveraged supply chain across the large and growing segment of the business called new home construction and commercial replacement. A couple other things that we're doing within this business in our company, to make sure that we're a bona fide player, in the near and long term, and that is leveraging our brand, broad brand portfolio. You know, these brands have great appeal to the consumers, and the consumers are in model homes, they're in show homes, and they're actually on job sites.
Within our brand portfolio, we have upgraded packages because a product to a home builder is four pieces, sometimes five, sometimes more. That's the product. We have to be able to efficiently deliver that, and we do that across the brand portfolio. That really encourages trade up through a visual brand language that registers with the consumer. Also, in each of our trade ups, there are no change in electrical or cutout, which can sometimes give the general contractor fits. We don't have that. We've got a real simple approach and basic approach to leveraging that across all of our brands. The sales and marketing in our company is dedicated to the contract channel. Resources are allocated, and it's a focal point. It's what we do.
Finally, and again, the tiebreaker becomes for us, the distribution and service capability, providing great customer service now available to the job site. We're very excited about the growth and commercial growth opportunities, leveraging our brands, our great products, and providing the great customer service that's expected by the customers and the consumers who are served by the customers in both The Home Depot and the contract sales channel. Now I'm going to turn the meeting over to Mr. Darrin Couture, and Darrin is our Head of End-to-End Supply Chain. Darrin?
Thank you, Mark. Good afternoon. You heard from Mark what's required from a supply chain standpoint to win in the marketplace. In a consumer-driven business, it's important that we migrate to a pull-based supply chain, meaning that we're able to respond very quickly to the demands that we see in the marketplace. What I want to talk about is the manufacturing transformation supporting that supply chain. It's largely based on leveraging our global best practices, modularization, and flexible automation in our factories. The example that I'll highlight will be the investment we made in our Memphis cooking facility, a world-class facility that leverages global design best practices, as well as best practices from a manufacturing standpoint. If you note the robotics on the slide, I want to highlight that this is a great example of flexible automation and allows us to drive superior quality and reduce variation.
In this particular example, we're able to reduce more than 20 touch points in the process, greatly enhancing yield within the factory. More specifically, as we think about the design of the facility, we targeted a significant reduction in cycle time as well as lot size. Why is that important? That we can respond very quickly in the environment, meaning that as we see the demand signal placed on our factory, we're in a position to respond very quickly, be it factory direct or through the RDC to the consumer. As a result of leveraging best practices from our global business, namely flexible automation, modularization, we're able to drive a reduction in cost to convert the product in the facility as well.
With that, I'd now like to turn it over to Jack Truong, President and CEO of our North America business, to tell you how this all comes together. Thank you.
Now you have heard from John about how we invest in our two great brands to draw the broader consumer groups and to expand our brand into from mass all the way to premium, and to create more value with consumers. You also heard from John how we continue to bring out new, innovative products that consumers really want.
Then you also heard from Mark, that now within the retail space landscape, that we are, we essentially, are well distributed across all retail outlets in the United States, and well-positioned for the growing market in the contract channel, and with a transformed supply chain that allow us to deliver the right mix of products and brands to our customers and also to the consumers. How do we then take all of that key assets, those key assets, and bring to the marketplace to grow and grow in volume, price, and mix? The next few slides, I'd like to share with you really the essence of what the transformation that we have been doing here in North America as we grew and are growing.
As you're well aware, in this industry, it's a highly promotional industry. If you really dig down to the consumer behavior, what we found is that really about 26% of the market is really price driven, and that's when this consumer buy products or core appliances based on impulse. When price is low, or the product was on promotion, or they just happen to like the designs or the feature of the product. You look at, on the left-hand side here, 74% of the market is really not that highly sensitive to promotions. You look at the 15% of the purchases that really come from remodelers.
This is really about when the consumer want to upgrade to a certain kitchen packages match with their taste or the new kitchen cabinets. You look at the 59.5% of the purchases every day is really due to the products, appliances. If you think about it, those consumers who have a broken refrigerator, and probably the last time that that consumer have gone out and bought a refrigerator, probably most likely eight or 10 years ago. So is it, if it's a refrigerator, the person probably has within 24, 48 hours, they're going to have to go and find the right refrigerator and have it delivered to their home so that the foods will not spoil.
Most likely, the foods in that in broken refrigerator probably sometimes can be worth as much as the new refrigerator. What we found here in the now consumer insight work, as well as a lot of the industry data, is that over 68% of those purchasers in that group that have the broken appliances, they need to have those products within 48 hours. If you think about it's really about that consumer really want to be communicated by the brand manufacturer, what are the key benefits? Make it easy for that consumer to decide on what product they should buy. Equally important, we have to make sure that the product is available and be able to deliver to that consumer's home within 48 hours.
You look through this consumer behavior, the purchasing behavior, and look at the opportunities, and this is really we can have, based on all the transformation we've been going through, have a broad brand portfolio, new innovation that cater to many different type of consumers, and have the ability to service our customers and consumer at different price point, from mass to premium, we have to really shift our promotional strategy in such a way that really meets the demands and growing demands of the consumers when they want it, with what they want, with the right products. This is really our promotional strategy during the past 12 months.
This is all about us providing what we call the kitchen packages, that leveraging on the broad portfolio of products that we have in North America, and really leverage on the understanding of the consumer behavior and the different price points in the markets. to really put together the right kitchen packages that cater to all types of consumer from the opening price points all the way to premium. let's look at our base Frigidaire kitchen package. It's $1,800 per kitchen at the retail price. It really consists of our top freezer refrigerator, and with our base freestanding oven, and then a base dishwasher, and then a microwave. A step up to that, at the Frigidaire Gallery Kitchen, was about $2,800 per package.
This is where we put in our innovation that you have heard about. The whole kitchen package for Frigidaire Gallery consists of the smudge-proof technology, and it has the dishwasher that contain our OrbitClean system. If you step all the way to the Electrolux brand kitchen packages here, at $7,000 per package, it has the Electrolux French door bottom mount with a new Perfect Temp Drawer that you have heard about, and also with the a freestanding oven that have the Fresh Clean Technology. All the way up to the Electrolux ICON at $12,000 per kitchen package, that have really our commercial-grade technology, as well as the beautiful designs.
You look at this whole portfolio of the possibilities, of how we put together the different type of packages that cater to different consumers at different price points, and this is how we drive growth and price, mix, and margin in the marketplace. At the same time, we're able to service the needs of our consumers, drive more value for our retailers, and also, at the end, drive value for us. This is where, during the past 12 months, we have shifted a lot of our resources to really driving more of the advertising in such a way to make it easy for consumers to understand more about the benefits that our products provide.
We shifted a lot more into brand advertising to really let consumers know about the different innovations that they should expect at different price points. That's why it's a lot of investment on digital that John had mentioned about. Very importantly, too, is that we also invest in a lot more, what we call, feet in the street, with our channel partners' retail stores to train retail associates on the key benefits of our kitchen packages and how they should be merchandised in such a way that would draw a lot more consumer demand as they go in and consumer purchase. This is the example of how we execute this in the fourth quarter of 2012.
If you recall, the fourth quarter of 2012, that was probably the first time that Black Friday became Black November. That there was a lot of very aggressive price promotions in the marketplace, and it went from being just a week of Black Friday into more of three weeks of deep discount promotions. Rather than jump into that very, very big discount, the promotional time period, we actually execute our strategy of promoting our kitchen packages that we just talked about, and really devote resources to communicate and make it easy for consumers to purchase and buy our products. These are the results of our Black November into Q4 of 2012.
Our net sales increased 29%, gross margin dollars increased by 40%, and average net selling price went up by 12%. This is one of the key reasons that allow us to deliver the fourth quarter in North America in 2012, of 18% sales growth and a profit growth of over 285%. Okay, let's put it all together. Here are the key things that we have discussed today. We believe that the U.S. market demand will increase in the second half of this year more than the first half. Net, overall in 2013, the industry shipment for core appliances will be anywhere from 5%-7%.
Based on the trend of the housing starts and the housing inventory and the existing home sales, we believe that 2014 and beyond, that the core shipment industry growth could be 4% and above. We also believe, and our ambition here is to outgrow the market growth, and we're well-positioned to do that. Our brand portfolio is a lot broader now than in the past. Our pace of innovation is relevant, consumer-driven innovation has been increasing, and we're now fully distributed in the retail outlets across.
We're also well-positioned to participate in the growth markets in the contract channel, and we have a supply chain system that we will continue to strengthen to service our customers and consumers across North America a lot better every day. Our ambition in North America is to be the lifter to our global group targets of EBIT margin of 6%. With that, I just wanna thank you for your attention, and we look forward to more Q&As.
Great. We have now plenty of time for Q&A, and we also actually have people connected on the line. I will try to alternate the questions between here and that are connected on the line. By that, I would like to open the floor for questions. Please, we have one over here.
Thank you. First question is just around laundry. Just didn't see anything in the laundry segment from your product offering and was curious on your thoughts on your growth in that market. Could you also talk about promotions going into November of 2013? Just curious whether you think it'll be a week, a month, longer than that, whether or not something changed drastically in 2012, if such that 2013 could be different. Thank you.
Okay. Well, we are launching the, our, the top, a top-load, high-efficiency, laundry machine right now, and we're also launching the, laundry center, top-load laundry center with the high efficiency right now as well. We're fully committed to the laundry business, and you are going to see a lot more of the, program from us in the second half of this year. Relative to, what, the upcoming Black Friday promotions, that's something that we, of course, we can't share right now with that speculative. We, we do hope that won't be as, crazy as was, the July fourth promotion. David?
Thanks. Thanks. You presented the advertisements, and you're talking about trying to build out your brand footprint in the marketplace. I guess the advertisements are aimed at trying to create some demand pull and get the consumers to pull the product through. How do you work out from the other side, though? How do you create some support amongst retail sales associates to sell the brand? It's still a category where the retail sales associate is very influential in the consumer purchase decision. How do you win them over?
Right. I think it's very, very important for you to know that, you know, of course, we don't do this alone, but we, this is really in partnership with our key channel partners. Our teams work very closely with all of our channel partners to really plan out the thoughtful promotions and really manage the total category, recognizing that a large part of consumers really don't buy based on just the impulse buy. A lot of them really buy based on the need and the time of the need, as well as having the right information to make the thoughtful decisions. A lot of our work is really done in close partnership with all of our key retailers.
One more question here.
Hi. Can you talk about the operating leverage of your business? I think, I think the CFO spoke about 15%-20% as being normal. Going through your presentation, superficially, it seems like there's a fair amount of selling expenses in terms of educating the consumers about your new products. Obviously investment in your supply chain. Maybe if you could talk about the operating leverage in this market. The second question is working capital. You obviously are. You highlighted that you need to reach consumers within two days, so it suggests a fair amount of sort of stocking. What does that mean for working capital going forward?
Okay. See, I remember the first question now. This is about the operating leverage. You know, we are the full-line supplier of, in all the core categories, as well as in other major appliances. Within each categories, there is a wide range of price point and mix. For example, a top freezer refrigerator, going from one unit of that to one unit of French door bottom mount, there's a tremendous amount of leverage in terms of not only sales dollars, but margin dollars. As the economy begin to improve, you can see a lot more of the upgrade or a mix-up.
It's really about our opportunity here is really about understand more about how consumers buy, when they want to buy it, and do the right promotion to really achieve that leverage. Relative to the investment supply chain, the key driver for us to as we invest into the supply chain with the working capital, to really put the right products closer to the consumers there, is that those items, the mix got to be at a higher margin item, so that allow us then to absorb the increased working capital costs.
I guess, Tomas, just want to add something to the working capital here.
Yeah, let's just get a little bit into the numbers. I guess that's what you're talking about. For the group, the volume operating leverage is let's say 15%-20%, approximately. Of course, if you add price to that and mix, profitable mix, then the operating leverage can go up for North America, which has a good price and mixed development, of course, the operating leverage is way above 20% right now. That, depends on how these my friends do here, but.
Well, that certainly is our plan. As we execute, we believe that we have to earn that business every day, yes.
Yep, we have one more person over there.
I was just wondering if you guys could talk about pricing trends within I guess, across categories, how they differ, and how they've been recently?
Can you please speak a little bit louder?
Sure. Sorry. I was wondering if you could talk about pricing trends, across product categories within North America, how they've trended recently, how they've differed, by products?
Well, certainly from what we see through the AM data, that the within the categories of refrigeration and laundry, there's been pressure, particularly of late due to the July Fourth Memorial Day promotions. We do see stability in pricing, in cooking products. A little bit on the dishwasher.
I would just add to that, the packages that Jack discussed at the end of the presentation, I mean, that really helps drive. As we plan those promotions with our customers, that really helps drive a different, obviously, formula because of the attachment.
One more here.
Hi. Before this meeting, I went online to review your perception among end consumers, both in terms of product satisfaction and product stability and repair and maintenance history. That's where I found that you seem to have the most territory to improve. There seems to be a history of your products not meeting competitors on those characteristics. I was wondering if you could talk about your plans to improve customer service, quality and repair metrics.
You know, we are extremely focused on quality in North America, and we've had tremendous amount of improvement over that, year-over-year. I think the one thing you see online is, of course, that there's always a significant lag anytime you're making improvements in that. We would not be investing behind the products or the brands unless we're really highly confident in the quality overall in them.
Hi, congrats on a good quarter. I just wanted to know where we are in The Home Depot rollout. What percentage of the stores that you could potentially be in, are you actually in at this point? Are there going to be any additional costs from that investment?
Well, our Home Depot rollout is going according to our plan. Both our brands are well distributed in the Jumbo stores, The Home Depot are rolling out. Yeah, I think we have announced the cost of rolling out, we had lumped that together between our Memphis transition and Home Depot together, it's about SEK 100 million per quarter between Memphis factory and Home Depot rollout. It's really up to Home Depot push when, whenever they roll out, when they will be rolling out with it.
Yeah, I would just say that there are three segments of Home Depot's business that they've asked us to really take an interest in and to grow with them. Obviously, they're showrooms, right? 2,000 showrooms in North America. We've got expansion plans there. They're a leader in digital, right? I think it's like 90% of the consumers that go to The Home Depot visit the dot com first, that's obviously a part of our growth, too. The final is the Pro business, which is their commercial replacement and new home business inside of Home Depot, that's very much aligned with our contract strategy and formula. All three of those segments within a Home Depot, we are participating and plan to participate more.
We have one more here in the front.
Hi. I wasn't sure I correctly understood, when you talked about your transformation through process to be able to service commercial and contract, you made it sound like you were still in the process of that. I just wonder if you could kind of clarify a little bit what that means. Also with regard to your ICON and your very, very high-end line, is that going to be a completely different channel? Could you talk maybe a little bit about what that'll look like?
I'll take the ICON piece, Jonathan?
Okay. The commercialization of our businesses, obviously, it was not a requirement to have this as part of our go-to-market strategy for Home Depot. If you don't have a model that fits their service model, you just can't do it. We now have that. As we grow and as we target growth in the single family home, absolutely, we're going to use that in every conceivable market to gain share and to grow our contract business, which again, we believe is a significant growth opportunity in North America.
In terms of ICON, I sort of lump that in with Electrolux, but very simply, that's part of where we see growth opportunities for us. From a channel perspective, it is two areas that our real focus are certainly within the more independent dealers, big part of that, and it's also part of this contract expansion as well.
On the subject of online, I will test here if we can get questions that are hooked up from, basically Europe here. Operator, can you hear me?
Yes. If you'd like to ask a question, please press zero one on your telephone keypad. We have no questions at this time from the telephone.
Okay, we will continue here in New York then.
Hi, there. Question on the two different channels in North America. First one, Sears, 30% of your sales. Just wondering if you can basically, one, tell us maybe profitability for that channel. Secondly, I think Sears is closing stores in a big way. How do you think about maybe shrinking that business? Maybe just more color on, say, within that Kenmore brand, what is your, say, market share? Are you sort of a dominant that sort of a Kenmore in terms of manufacturing? Thanks. Same, literally same question for the dealer channel, but why don't you finish the first question? Thank you.
Well, first of all, the slide that Mark show, that is not the mix of our sales. That is really about the mix of the retail share in the marketplace. Sears is, has been and then is, and will always be a very good customer of ours. you know, just we have to remember that 30% of the core appliances still shipped by When shopped by consumer, that Sears every day. that's, they will always continue to be a good customer of ours. What's the second part of your question?
No, second part is, I ask about the Kenmore brand. Literally, that's a sort of the quote, unquote, "only brands" sold in Sears store. I believe you are one of the manufacturer or outsource manufacturer of some of the category. Just talk about sort of, are you sort of dominating certain category, cooking or refrigerator, or you're basically manufacturing literally everything for Kenmore brand? Thank you.
No, we are, of course, one of the many manufacturers that participate in the manufacturing for Kenmore and cooking. That's our one of our key core competencies, and we are the manufacturer. Also, Sears stores sell other brands besides Kenmore, and we do participate in that as well.
I believe you had a question about dealers, too.
Yes, just maybe profitability. How should I think about your customer? Are they just a smaller, say, mom-and-pop's store or say, the smaller regional-
Right. Well, as we talked earlier, the transformational supply chain allows a dealer who typically sells a really good mix of goods. It allows us to get that product to them just when they need it. That's a really big component of our growth strategy that we didn't spend a lot of time talking about because we spent a lot of time talking about contract and The Home Depot. That dealer business will also be pulling a lot of products that we place there, a lot of our packages that we place there, in that regional distribution center, they'll be able to access. So we're very excited. I think TraQline would indicate that there's actually been stability and growth within that dealer channel, in the last few reportings.
We have one question in the back.
Yes. Can you talk a little bit about air conditioning business? It wasn't discussed. I'm just curious about growth and profitability.
Well, of course, the air conditioning business is really very, very highly dependent on how hot the weather is. As you know, most of the United States, particularly here in Northeast, have been very wet and then cool for the first five or six months of this year. As the industry, in the second quarter, in terms of unit shipments, declined by about 17%. We have the leading market position in room air condition. We actually, it's for our business, for the second quarter in $ term, as we, it declined by 13%. It certainly is a, it's a big part of our business.
David here.
Yes, we do make money in the air conditioning business.
Jack, I was kind of intrigued by your 4% growth estimate for 2014. If you look at the history of cyclical recoveries in the appliance business in North America, they're typically double digit for two to three years. Coming out of the 80, 81, 82 downturn, we actually got 30% growth for almost a year. Are you seeing something that is causing you to be by those standards, exceptionally cautious, given this downturn is probably the greatest downturn since the World War II. What's causing you to be so cautious there?
Well, I think what we're saying is anywhere from 4%- 5% shipments in the second half. Really about, we, of course, and we're optimistic about the growth in new home construction, and as well as existing home sales and so on and so forth. But, you know, with still the impending interest rate increase that really been the talk of the for the past few weeks, that we have to really have to be watch out for that.
The other question was just on pricing discipline. You mentioned that people are practicing a little more pricing discipline in this recovery. How far can that extend into the recovery cycle? Would you expect, given your experience in this industry over the years, that as volumes come back, people get a little more aggressive, they got some capacity they want to fill, or are people just so lean on capacity now, having reduced their break-even points, that they don't feel that same kind of pressure, and this rationality can continue well into the recovery phase?
I think as we move forward, just like what I shared with you in the final slides, is that it's really important for us to focus a lot more on the consumer behavior, how they buy it, and really provide the right solution for them. With the 60% of the consumer who buy appliances every day because their appliance is broke, yeah, that translates to around 72,000-74,000 core appliances are broken every day, and that consumer have to go out and replace that refrigerator or the oven and so on.
Then, and then once they go in and buy a refrigerator, if we merchandise it correctly, with the right visual brand language and look more like a, the whole kitchen, then that would encourage that consumer then to buy the whole kitchen. They went in to buy one unit, but walk away with the whole kitchen. That is the type of merchandising category management that we're trying to bring in, into our discipline now, to really manage price mixed together as the economy recover.
Just to follow up on that question, one of the things that's hard, sitting in our seats as analysts is to determine what the real replacement cycle is for an appliance. It appears that throughout the downturn, it seemed to have lengthened. One of the things that should happen as you improve the quality of your product, is that it should lengthen. The sort of standard seven to 10 years, is there anything that you guys track and are seeing in your business that suggests that that's either shorter, or longer over the last, call it, 10, 15, 20 years? If it is longer, it would actually explain why there is, why there is not as much growth at the onset of this recovery versus others.
I think, you know, yes, your question is correct. As the quality get better, the life of appliance is going to get longer and longer. Just like any consumer-driven industry, the key is that how do we spur demand based on the impulse? How do we build more design, better design, better-looking appliances that consumer wants it, that I need that, I want to have that beautifully designed kitchen suite in my new home.
That's really the, is the challenge and a great opportunity for our company, is really to bring thoughtful designs and innovation that are more relevant to the needs of consumers today, so that we would encourage them to go out and replace their appliances more often rather than wait for that last burner to go dead before they have to go and force and go and buy a replacement. In general, we kind of look at between eight to 10 years per unit in general.
Can you please repeat that again?
What is your average life of appliance today? You said eight to 10 years, but I'm curious what your answer would have been to that question in 2003.
Would be about the same. The performance and then the quality that we put into our product would be about the same.
Okay. Thank you.
Yep. We have one more question here as well.
Just two questions about market position. I guess first, how has your market position changed in terms of more luxury categories? Secondly, just on the Korean manufacturers, you know, more recently, how has their position changed, up, down, or unchanged? How do you see their position going forward?
Well, I mean, I can speak about our position. Certainly, during the past 12 months, we've been gaining share in our core categories, in the refrigeration, cooking, and freezers. And our positions in the laundry categories is has been tenable. We have lost some share there, and we intend to reinvest in a lot more in that category to really bring our position back. In dish, we're about flat. I think you can go and I think you can ask the Korean that one.
Yes. yeah, Charlotte, you can take that.
You indicated that the induction technology faces a significant amount of consumer resistance or ignorance. Can you talk to how you overcome that? You know, how do you do that at the digital stage when the consumer is still in her home doing research?
Yeah, induction, very simply, has had, I think, two big inhibitors in the U.S. market. One's been price. We're now, for example, the range that I highlighted before was, we had induction as a freestanding range under Electrolux before. It was about $3,000. That new range will be under $2,000. We're getting much more into the mainstream. The second piece is around consumer understanding. Consumers haven't understood what induction is all about. The TV is one component of it, digital, you will see as we introduce the product into the market, it starts shipping in the next couple of months, it will have a huge digital element to it. There's a question earlier about what we're doing in stores.
Jack mentioned during his presentation, we have significantly increased the number of feet on the street we have from what we call field support, which is essentially in-store training and in-store merchandising. We'll be doing a lot in that, both to educate the floor sales associates, as well as make sure it's really effectively communicated in the in-store environment.
Yep, David?
If I could just ask one more. Jack, can you talk about the trade cases? I hate to keep harping on this pricing thing, but could you maybe comment on them with respect to the extent to which you believe they're bringing about a more rational pricing environment in the market and sustainability of that condition?
Well, I think what I can mention here is that with relative to anti-dumping, yeah, relative to the laundry categories, it is a, you know, it is right now a small business in our portfolio. So it's really hasn't affected us that significantly. But this is the category that we are fully committed to grow. Our growth here is really more so how do we come back with better innovation, better designs in our product line to, and better serve our customers and consumers at these new designs? The... You will be seeing a lot more of that in the near future.
Hi. I just have a couple questions on the contract channel growth. When I listen to you talk, Mark, you sound very bullish on the growth prospects, but when I look at the graph, it looks like most of that gain in contract channel share as a part of the market is in the past rather than forward, based on your projections. Am I missing something? I mean, is there more upside than is showing up in the pie charts in the presentation potentially there? My second question would be: In that channel, is that a higher or lower margin channel for you than the indirect? Thanks.
Okay. The charts that we showed were two charts. One chart was illustrating the difference between multifamily, which had led much of the volume in the new construction and commercial replacement business in the past few years, couple, three years. The dynamic growth, this is through the market, these are market forward-looking documents. The market is suggesting that the growth of single family is explosive, 160 some % between 2011 and 2015. We really expect that information coming directly from the market and from the folks that provide the data. I believe that's Hanley Wood that provided that data.
You know, we are aligned with their expectation. We believe there's going to be significant growth, primarily in the single family. For the single family? Well, the contract channel is a great channel to participate in. You see the dynamic growth. Obviously, the cool thing about the contract channel is we get to use the same supply chain that we use for Home Depot and the dealers, but we also get those packages and upgrades. We get great mix out of all of our channels, and we get great mix from the contract channel as well.
The answer is yes. Our gross margin through the contract channel is higher.
Are there any more questions in the audience here? I will try again with the operator and see if there are any questions from that side. Operator, do you hear me?
There are no questions registered on the phone.
Okay, thanks. We'll continue here in the audience.
You referred to $100 million of Memphis and other costs impacting in the near term. You also indicated that the new factory will be significantly more flexible and automated. Can you talk about the impact that the full utilization of the Memphis facility will have on your margins?
Well, our, I mean, it's, our, what we would expect of, we have net savings once, the, our Memphis plant will be in full production. We just prefer not to disclose that, how much right now. Any more questions? I guess not. Before we go for lunch here, and you all had the opportunity to look at the products and talk to the management here, from North America same time, I know that Keith would like to have some closing remarks here, before we go for lunch. Please, Keith, I know you want to say something.
Okay. Thank you, Peter, and thank you, Jack and North American team. Let me just close the day by, one, saying, thank you to everyone here that took the time to come and listen to us and hear what we're doing. I know this, because you have interest in the company, we appreciate that, so thank you for your time you've invested. The other thing I'd say to you is that, you're seeing record-level performance, in our North American business, and you're seeing that improve, quarter by quarter over the last several quarters. Part of what I was hoping for today, and I hope you get out of today, the investment of your time, is that's not by accident. It's a function of, yes, the market's rising, that's a good thing.
The tide is rising, the housing market is recovering, as we had communicated over many, many quarters, that at some time it was going to come back. It is coming back. The U.S. economy is coming back, and appliance demand is improving. The performance you're seeing in our business, to me, is a function of talent, passion, and focus, and attitude. I'll give you one small story that I remember having a conversation with Jack about a year ago or so. I said, I'm like: "Jack, I don't get this." I said, "I was in that business, right? So how are we raising prices like this and gaining market share at the same time?" He looked at me and he just said: "Well, you know what?
We were talking to our customers and realized that we're every Sunday, we're promoting products that we both lose money on. We went to our customers and said, 'You know what? Maybe we should stop doing that and be more focused and determined on our promotional campaign, and promote products that we both make money on.' I said, "Okay, Jack, go back to work. That's the end of that story. Somebody should have thought of that sooner," right? It's actually, you know, in some regard, lots of questions around pricing. It's actually a little bit of, "Hey, let's have a fresh set of eyes on this thing, and let's just, let's start doing a little bit of less dumb stuff," right?
Like throwing lots of money every week to churn volume with a demand that's not price sensitive in a big part of it, right? It's that type of, I think, intelligence, and I think a key part of that is how this team is working with our customers and the entire value chain, whether that's retail, or channel, or builders, or depot, and bringing value to the marketplace that makes them, our customers, more money as we make more money. That's my summary on some of the questions on how are you getting this kind of intelligence. I think it's just bringing more common sense and intelligence to the marketplace with our customers. Thanks again for coming. We appreciate you all. Thanks for your interest, and hopefully, you'll have the opportunity to break bread with us.
We got some great products out here, if you got a few minutes, and we got some people who would love to talk to you about them and show you some of this cool innovation. Thanks again. Appreciate it.