Accessories Bask In Glow Of 2006 Profit Spotlight

By Jeff Malester On Jan 5 2006 - 8:00am

The dual specter of climbing interest rates combined with stifling energy prices — colored even darker by the ongoing war in Iraq and the tragic consequences of last year’s hurricanes — could have some lingering effects on the consumer electronics business in 2006.

Yet, despite some expected CE clouds during the coming months, the industry’s accessories arm stands to become a bright beacon for both retailers and consumers alike.

With margins for high-tech CE hardware tightening as prices decrease, add-on accessories products take on significantly more importance because of their potential profit contributions and bundling affinities. An explosion of flat-screen TV sales also opens the door to a booming array of correlative audio and video accessories that tie mainly to the newest in widescreen and HDTV products.

Standouts among the hot accessories categories — home entertainment furniture, mounting systems, mobile headsets and storage cases and bags — are finding more retail space and marketing opportunities, while category basics — namely remote controls, rechargeable batteries and optical blank media — continue to expand sales through their inherent benefits attributed to increasing technology and more attractive pricing and profit.

A number of CE accessories-maker execs were asked to look into their crystal balls — primarily as to what retailers can expect from the accessories business in the next 12 months, and secondarily, how each manufacturer expects to contribute to potential sales and profit.

Accessories exec forecasts and the roles key companies will play in the year’s business results follow.

In spite of the war, the hurricanes and rising fuel costs, the outlook for the CE accessories business couldn’t be brighter, said Kent Shiplet, marketing and sales executive VP at Jasco Products, headquartered in Oklahoma City.

“While there are plenty of reasons to look at a cup that is half empty, the explosion of current and emerging technologies will fuel CE accessories sales throughout 2006. History indicates that CE accessories sales often do well during challenging economic times,” Shiplet said.

Jasco expects to be focusing on a number of themes in 2006 and beyond for its GE-brand accessories line. One has to do with “all things digital.” To no one’s surprise, digital CE products have exploded into the marketplace. These technologies have changed and enhanced consumers’ lives. This has also provided an endless number of accessories product opportunities.

Jasco, which believes many consumers are still confused regarding the analog-to-digital transition, is making the effort to educate and reassure the consumer, which should translate into sales.

Through convergence, technologies continue to come together at a rapid pace, with the consumer the winner, noted Shiplet. The PC has become a centerpiece of convergence with MP3 music and digital video and home automation/security. Beyond data, the laptop has become a mobile DVD system.

“We believe 2006 will be a record year for the sale of products that are positioned for the protection of property or personal safety, where people can satisfy their need to feel secure,” continued Shiplet. “Americans have a growing concern for the security of their families and their homes. Consumers will seek to buy products to provide this security at many different retail channels.”

To this end, Jasco is launching several new products in its GE SmartHome line, including wireless video surveillance systems, IP cameras that can provide video security to remote locations via computer and personal security kits for use at home or while traveling.

“War, devastating storms and skyrocketing energy costs will make for an unsettled U.S. economy in 2006, impacting retail sales negatively, particularly for middle-class shoppers and for higher-ticket purchases,” said Don Patrican, executive VP at Fair Lawn, N.J.-based Maxell Corporation of America.

“But those same conditions may prove to be stimulus to the media and accessories segments of the consumer electronics business as consumers postpone vacations and luxury purchases and spend more on home entertainment to make their family life richer and more fun,” said Patrican.

In addition, Patrican expects new, sharper pricing on DVD camcorders, recorders and media — that first appeared in the fourth quarter of 2005 — will add fuel to the stay-at-home trend throughout the coming year, making home-entertainment purchases an attractive option for discretionary spending. For example, on-ad, entry-level prices for DVD camcorders were $399, and set-top recorders were advertised at $99.

“In unsettled times, people tend to make themselves feel better with purchases that add richness and variety to family experiences, and our industry’s products — such as DVD camcorders, iPods and DVD recorders with their attendant accessories and media — certainly fit that bill, especially at attractive prices,” he said.

Another trend retailers will need to focus on in 2006 is the migration of DVD from data storage applications to home entertainment uses, and the implications that has for brand awareness, said Patrican.

In 2005, the percentage was 60-40 data-to-home. This year we expect the exact reverse: 40 percent data storage, 60 percent home entertainment, he noted.

“And in home entertainment, consumers strongly prefer brands they associate with that segment. When videotape was introduced, consumers looked for brands they trusted in audiotape. The same was true with CD-R, and the pattern is repeating itself as DVD comes increasingly into the home. This is especially true when consumers are recording activities with family and friends and other content they want to save forever.”

“The outlook for the accessories business remains stable for the upcoming year in light of the continued demand for HDTV and the components that provide an enriched digital entertainment experience,” said Sharon Vernon, general manger/home networking accessories at Indianapolis-based Thomson about what can be expected from this business segment.

The Consumer Electronics Association is projecting digital TV sales of 15 million units for 2005, more than double 2004 results and suggesting even greater potential for sales of related accessories products. “This is an especially strong opportunity for such products as Thomson’s RCA brand with a complete line of HDTV products, including audio/video hook-up cables, HDMI and DVI cables, and HDMI to DVI adapters,” said Vernon.

RCA’s new line of HDTV antennas is designed to address changing design trends in television, with the emergence of DLP and LCD.

“As consumers acquire more sophisticated home entertainment systems, they are also discovering the convenience of learning and programmable remote controls that manage multiple components from a single source.

“Still another new growth opportunity for accessories products is emerging as consumers grow more aware of and more comfortable with wireless products,” continued Vernon. The rapid growth of cellular phones and portable MP3 players opens the door to wider acceptance of existing products such as wireless speakers and headsets along with next-generation wireless products such as Thomson’s Gyration GO Air Mouse that is compatible with both entertainment and PC products and equally at home in the air or on the desktop, she said.

“Having said all this, the industry cannot ignore the potential challenges to growth arising from natural disasters such as hurricanes Katrina and Rita, along with the related escalation of gasoline and energy costs. Without question, consumer purchasing decisions are being strongly impacted by these realities.

“The question will be how great an influence they will have, and the results of this year’s holiday sales season will provide at least a partial measure of this impact,” concluded Vernon.

“The fun thing about being in the consumer electronics industry is that it gets better every year,” said Brett Allsop, sales and marketing VP at Bellingham, Wash.-based Allsop. “It’s exciting. It’s fun.

“But for every technology that industry professionals introduce, a lot of consumers feel overwhelmed — Blu-ray vs. HD-DVD, an iPod introduction every six months, plasma vs. LCD vs. DLP — the list goes on. This feeling of being overwhelmed by change and complexity is behind the huge consumer trend toward simplifying your life, eliminating clutter and protecting the things you have.

“Accessories can help make it easier. Accessories can save people time. Products with style that don’t save time are the stuff of daydreams: 'Oh, maybe one day when I have some extra time …’ But stylish products that save time have instant and genuine appeal. The challenge is getting the consumer to recognize the benefit at the time of a big-ticket purchase,” said Allsop.

This need to save time is driven by rising consumer expectations in an economy where two income households are the norm and where most people have to work longer hours to sustain their lifestyle. Although no industry is totally recession-proof, consumer electronics has an advantage in an era of rising interest rates, a possible housing bubble, etc., continued Allsop.

“When money’s coming in, we all want new electronic toys. But when money’s tight, we hunker down at home instead of eating out and traveling. So maybe we talk ourselves into a new computer, big-screen TV or satellite radio anyway.”

“While it is difficult to predict the ultimate impact of world and economic events, we believe there are strong indicators that the consumer electronics industry is poised to grow in 2006,” said Eugene Lee, marketing director for Body Glove accessories at Itasca, Ill.-based Fellowes. Growth will be fueled by the continued expansion of consumer electronics platforms, the launch of innovative products and the emerging consumer emphasis on look and style, he noted.

“All of our lives continue to become more demanding and complex,” said Lee. Tied to this, success for the CE industry will come from CE accessories that improve, enable and enhance an individual’s lifestyle. Devices are converging, technology is becoming smaller, innovation is changing the landscape faster and style is increasingly important. The CE consumer is now educated as well as tech savvy, and values the benefits of innovation, said Lee.

CE accessories are expected to grow in the double digits during 2006. “Accessories that will lead the way include device storage and protection, headsets and wireless technologies,” said Lee.

“The consumer electronics industry faces both significant opportunities and challenges in 2006,” said Andy Youngs, marketing and design VP at Longmont, Colo.-headquartered Case Logic.

“With an uncertain economy, companies are still cautious about the rate of growth and expansion,” emphasized Youngs. Oil increases are hurting the entire supply chain — ranging from an increase in the cost for product, freight and ultimately higher operating costs — leading to lower margins and/or higher consumer prices.

“It is more important than ever to produce quality products that consumers both need and want,” said Youngs. To combat this, Case Logic is looking at continuing to focus on building simple solutions for consumers — if you give consumers what they want, they will buy regardless of the economy, he said.

Looking at the holidays Youngs predicts the trend toward shuttles/sleeves for handheld/portable devices will continue to be hot, along with larger capacity wallets and storage boxes for DVDs and CDs. While prerecorded music media is on the decline, consumers are still storing and backing up their collections on discs, he said. “We also think that consumers will be asking for simple and lightweight solutions for organizing their stuff and we will continue to work toward meeting these needs.”

Three words best describe the market in the year ahead — change, content and personalization — which will either produce tremendous opportunities for the consumer electronics industry or a major challenge for the consumer, said Ronan Ryan, product marketing director for Charlotte, N.C.-based Verbatim.

“Not since the bubble of 2001 has the industry been so active in reinventing itself with new technology, products and solutions. The major difference and the reason we believe it will result in sustainable growth is that the introductions are based on delivering true customer value and satisfaction,” Ryan said.

Thanks to the growing number of early adopters across the country, the industry has made dramatic strides in the way consumers are being empowered to develop, share, enjoy and most of all personalize the news and entertainment they receive, according to Verbatim.

“The growth of personalized content is creating a tremendous demand for storage, especially storage that is safe, secure and economical,” Ryan commented. “We have seen DVD media sales increase 100 percent over last year and all indications are that usage will continue to be aggressive for several years.”

American consumers will enter 2006 facing a number of economic uncertainties, but product innovation and falling ASPs will continue to drive CE and IT purchases overall, barring any drastic fiscal events, according to Cerritos, Calif.-based Memorex Products.

“Prosumer-grade digital cameras and notebook computers are two examples where steep price declines have been fueling an up-tick in sales in late 2005,” said Mike Golacinski, president/CEO, who commented at press time.

Sales of portable music players, and now multimedia players, have been fueled by innovative new product releases and will continue to grow well into 2006.

All of these indicators bode well for sales of digital storage products, such as optical media, as well as peripherals like USB flash drives, which themselves are also subject to lower retail pricing.

“This is the year of the digital camera, mobile phone and HDD/MP3 player. What is great is they all need accessories like headphones/head sets, adapters, cables, speakers and cases, to mention a few accessory products. As a result, the accessories business has seen and will continue to have strong sales growth,” summed up Mike O’Neal, CEO of Clifton, N.J.-based Philips Accessories and Computer Peripherals.

Another factor driving growth is the rising importance of the sales of accessories in a retailer’s CE business profitability. This has fueled greater interest in accessory categories resulting in wider assortments, more promotion and improved merchandising. “This has and we believe will continue to be a key factor in stimulating additional growth in accessories sales,” said O’Neal.

“However, retailers continue to demand improved value for their customers and they expect us to help.” This year the challenge has and continues to be tougher in many categories given the rising costs associated with raw materials costs for copper and oil. Particularly impacted are cables and wires where copper and plastic are large components, he concluded.

“We are still anticipating moderate growth in the consumer electronics accessories category for the coming fiscal year, despite a dip in consumer confidence in the face of such economic factors as the ongoing war in Iraq, skyrocketing energy costs, escalating interest rates and myriad other factors,” said Santa Rosa, Calif.-based Lowepro product manager David Hulsey.

Consumers are continuing to gravitate to consumer electronics retailers for their electronics purchases. Market saturation has slowed demand for point-and-shoot digital cameras, which will result in slower accessory sales for the PNS market. However the reduction in sales will be mostly offset by digital SLR sales and their accessories, continued Hulsey.

As for key product areas in 2006, Hulsey cites digital SLRs, notebook computers, mobile phones and digital audio players — “which will continue to be the growth leader in the hardware category, resulting in an up-tick for related accessories.

“We expect 2006 will be a growth period for us as we continue to expand into additional channels and product categories.”

Logitech sees two hot areas in consumer electronics over the next several months, one of which is accessories for digital-device platforms.

“Each time a cool new device like an iPod or a PSP hits the market, there is an instant new market for accessories,” said Collette Bunton, American region sales and marketing VP for Fremont, Calif.-based Logitech.

“Companies who offer innovative accessories that complement the device will see a huge boost in business, while those who repackage existing products for another platform may come up short. Fashionable and innovative accessories for the iPod and PSP will have plenty of steam in the coming months. And they should be joined by accessories for the new mobile phones with MP3 music capabilities, which should enter the market sometime during the year.”