By Lisa Johnston
New products on display at the American International Toy Fair, held in N
The year 2004 heralds a definitive improvement in the U.S. economy, the perception of a holding action in Iraq and the easing of tensions promulgated by earlier threats of homeland terrorism.
This healthier economic/homeland quality-of-life prognosis, compared with 12 months ago, bodes well for the consumer electronics business, and follows hard on the heels of a strong boost for the accessories category from increasing sales of digital CE hardware.
In turn, these trends have helped grow the myriad collateral care and maintenance, hook-up and power-up, store and carry, and play and record accessories products that traditionally support the mainstream CE universe.
Top executives at all types of accessories suppliers, who track both their own and industry trends, were asked to predict first-half 2004 sales and marketing expectations in their specific categories — as well as the accessories business as a whole.
The following are projections from CE accessories leaders, who, while on the firing line, tend to be more optimistic, overall, than what they forecast one year earlier.
"We are anticipating and gearing up for more growth of the accessories category for the first half of 2004," said Richard Goldberg, VP/marketing at Maspeth, N.Y.-based Coby Electronics.
"We believe that growth in the category will be driven by portable DVD and small-screen-size TFT [LCD] television, wireless communication and hand-held computer devices, cellular hands-free wireless accessories and wireless audio accessories, primarily wireless headphones and speaker systems.
"We do not expect the growth in accessories sales to slow down at any point during the back half of 2004 or beyond. Accessories products should represent a profit center for retailers and generate margins that they are not able to enjoy from sales of the above mentioned product categories. For those retailers that are not interested in improving their margins, accessories can be utilized as value-added incentives to entice consumers into making a purchasing decision.
"We also believe that consumers will continue to become more sophisticated and that they will be looking to upgrade from the standard 'included' accessories to accessories with improved design and features that will enhance performance.
"Constant changes in portable products will persist in fueling consumer demand for upgrades. Merge this together with the need for add-on accessories and it will become apparent that the accessories category will strengthen and grow well into the future."
Blank media makers continue to benefit from the increasing sales of DVD-based digital hardware.
"The accessories and blank media business in 2003 was dominated by the continuing migration to digital formats in audio and camcorder recording, and the successful introduction of recordable DVD. These dramatic changes made it more critical than ever for retailers to manage revenue and margin growth by making changes in their SKU mixes on shelf. Those changes, coupled with the steady growth of accessory products and the hefty margins they deliver to the category, are the developments retailers have to balance and fine-tune as they go forward into 2004," said Don Patrican, executive VP at Fair Lawn, N.J.-based, Maxell Corp. of America.
"Accessories continued to grow in importance to retailers because of the margins they deliver. "We have been successful at integrating our accessories line with our blank media to create a larger recognizable brand presence. Of course, we were assisted in our growth by the significant change in the competitive landscape in accessories last year.
"In blank media, Maxell will continue to assist our retail partners with category management recommendations that maximize revenue and margins by helping them navigate the continuing transition from analog to digital formats and the arrival of recordable DVD.
"Specifically, we will help them deal with the dramatic decline in VHS tape sales last year and in 2004, due to the maturity of the format. VHS will remain a high-dollar category within the blank media mix, but aggressive promotion of recordable DVD hardware and media will dramatically impact the video recording portion of the business, as consumers are motivated to re-record their personal content and personal memories to this exciting new format.
"DVD will also impact the care and maintenance business, as consumers will want to keep their new recorders and recorded DVDs in the best possible condition.
"The biggest challenge for retailers in 2004 will be managing the blank media and accessories real estate, but those who fully commit to digital formats, including DVD, will be winners."
"The consumer electronics accessory business for the first half of 2004 is projected to continue to grow and expand," said Michael Golacinski, president/CEO of Santa Fe Springs, Calif.-based Memorex. "As such, we're upbeat about the business in the first half of the year. As new technologies are accepted by consumers, the products to accessorize these technologies will increase.
"DVD hardware and media will be big sellers during the holidays, so the accessories to complement these products will attach at the beginning of the year. Exponential growth is expected from DVD accessories, while CD accessories will remain the largest overall category.
"Memorex will keep expanding our line of accessory products, specifically in the DVD category. Our accessory business has grown consistently year over year, and we expect this to continue. Memorex accessories have been able to capitalize on our media, with various cross-merchandising and promotional tie-ins between media and accessories, and DVD should repeat the successes we've had with CD."
"The first half of the year will be a flurry of blanks, as high-speed and specialty CD-R media remain strong, even though there are signs the growth increases are less than in the past," said Ronan Ryan, director of marketing at Charlotte, N.C.-based Verbatim.
"For the second half, 8x DVDR hits its stride, as 12x and 16x burners and media loom on the horizon.
"In the first half, consumers increase their use of CD-R and DVDR for low-cost, video-production-ready home PCs. At this time, new non-PC looking computers take on the role of home entertainment centers. New entrants are low-cost DVD recorders that include 'standard' features such as electronic programming guides, delayed TV show capture and digital camera/camcorder downloading/storage capabilities.
"Also, in the first half, next generation dual-layer 8.5GB DVD+R burners and media begin to make their appearance to meet the insatiable storage demands of consumers.
"While firms like Forrester Research of Cambridge, MA, forecast the demise of permanent removable storage media — CD and DVD — with the advent of on-line content delivery, their projections of doom seem to run counter to human nature. Consumers will increasingly download documents, data, images, audio and video. However, they also want to have exclusive control of their 'stuff' which they want to store on safe, secure, removable, permanent storage media.
"This is why firms like Santa Clara Consulting and Magnetic Media Information Services (MMIS) note that more than 5 billion CD-R discs were sold last year, with shipments increasing to 5.5 billion units through the end of 2004 before sales flatten out. This past year more than 500 million DVD+/-R discs were sold and this will double to slightly more than 1 billion by the end of 2004.
"The challenge for the brand-name media manufacturers is to balance supply vs. demand of CD-R, while racing to keep ahead of the speed increases of DVD burners. We are already working, in the labs, in anticipation of the demand for 12x and 16x DVDR media.
"We are already working to move dual-layer DVD+R technology to the pilot production lines to gain experience in manufacturing the higher capacity 8.5GB single-sided media. We expect strong demand for this product when we begin shipping around mid-year.
"The rapid implementation of the easy-to-use USB 2.0 ports has also opened the door for a new category of Store 'n Go storage devices. The compact USB drives fit easily on a key chain and multiple units fit into the pocket. Next generation 10MB read/write units, which will be available after the first of the year, will be very popular in the 256MB, 512MB and 1+GB capacities. It appears that sales volumes will rise rapidly during the year and they will become increasingly affordable.
"As PCs become more versatile in the home as video, photo and audio production systems, and begin to encroach on the 10-foot experience space, CE manufacturers (and new entrants) will respond with more capabilities and lower costs. In many households, the home theater and DVD recorder will undoubtedly co-exist. Fortunately, they will both require removable storage media.
"The challenge will be to keep pace with the growing blank requirements. Burner and recorder manufacturers want to fill the blanks faster and faster. PC and CE each want to be major producers of the engines consumers use to write and read the blanks. People are increasingly demanding blanks that are high in quality, low in price and different."
Battery makers continue to benefit from a business spearheaded by alkaline dominance and the ongoing growth of rechargeable batteries and coordinated chargers.
Fueled by surging growth in high-drain CE products, rechargeable batteries are leading the battery category power play into 2004. Hand-in-hand with this, the newly developed strength for the fast-growing battery recharger segment has battery makers polishing positive connections to 12 months of increasing dollar volume and gross margin.
"The accessory business has been exceptionally good for Lenmar Enterprises for the back half of 2003," said Marty Goldberg, CEO of the Camarillo, Calif.-based company. "We expect strong growth for 2004, and here are two reasons why I believe accessories sales will soar during the next year.
"Margins for retailers continue to be squeezed on hardware. Retailers continue to seek profit opportunities to help their bottom line. Accessories have always been viewed as a high-profit category, but have been seen as difficult to balance the proper inventory mix.
"Today, more and more major retailers are implementing accessory add-on programs to maximize their selling margins. Companies like Lenmar have created effective management tools to allow click-and-brick retailers to achieve significant revenue dollars with high profit.
"Lenmar's battery-attachment-accelerator-program allows dealers to easily identify and sell the battery at the time the device is sold. Lenmar's retail model supports the hardware sale, while our proprietary battery-central virtual warehouse allows dealers to have confidence they will be able to fulfill the right power accessory for each customer in a timely manner with no inventory dollars and no risk.
"The customer is appreciative to the dealer for the service, while adding incremental revenue and profit to the retailer. Lenmar's model has been extremely successful in mass merchants, office supply stores and specialty camera retailers.
"Another reason is portable CE equipment is now a way of life for millions of people. Whether it is for communicating, information storing, digital imaging, video, audio, computing or entertainment, most everyone depends on their wireless equipment every day. Accessories are more important than ever to use and to enhance the operating of these portable CE devices.
"There is a constant hunger for battery power, information storage and transmitting data. Customers are demanding that the retailer support the hardware with the highest capacity memory card, the fastest battery chargers, the longest running rechargeable batteries and fastest wireless transmitters. Customers are more educated in accessories than they have ever been and seek the best-valued, highest-performing accessory products.
"It is not uncommon for customers to buy 2-3 extra rechargeable battery packs and 2-3 extra flash memory cards at a time to satisfy their digital camera requirements. People depend on their cellphone, PDA, laptop, digital camera and DVD as survival tools. Without portable, power consumers feel isolated and unproductive.
"In marketing terms, battery power will continue to surge since it is experiencing the sales executive's dream for push-pull marketing. Customers are begging for unlimited run times and dealers are screaming for higher margins. There is no better formula to maximize accessory sales."
"Rayovac believes 2004 will be a robust year for retail battery sales," according to Paul Tonnesen, VP/North America sales for the Madison, Wis.-based battery maker. "As consumers continue to fully embrace their portable lifestyles, batteries are growing in importance. Battery-operated devices are an integral part of our everyday life. Consumers want and expect their portable devices to work when they need them. Batteries sales will continue to grow to keep pace with this demand for portable power.
"Market data is showing that alkaline sales are returning to their strong historical growth trends. Rayovac also sees the trend of consumers buying larger packs of batteries to power up the ever-increasing number of battery-operated devices in the home.
"We also see women making more of the purchase decisions, and the value-conscious shopper is growing in importance. This is why we are offering our '50% more for the same price' alkaline strategy. It is in keeping with the market trends and represents real value to the consumer.
"In addition, we expect the rechargeable battery segment of the market to grow in 2004. Consumers are getting more accustomed to the daily pattern of recharging, and the advent of high-drain devices such as digital cameras is fueling the growth."
"GE/Sanyo sees a strong first half of 2004 for cellular accessories due to the following market drivers," said Paul Perryman, manager/business development at the San Diego-based GE/Sanyo segment of Sanyo Energy. "Mobile handset sales in 2003 are expected to be 98 million units, up 8 percent from 2002. LNP will drive a churn rate of about 25 percent of the subscriber base during the first 3 months after enactment. About 111 million mobile handsets are estimated to be sold in 2004, 14 percent over 2003.
"Car chargers will capture more than their fair share of accessory sales as consumers take advantage of LNP and buy new phones that require different power connectors. Headsets will also grow faster than the category, as more hands-free laws are passed, but not as fast as car chargers. A larger number of handset manufacturers now offer a standard 2.5mm jack for the headset, potentially making it unnecessary for consumers who already own a headset to buy another headset for their new phone.
"The tone for the cellular accessories market is to understand the market dynamics and be quick to market with differentiated products at a value to the consumer."
Companies, which concentrate on connection products, differ on recent business results, and direction for the coming months.
"Belkin expects the CE accessories market to show strong, positive growth for the first half of 2004, said Eric Tong, director of marketing and product development for the Compton, Calif.-based company. "With broadband adoption continuing to rapidly grow in both the DSL and cable modem segment, along with the strong growth in the digital convergence market, the consumers' thirst for accessories that optimize their user experience will be in strong demand.
"Belkin will be launching throughout 2004 a number of solutions that meet these 'digital lifestyle' needs, including a digital audio receiver and digital media receiver that will enable users to wirelessly access music, photos and video through their stereo system and TV anywhere in the home.
"Additionally, Belkin will be launching VoIP services in early 2004 that will enable users to have a full-featured phone service (caller ID, call waiting, call block, etc.) and unlimited local and nationwide long distance service through the users' broadband connection at a fraction of the cost of typical land-line phone services today.
"Belkin will also launch at CES a full product offering of audio/video power and interconnect solutions. Belkin PureAV solutions will offer consumers a choice of high performance products for their digital home entertainment systems at cost-effective price points. PureAV will consist of 10 to 15 SKUs, ranging from surge protection to rack-system UPS solutions, and 30 to 40 interconnect SKUs for all digital home entertainment and computing applications.
"Lastly, Belkin will continue its innovation in the MP3 player accessories market by launching a number of SKUs for the Apple iPOD, Dell DJ and others."
"In 2003, the accessories business leveled off after two years of astounding growth. And it now appears that the sales outlook for the first part of 2004 will remain flat. The consolidation and reorganization of a number of large suppliers emphasizes the fact that it's not easy to sell accessories," summed up Noel Lee, head monster at Brisbane, Calif.-based Monster Cable.
"In spite of the flattening of accessory sales, Monster did very strong business throughout 2003 and we are equally optimistic about 2004. Monster's M4 program continues to drive dealers to greater success, even with a downturn in the economy.
"In 2004, Monster will be expanding its expertise to the sale of other types of accessory products, such as wireless and photo, as well as driving the continued success of Monster PowerCells.
"Monster's brand-name image continues to be a leverage point for driving higher performance accessory products at high price points," said Lee.
With the spectacular growth of mobile phones, consumers are finding more comfort, convenience and safety with add-on headsets.
"Headsets have become a core component of today's personal communications, and we're going to see mass market adoption continue to grow in 2004," said Ken Kannappan, president/CEO of Santa Cruz, Calif.-based Plantronics.
"People are recognizing the value of incorporating headsets into all areas of life — at the office, on the road, in the home, for the computer and more. We're finding that, once consumers adopt headsets, they integrate multiple headsets throughout their work and lifestyle. People are looking for solutions that will allow them to move around and communicate at the same time.
"Headsets for cellular phones have become a major catalyst for headset adoption. Many people initially buy a headset for their cellular phone because they feel that they can drive more safely. However, once they experience the comfort and convenience a headset provides with their cell phone, they often purchase additional headsets for their home or office. We estimate that there are 18 million Americans using 38 million headsets, so the opportunity for repeat business and up-sell is substantial.
"As headsets have become part of this new mobile lifestyle and work-style, we've also seen a much greater focus on style and design. Last year we released an ear bud-style cellular headset, the MX100, which we specifically designed as a fusion of fashion and technology. It looks cool, is very comfortable and stable and sounds great. It's proven to be incredibly popular, and sold 1 million units in the first year. So this year we leveraged that same design, and created the MX150, which adds a noise-canceling boom for use in noisier environments. This headset has also been hugely popular, selling even faster than the MX100.
"Looking forward, we see voice command and control as becoming the future interface for voice communications. We have already seen that wireless products, such as Bluetooth, are becoming increasingly popular in the market. Once people are wireless, they don't want to fumble with dial pads, particularly when they're driving. They would much rather use their voice to issue a command, such as 'Call Bill.' The accuracy of that command is dependent on high-quality audio input, which is where headsets add value, and will play an increasingly important role in future communications."
The portable storage bag and case category maintains its effort to emphasize functionality and fashion-forward product in 2004.
"Consumers have shown a growing willingness in 2003 to spend on high-end personalized items like CDs, DVDs and burners. We expect continuation and acceleration in 2004 of this trend to be due in part from the desire of consumers to express personal creativity and individuality," said James Dardashti, VP/general counsel at Santa Fe Springs, Calif.-based Atlantic. "Atlantic, with its emphasis on high-end accessories is positioned to give the increasingly sophisticated and creative consumer the ability to highlight their creativity with unique products that say, 'Look, I am different.'
"Segment outlook for 2004 is optimistic — with the economy steadily continuing on its recovery course, and increased 2003 sales volume for categories such as portables and stand-alone CDs, DVDs and burners. This combined with the retailers' willingness to stock up on accessories, seen as high-margin impulse buys, in anticipation of strong holiday sales, are all indications that the CE accessories business is on the right track on the gateway of a new year.
"A consumer trend for customization and interactivity, on the other hand, will also be a huge boost to this market segment. The advances in CD and DVD burners as well as digital photography have all empowered the consumers to use their creativity in customizing and burning music CDs, DVDs; manipulating images, pictures; and most of all, allowing them to share all of this creative energy with family and friends.
"The advances in these technologies have made these products more user-friendly, and, at the same time, lowered the price points, allowing a wider range of consumers to participate. The strong 2003 gaming industry sales is expected to continue into 2004; another segment of the market that requires accessories.
"All these factors combined with 2003 sales trends and economic recovery will translate into strong sales in 2004 for the consumer electronics accessories segment.
"At Atlantic, the home media storage accessories line maintains the largest share of the business. The portable storage line continues to grow and will become a very strong segment of Atlantic's overall business in the near future. As a company, Atlantic's product lines for 2004 will be infused with more style, while offering the consumers the very intangible qualities that have shaped today's culture — customization, flexibility, share-ability and definitely portability."
"Going into the spring of 2004, SoundKase will be launching SK Girl! — the first-ever storage line designated to the action girl market. We will have a new line called the Rocker series, which will target the hard core, hip youth market. CamKase and Camsak will be complementing the SoundKase line with super innovative camera/audio packs and cases," said Kas Alves, VP/sales and marketing, at Oxnard, Calif.-based Scosche/SoundKase.
"Although, SoundKase was never short on innovation, seeing how we designed and invented the first 12 CD visor organizer in the mid-Nineties, it's the back-end deals that are hurting small, innovative companies like SoundKase. It's the large elephant-like companies who cannot execute their own designs and innovate quickly enough that will hurt the market. How, by giving away product at or below costs. That will kill the quality, design features and coolness of any company's products.
"Paying people to buy your product will only last a short while. It just doesn't make good business sense. You can do one of two things with your marketing strategy, pay people to buy products they really don't want, or make innovative, quality products at a great value people will buy.
"At SoundKase we will continue to [emphasize] design, creativity and innovation. The quality is expected in our brand and continuing our relationship with key accounts is our stronghold."
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.