Accessories Execs Look To Brighter Year Ahead

By Jeff Malester On Jan 9 2003 - 8:00am

It has been among the worst of times.

For one, it was a tale of West Coast cities, where, several months ago, docks were closed to the unloading of container shipments, including consumer electronics, leveling a distribution blow that had some impact early in the critical fourth quarter.

With the coming of the New Year, for another, the economic malaise continues to hang heavy in the U.S. and global marketplaces, causing softness at retail that is reflected in some sputtering of CE sales.

And beyond the ongoing economic pallor, the specter of war with Iraq continues to loom, threatening to throw the 2003 business into an even deeper funk.

How are key executives at major accessories product manufacturers holding up as they face the New Year's uncertainties?

With the economy looking to be soft in the coming 12 months, execs were asked which CE categories could be expected to give a boost to the accessories business, and why? And, what do they expect will be the overall trends in the CE accessories business in the first six months?

"We are cautiously optimistic on the first half of 2003, with several accessories categories driving the business — including remote controls, audio/video hookup, and media and imaging accessories," said David Geise, VP/accessories at Indianapolis-based Thomson.

"We expect to see increased growth in higher end LCD display type remotes as consumers seek to simplify the operation of additional home entertainment system components. The learning and macro capabilities of these advanced LCD remotes enhance the user experience and our sales in this category will continue to reflect consumer demand for this simplicity. Additionally, we look forward to maintaining consistent performance in basic remotes.

"The audio/video hookup category will also experience significant growth from higher end cables, as a result of growth in DVD, high definition television and HDTV set-top boxes. And, as DVD players are moved into secondary and third-tier rooms, the need to connect players to televisions that do not have composite A/V inputs will drive our RF modulator business.

"We also see growth opportunities in media and imaging accessories due to the continued strength of digital camera sales.

"While we expect the antenna category to remain flat, we are optimistic that growth is possible with higher level of HDTV penetration," Geise said.

"Accessories are only as strong as hardware sales," said Noel Lee, head monster at Brisbane, Calif.-based Monster Cable Products. "If hardware sales are soft for 2003, accessory sales will be soft as well.

"Because of this, we must fight harder and sell more aggressively, so that our retailers are able to make even more money on Monster products. This will stem the tide of any downturn. Monster is well positioned to lead this charge. While other accessory products may be soft, we intend to drive significant increases for our partner retailers," Lee said.

"The year 2003 will continue to be a challenging one for retailers as the economy and world events unfold," said Merrell Tomlin, executive VP/global sales at Madison, Wis.-based Rayovac and president of Rayovac Canada.

"I believe business activity in the first half of the year will be a little sporadic, but should pick up in the back half of the year. I feel strongly that the battery category will be one of the bright spots in consumer electronics accessories in 2003.

"We see from market research that the battery category is starting to return to its historical pattern of 5 percent to 7 percent annual unit growth. We are also starting to see a slight easing of the intense promotional activities that have tempered annual dollar growth rates.

"In addition, I believe you will continue to see a pattern by consumers of purchasing alkaline for everyday use and purchasing rechargeable batteries for certain high-drain, high-tech consumer devices, such as digital cameras," Tomlin said.

"The broadband sharing networking products should provide a continual boost to the accessories business in 2003," said Eric Tong, director of marketing and product development at Compton, Calif.-based Belkin.

"With greater focus from the MSOs to promote cable/DSL services, wired and wireless networking should continue to grow. Additionally, various services, such as video streaming and MP3s, should continue to raise awareness and demand for high-speed Internet access and the ability to share broadband among multiple computers.

"Bluetooth should also contribute to accessories growth as wireless phone manufacturers begin to ship more Bluetooth-enabled phones. As the costs come down on Bluetooth and wireless networking (802.11), demand for these technologies will go beyond the innovators and early adopters and into the early mainstream audience.

"With analysts' predictions of flat growth for PC sales, consumers will be looking for various enhancement products that will further increase the computing experience. With the right designs and functionality, computer accessories companies have an opportunity to capture the user's interests in productivity enhancing type solutions.

"Mobility accessories will also continue to grow as notebook growth is set to outpace desktop growth, and the trend of being 'on the go' will continue," said Tong. "Solutions geared toward the mobile user will continue to grow with items such as Bluetooth, hands-free kits (as legislation continues throughout the United States), security and other mobile accessories."

"Now more than ever, consumers are using computer accessories to create, edit and archive video, music and photos. This will provide a great boost to the industry as a whole, and will continue to be a strong contributor to our sales," said Michael Golacinski, president/CEO at Santa Fe Springs, Calif.-based Memorex Products.

"Our full line of recordable CDs, DVDs and flash media offers affordable options for consumers to transfer photos or video to create and store digital, secure scrapbooks or home movies. Combined with our complete line of Memorex label-making accessories, consumers truly can create finished, professional-looking albums and DVDs.

"The mainstream adoption of new technologies will provide for higher performing products at more affordable prices in the near term. Technological advancements in software also will contribute to the ease with which consumers can create digital scrapbooks and home movies.

"Memorex's wireless keyboards and mice, as well as our faster CD and DVD burners, are oftentimes bundled with software, making these products an even greater investment for consumers to digitize their memories. Overall, Memorex expects to continue to see strong sales in 2003."

"The following consumer electronics categories will give a boost to the accessories business," said Fred Creamer, national sales manager at San Diego-based GE/Sanyo.

"The pre-paid cellphone market is a major growth market for the future, with 50 percent of people in North America having cellphones, and 58 percent of these 22- to 38-year-olds (the X & Y generations.) Because of their age, they often have not established credit yet. And 48 percent of those who apply are denied credit because of lack of a credit history.

"In the past, pre-paid programs offered older technology phones which were anything but 'cool.' Cost per minute was 3 to 4 times higher than contract programs. But there are new programs being offered from companies like Virgin, which offers 'cool' phones and cost-per-minute plans which is getting closer to contract programs. They are targeting the X & Y generation, which is the fastest growing market segment. Currently there is low penetration, so the opportunity is great. This meets the needs of the low-end market segment and of course these phones will need accessories — cool looking, low price point.

"On the high performance end, there are the new GSM and GPRS phones. GSM offers 'cool' features like Bluetooth. Examples include Sanyo's 5150 large color LED screen, and Sanyo's 5300, the company's first with camera capability. GPRS with Internet connection offers new opportunities for accessories from these high-featured phones. Bluetooth headsets are new products, which will allow you to convert existing phones to use a Bluetooth headset.

"In the first half of 2003, we foresee continued growth of the accessory business for wireless communication devices. This means not only new tri-mode phones, but also another segment called Pocket PCs. BlackBerry and Microsoft are currently making these wireless handheld communication devices. They will need accessories like headsets, etc," said Creamer.

"As mobile computing devices become an indispensable part of business and professional life, the keywords in accessories are power and convergence," said Brett Johnson, president of Anaheim, Calif.-based Targus Group International.

"Today's road warriors desire solutions that are lightweight, efficient and multi-functional. For example, Targus Universal Auto/Air and AC adapters replace several bulky, space-consuming chargers with a single, ultra-thin power source for laptops, cellphones and PDAs. Moreover, consumers are looking for smart, nimble products that maximize productivity. Targus' newest USB 2.0 high speed 4-port hub transfers data at record high speed and features a 6-ft. cable to adapt to any work environment."

"Three key product categories will generate the highest growth during the first part of the New Year — camcorders, recordable DVD and CD-R," said Peter Brinkman, marketing VP at Fair Lawn, N.J.-based Maxell Corporation of America.

"The camcorder category is one of the most dynamic in the blank media industry. It is the growth engine for the entire blank video category. The camcorder category as a whole is showing growth, but the digital formats — Digital-8, MiniDV — are performing best. In fact, as new camcorder formats have been introduced to the market, they have expanded the category, bringing in new camcorder consumers and graduating established consumers up from analog to new digital formats. A prime example of the category naturally extending itself is the introduction of the new DVD camcorder video format. This is further evidence of how the category constantly refreshes itself.

"Another successful component of category growth is the popularity of larger pack sizes that are attractive to both the trade, because they represent a higher cash register ring, and to consumers because of the greater value they represent. And it's not just the media that's growing, it's the complementary care and maintenance accessories and after-market camcorder batteries as well. The entire category is performing at a very high level and should lead sales growth in 2003.

"The new star of the entire media category in 2003 will be recordable DVD media. The confusion over multiple-formats is beginning to clear. In addition, hardware strategies, both for product and pricing, are becoming more focused, raising consumer awareness for the category.

"In addition, we are seeing a commitment on the part of retailers to devote expanded shelf space for a greater variety of DVD products and to promote them aggressively, which further enhances consumer awareness and drives sales. We anticipate that, in many ways, the growth of recordable DVD will mirror the CD-R growth curve. The category is made even stronger by the fact that we are already finding that DVD care and maintenance accessories are demonstrating exceptional sales growth and will continue to add incremental sales and profit opportunities for the trade.

"The volume engine in the blank media category continues to be CD-R. A key development propelling the CD-R business is the pronounced consumer demand for larger pack-sizes for both CD-R data and CD-R music products. Consumers are seeking a broader product selection including larger jewel-case and spindle configurations as well as color media. This fact, coupled with aggressive promotional advertising programs for media will continue to provide greater volume opportunities for the trade and more value for consumers. Additionally, CD-R care, maintenance and storage accessory product sales are through the roof. Merchandising and promotional strategies that feature both CD-R media and accessories will generate fantastic incremental sales and profit gains," Brinkman said.

"One of the most consistent areas of growth and profitability for consumer electronics accessories continues to be power accessories, namely rechargeable batteries and battery chargers," said Martin Goldberg, CEO at Camarillo, Calif.-based Lenmar Enterprises. "It is one of those recession resistant categories that always does well in both up and down economies and offers good margins for dealers."

Spurred by technologically advanced products, as well as opportunities in the key camcorder and digital camera markets, battery and charger maker Lenmar projects a sales increase of 28 percent in the coming year.

"Extra batteries and fast chargers respond to the consumer's fear of missing that memorable moment," continued Goldberg. "They want a backup battery and the ability to quickly recharge both at home and on the road. Two CE products that really drive this are camcorders and digital cameras. With over 30 million camcorder units in the market, many are in need of replacement batteries, and consumers are looking for availability and improved technologies when they buy.

"On the other hand, digital cameras are a new, dynamic market both for consumers and businesses, with a projected annual growth rate of 50 percent through 2005. Digital camera battery life almost dictates having a backup battery and fast charging capability. For businesses, the cost of time lost far outweighs the cost of additional batteries," he said.

"We strongly believe that the boost will be in home entertainment, such as DVD players, CD players, stereo systems, TVs and other media equipment," said James Dardashti, VP/general counsel at media storage maker, Santa Fe Springs, Calif.-based Atlantic.

"Our belief is that when the economy slows down, consumers usually sacrifice by not going out as much and instead spend more time entertaining at home. They are already paying rent or a mortgage anyway; why not make their home a great place to relax and entertain? Consumers will want to accessorize their home by buying a cool entertainment system and by having a conversational piece, such as an interesting place to store their CDs and DVDs.

"Also, our target market for the most part is geared toward a younger demographic (8 to 25 years old), and they don't care about the economy's upswings and downswings. Parents will always do their best to keep them happy and make them feel special, especially in down times.

"The tone will definitely be positive, not just in the first half of the year, but throughout 2003. Consumers might not want to extend themselves to buy a new house, a new dining room table or a new couch, but they will look to buy less expensive items to satisfy their spending needs, such as CD and DVD organizers, or other home media storage products.

"In addition, impulse items under $100 will be popular, such as Atlantic's CD racks or DVD cabinets. Media storage products are the perfect impulse items because they allow consumers to watch their spending, while still feeling like they are rewarding themselves for their hard work."