Summary of Key Points
In the new cooling season for air conditioners in 2026 (which began in August), the industry, which has followed a certain "opening" pattern for over 30 years, has seen its first divergence. Gree, Haier, and Hisense continue to use this approach to encourage dealers to make payments and stock up during the off-season. However, Midea has completely abandoned this practice and shifted towards a retail model that focuses on sales rather than inventory accumulation. This change reflects the industry's entry into an era of competitive balance—high inventory levels, declining sales, and increasing costs, forcing companies to adjust their business strategies. Midea is adopting digital technologies and direct customer engagement (DTC) to streamline its operations, while traditional firms are struggling due to the burdens associated with their existing distribution channels. In the future, streamlining these channels will become a major trend.
Detailed Analysis
1. What is "opening"? Its essence is a mutual agreement between manufacturers and dealers during the off-season
The "cooling season" in the air conditioning industry spans from August to July of the following year (with summer being the peak sales period, so inventory needs to be stocked in advance). "Opening" involves manufacturers offering incentives (low prices, rebates) to persuade dealers to make payments and purchase goods during the off-season, which allows the products to remain in the dealers' warehouses.
- For manufacturers: This ensures early access to cash flow for purchasing raw materials and scheduling production, reducing financial pressure.
- For dealers: It provides them with lower prices or rebates, potentially leading to higher profits during the peak sales season.
However, this strategy was effective in the "growth era" when the air conditioning market was expanding continuously; now, with stagnant growth, holding onto excess inventory can become a liability.
2. Why does Midea dare to change from an inventory-driven approach to a sales-focused one?
Midea's decision to stop using the "opening" method is not due to high inventory levels (in fact, their inventory turnover has improved by 10%). The underlying reason is a shift in their business strategy:
- Shift from focusing on inventory to focusing on sales: Previously, dealers were evaluated based on the amount of money they invested and goods they purchased; now, performance is measured by actual sales.
- From policy-driven to product-driven: Midea no longer relies on incentives to drive dealer purchases but instead focuses on producing high-quality products that attract customers.
- Digital support: By using a nationwide inventory management system, Midea allows dealers to order goods as needed, eliminating the need for excessive upfront investment and reducing financial and logistical burdens.
Midea believes that the "opening" approach was suitable for a growing market but is no longer effective in an era of stable demand.
3. Why do Gree and Haier still use the "opening" method? Traditional channels are heavily reliant on existing structures
Gree and Haier have large, established dealer networks that are difficult to change quickly:
- Incomplete transformation: They are trying alternative strategies such as trade-in programs for sales promotion or demand-based supply, but these only provide partial solutions.
- Dependence on dealers: Although dealers were once motivated by rebates, the current weaker rebate policies have led them to prefer more flexible options (such as selling products immediately after purchase without waiting for monthly/annual payments).
- Different pace: These companies acknowledge that they cannot adopt Midea's model entirely and are working at their own pace due to the complexities of their traditional channels.
4. How difficult is the industry currently facing?
The air conditioning industry is experiencing unprecedented challenges:
- High inventory: Poor weather in some regions has led to unsold products, and chain stores are still trying to clear excess stock.
- Declining sales: Domestic sales fell by 5.6% (62.82 million units) and exports by 6.8% (52.70 million units) in the first half of the year.
- Increasing costs: Rising prices for raw materials, shipping, and tariffs are squeezing company profits.
- Price competition: Manufacturers are cutting prices, leading to a shift towards cheaper products.
- Impact on suppliers: Suppliers are also reporting significant declines in production and sales.
5. What is the future trend? Will intermediaries become obsolete?
Online channels are becoming more prominent, reducing the role of traditional intermediaries:
- Streamlining distribution: A new model may emerge where "factory stores" provide direct sales and after-sales services along with logistics, eliminating intermediate steps.
- Dealers' transformation: They will shift from being inventory holders to providing value-added services (such as installation and maintenance).
- Direct customer connection: Manufacturers will use digital technologies to better understand customer needs and deliver more tailored products.
In summary
The air conditioning industry is transitioning from a model where manufacturers push goods onto dealers for sale to one driven by customer demand. Midea has taken the lead in this shift, but other companies are still in the process of adapting. In an era of stable market growth, those that can connect more closely with customers will be better positioned for success.