By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Ring in the New Year, ring out the old.
Retailers, armed with a refreshed economic mandate from a second-term team in the White House, are ready to tackle everyday merchandising and promotional logistics generated by a new crop of consumer electronics accessories products.
Accessories manufacturers, at the same time, are rolling out an armada of what is expected to become the hottest selection of sophisticated offerings in years. Much of this outpouring will debut this week at the International Consumer Electronics Show in Las Vegas.
Despite the overall optimistic feeling that comes with the birth of a new 12-month calendar, the CE accessories business remains fraught with possible pitfalls that could put a damper on consumer spending and retailer and manufacturer gains — namely the rising costs for petroleum-based products and other raw materials, and the ongoing fear of terrorist activity that could trigger a potpourri of economic reactions.
To publicize the wide selection-dimensions of their current product lines, amidst expectations for the 2005 selling season, CE makers representing a diversified group of categories were asked to forecast just where and how the accessories business — as well as the CE universe, in general — is anticipated to track between now and next holiday season.
“Historically the accessories market has demonstrated strength, regardless of general economic conditions overall and the trend of the consumer electronics market specifically,” said John Falcone, Sennheiser's president/CEO. “Sennheiser's participation in this market is limited to the headphone segment, and here we are seeing a significant change from past business trends.
“For several years the headphone market has had nominal growth, 3 percent to 5 percent, yet for the past year we have seen the market growing at a double-digit rate, and we anticipate this growth to continue into 2005 and beyond.
“Overall, all segments of the headphone business are positioned for strong growth for 2005, and beyond, with double-digit growth being our expectation at least through 2008.
“This growth in headphones is being driven by a variety of factors, but primarily by the growing volume of portable digital players. With most of these players, pricing pressures have resulted in manufacturers providing the least expensive headphone possible, with a corresponding quality impact. Therefore, consumers are coming forward in record numbers for headphone upgrades, thus driving significant growth in the portable headphone category,” said the head of the Old Lyme, Conn.-based company.
“An emerging category, noise-canceling headphones, is enjoying tremendous growth, driven primarily by increased consumer awareness and more affordable price points. While once the product of choice for a select few frequent travelers, today these headphones are being mass marketed to an ever-increasing population, purchasing them not only for their noise-canceling capabilities, but for their audio quality as well, driving this market segment to a share of more than 10 percent of the overall headphone market.
“This trend will certainly continue as new products arrive (two new models are planned for 2005 introduction to complement our current two models), as distribution is broadened and as consumer awareness increases. Consumers are recognizing that this product category isn't only for relief while flying, but is a key part of any home or portable audio system.
“Finally, the wireless category continues to show great growth as the products increase in features — surround sound, auto shutoff, range, battery charging, etc. — and the audio quality equals that of wired headphones. Consumers have long demonstrated the desire for wireless benefits, but may have had to sacrifice audio quality to enjoy it. With the audio quality assured in today's wireless offerings, this category should continue to show strong growth for many years,” said Falcone.
“The accessories part of the [consumer electronics] business continues to be strong as we enter 2005, and for the retailer one of the most important categories he sells” said Elliot Schwartz, VP at Chicago-based Vogel's USA. “This is particularly true in the mount area,” said Schwartz.
“The explosion of LCD and plasma products has, by definition, driven the business in mounts. We know the Consumer Electronics Association reports that 17 percent to 20 percent of all flat panels are sold with some sort of wall mount. As a result, we have seen a proliferation of different styles of mounting hardware to accommodate many different situations for consumers.
“Key areas of growth are mounts for larger and heavier screens. Vogel's will continue to provide lines of product with unique features for consumers, while, at the same time, provide quality products at very competitive prices.
“Mounts will provide the ability for features, such as tilt and articulation, while maintaining closeness to the wall. In addition to traditional wall mounts, Vogel's provides under-cabinet mounts, free-standing floor mounts and universal projector mounts.
“Additionally, the growth of home theater will also spur the need for speaker mounts. Here again, Vogel's provides a strong array of architecturally blended mounts for many different kinds of speakers. One of the new introductions for 2005 will be a clam-shell pack of five speaker mounts to mate with the 'home theater in a box' product.
“The key for the retailer and custom installer is that the margin opportunity available in mounting hardware is quite significant. With the continued growth of flat-screen TVs, mounting accessories will be a key component for financial growth for retailers,” said Schwartz.
“Here's the funny thing about electronics and computer accessories,” said Brett Allsop, VP/sales and marketing at Bellingham, Wash.-based Allsop. “If it doesn't involve wires or batteries, it doesn't have to be purchased at Best Buy or Office Depot. Retailers like Pier 1, Hold Everything, and Bed, Bath & Beyond are more than happy to sell you a computer desk that doesn't look like a computer desk, or something to hold your CDs, or something else to disguise your television. After all, once we finally turn the TV off, we don't want to still be staring at it.
“The overall trend for the last few years is cocooning. It's unavoidable to talk about how, after September 11, the general population wanted to stay home more, spend time with their families. This is led by the female of the household. But as people spend more time at home, they want everything to look better. This is also being led by the female of the household.
“Earlier election coverage had been sobering, to put it nicely. The dangers and potential of terrorism in the world was on the news every night. Both presidential candidates let us know how vulnerable we all are. And with everyone's concerns, this cocooning and tightening of the family unit is sure to continue. What does this mean for accessories?
“Really, we get the best of both worlds. When people are ready to make the upgrade to a new home theater, computer or digital camera, they are ready to accessorize. Every electronics category is making the effort to fit in the home: paper-thin plasmas, ABB (anything but beige) computers, even “backstage” products like cables, cases and cleaners are looking nicer. The accessories category is no different. People won't spend thousands on a new LCD TV, then leave their DVDs on the floor. They won't buy a new computer and keep the ugly cheap mouse pad from their younger days.
“But even if people aren't ready to invest in a new computer or home theater system, accessories still sell. They are a way to quickly and cheaply update and improve the look of a room. The key for accessory manufacturers is to pay attention to how electronics are being integrated into the home, and provide a sort of retrofit for technology,” said Allsop.
“For 2005, we see the cellular accessory market growing by 8 percent,” said Paul Perryman, national sales manager at San Diego-based GE/Sanyo.
“Accessory growth factors in 2005 include a projected 122 million in new handset sales for the U.S. market and a subscriber base approaching 200 million.
“The end of 2004 saw the cellular accessory market exceed $4.5 billion at retail, with the main product benefactors being car chargers, headsets and cases. As convergence handsets enter the market, new accessory segments will emerge.
“GE/Sanyo is well positioned to grow in this dynamic category.”
“We are confronted by many conflicting market forces,” said Mike O'Neal, CEO of Clifton, N.J.-based Philips Computer Peripherals & Accessories, North America, formerly Gemini. “The first addresses continued upward pressure on product costs associated with rising fuel and copper prices, while addressing retailers' continuing efforts to maintain gross margins as they lower cost to drive more volume. This has resulted in us focusing significantly on gaining more efficiencies in our supply chain.
“While the trend toward lower selling prices for accessories is clearly a challenge, the second key market force is the continuing convergence of products which presents many new sales opportunities that can drive more volume. For example, hookups between computers and receivers and televisions are now commonplace in the living room. Whether wireless or wired, these new connection options will continue to drive increased sales.
“Additionally, a third market force is that consumers appear to be focused on products offering better picture and sound quality. This is the impact of HDTV and home theater, where the consumer is beginning to experience the overall benefits of better quality in the overall entertainment experience. Maximizing this experience requires better connectivity. As a result, better quality cables and connectors will become a higher percentage of the overall accessories mix, driving up sales and gross profits for both retailers and suppliers.
“Finally,” said O'Neal, “there is a greater emphasis among retailers on gaining 'attachment sales' to help offset lower selling prices of both the components and the accessories. This is a real challenge on non-commissioned selling floors. Given the high profitability for retailers associated with accessories, it is essential that they find ways to get better linkage between the sales of the component products and the related accessories. We have and will continue to be focused on helping develop tools that help sales associates and consumers make that connection at the point of sale,” said O'Neal.
“More and more players are aggressively entering the CE space, with accessories becoming fashion statements adopted by the mainstream consumer,” said David Hogan, VP/sales and marketing at San Diego-based Jabra. “There also is the notion of freedom, accessibility and mobility for people on the go.
“Jabra's parent company GN Netcom estimates global sales of Bluetooth headsets will reach 12 million to 14 million units in 2004, and an estimated more than 25 million Bluetooth headsets globally in 2005.
“Market drivers and trends include the overall size and penetration of the mobile phone market. With more Bluetooth mobile phones becoming available, there is increased consumer interest in the category. Bluetooth headsets are quickly moving into the mass market.
“There is increased demand for headsets driven by continuing hands-free legislation. Success of smartphones and emerging 3G significantly increases the need for high-quality headsets. Stereo headsets are becoming increasingly important. Bluetooth and corded headsets support feature phones.
“Jabra just launched its latest series of Bluetooth products ranging from the BT110, an entry-level headset featuring Bluetooth version 1.2 and 15 hours of talktime on a single AAA battery, to the SP100, a battery-operated portable wireless speakerphone for use in the car, office and home environments.
“To help facilitate Bluetooth adoption, Jabra has also launched the A210, a Bluetooth adapter the size of a matchbook fitted with a 2.5mm headset jack that allows most non-Bluetooth phones to connect to any Jabra headset or speakerphone.
“Here at CES, Jabra is launching the industry's most fully-featured Bluetooth headset, the BT800, which offers advanced mobile phone features such as a backlit LED display for caller ID, digital signal processing, call vibrate and a selection of ringtones. Jabra also will launch three new products in the first quarter, followed by its advance-featured headset, the BT800,” said Hogan.
“At Mobile Edge, we are very optimistic about the growth opportunities for the accessories market in 2005,” said G. David Cartwright, president/CEO of Anaheim, Calif.-based Mobile Edge. “However, as a relative newcomer, our approach is probably a little different from our more established competitors.
“We see the strongest growth opportunity not so much as a product category, but rather a customer segment. We entered the retail market a couple of years ago looking for a segment that was not being addressed. Fortunately, a significant opportunity presented itself almost immediately.
“The Consumer Electronics Association released a study that reported that women accounted for $55 billion of the $96 billion spent on consumer electronics gear in 2003. The study added that women purchase 66 percent of all home computers and that a majority of cellular phones, digital cameras and camcorders are owned by women. A similar Nielsen Report said that women now outnumber men for Internet usage, totaling 55 million women to 49 million men.
“The good news for us is that no one in this channel was marketing products geared for women. Using a team of female designers we created a line of women's business/notebook totes that was immediately successful. We have since expanded this offering to over 30 SKUs.
“We are convinced that by developing CE accessories specifically for women, this market segment can be expanded by 50 percent or more,” said Cartwright. “As an example, the average retail price for a notebook carrying case is $55 to $60. In contrast, our average price point is well over $100. This trend is starting to catch on with the major retailers. During 2004, we saw Best Buy, Office Depot, RadioShack and others announce and begin to implement major marketing and merchandising programs designed toward selling CE products to women.
“Our own marketing efforts are geared to drive the female consumer into the CE channel. We are building our brand in the 'lifestyle' publications that women read. We were featured recently in a Wall Street Journal article about the demand for women's laptop bags and we have had placement in Vogue, Cosmopolitan, Lucky, Self and others. This is an entirely different approach that we expect will drive new traffic into this channel.
“At Mobile Edge, we are also targeting our product development around the notebook and wireless categories. The strong trend toward notebook computers and Wi-Fi products will continue throughout 2005. The added efficiencies that wireless computing offers to consumers also creates some terrific new accessory product opportunities. One of these new categories will be wireless related security products that will protect against data theft. The digital camera market will stay hot in 2005 as will the emergence of the new iPod-style portable media centers,” said Cartwright.
“The outlook for the CE business, and the accessories market, continues to be promising for 2005,” said Mark Martin, VP/general manager at Itasca, Ill.-based Fellowes. “CE Accessories have a number of trends in their favor. First, the device market continues to be strong and is projecting strong growth in 2005. Growth will be driven primarily by handheld devices such as phone and MP3 devices. Cellular phone manufacturers are launching phones at a strong pace, some projecting as many as two to four phone launches per month. Heavy advertising to support these launches will drive consumer demand, as will aggressive competition between the cellular phone providers. The MP3 market is heating up as well, as manufacturers plan to aggressively promote new launches to counter the iPod success. Due to the proliferation of download sites, CD burning will continue to be strong with teens. We project only modest growth of convergence items, as consumers continue to be wary of the price and complexity of these devices. Simplification and ease of use is in.
“Favorable trends will drive the cellular headset area,” continued Martin. “First, Bluetooth will finally arrive, and arrive big, in 2005. All indications are that U.S. retailers are ready to get behind this technology, as they see an opportunity to drive their top line. A number of retailers are planning significant support to drive Bluetooth-enabled devices and their accessories. Second, hands-free legislation will continue to be a hot topic, and a number of states are expected to introduce and/or pass legislation in the coming year. We anticipate this to continue to be a fast-growth CE accessory segment.
“Consumer trends will provide both opportunities and challenges for accessory marketers. Consumers are expecting more and more in the areas of performance and differentiation. Style and customization are increasing in priority, particularly with teens. Many consumers are 'trading up' their devices and accessories repeatedly, creating a top-line growth opportunity for manufacturers and retailers.
“In the end, we believe the biggest opportunity to capture these consumers is to provide consumer preferred designs and functionality. This is true for both the devices as well as the accessories themselves. In the end, Fellowes expects a strong year for the CE business as a whole, with accessories enjoying another year of strong growth,” said Martin.
“The most successful CE product over the past year, the iPod, was defined in its advertising by the white headsets Apple selected,” said Ken Kannappan, CEO of headset maker Plantronics, based in Santa Cruz, Calif.
“Recognition that headsets are about lifestyle is spreading to more advertising that targets the category, creating broad recognition that a headset is not your typical CE accessory — rather, like a fashion accessory, it is a crucial part of the experience. “Reaction to our Halo 2 release in November has already been stunning, and part of the experience is wearing a matching Halo 2 headset. Going online is the hottest part of the gaming category, which has already surpassed Hollywood in its new release revenues. For those people still talking to their friends at home, VoIP at the consumer level is starting to gain real traction, and it goes without saying that using the mike built into a PC and a pair of speakers is hardly a great way to talk to someone, which creates another significant driver for the headset category. “I haven't even discussed the single largest category opportunity, which is the growth of Bluetooth headsets for mobile phones. This market is likely to increase in North America from 1.2 million units in 2004 to 21.5 million units in by 2008, according to Strategy Analytics. Not only will this be a fashion accessory, it's going to be the way you get things done. Over time, we expect it will allow you to do away with keys and just use your voice to unlock the car or accomplish things you want to do in your life,” said Kannappan.
“Outlook for 2005 for CE accessories [shows] the market will continue to grow as consumers continue to take a strong interest in digital lifestyle products and solutions,” said Eric Tong, VP/marketing and product management at Compton, Calif.-based Belkin. “With declining average selling price trends in the digital display market, retailers must seize the opportunity to increase attach rates for accessories that 'enhance' the experience.
“As an example, Belkin will be offering RemoteTV, a wireless device that enables transfer of high quality audio and video signals from any entertainment source — set-top box, receiver, etc. — to any display anywhere in your house. RemoteTV delivers up to 40Mbps of bandwidth through the 5GHz frequency range, and up to distances of 350 feet.
“Additionally, as high-definition applications grow, consumers will want to take full advantage and will need high-end power filtering and interconnect solutions. Belkin's PureAV line of products provides consumers high-quality solutions at modest prices. PureAV has approximately 75 SKUs, and [these] are available today.
“Broadband penetration inside the home continues to grow and retailers must provide solutions to consumers to optimize their broadband experience,” said Tong. “Sharing the Internet remains the No. 1 application for broadband usage in the home, but growth in VoIP will grow at a faster rate.
“Belkin's CallEverywhere broadband VoIP services enables users to take advantage of their high-speed Internet access as their base phone service and offers a host of additional features such as IP faxing, listening to voice mails through e-mail, content sharing and other lifestyle-related applications.
“The No. 1 challenges with wireless networking today are dropped connections, dead spots and interference. Consumers have been looking for a wireless networking solution that will reach every remote corner of their house or business and still maintain high transfer speeds.
“Belkin's Pre-N wireless solutions provide the industry's best coverage and speed, and test results have shown an increase of 800 percent greater coverage and 600 percent greater speed over standard 802.11g networks. Belkin Pre-N products deploy True MIMO, which is a revolutionary smart antenna technology that boosts wireless network speeds and ranges far beyond that of today's standard 802.11b/g and 802.11a wireless networking technologies. Pre-N is perfect for larger homes or offices that have a wide area to cover and want to run multimedia and high bandwidth applications reliably,” said Tong.
“As we forge into 2005, we look again at what changes, improvements and/or additions will lead to a better life,” said Marty Goldberg, CEO of Camarillo, Calif.-based Lenmar Enterprises. “Telecommunication devices keep us connected for business and family needs. Wireless devices create convenience. Handheld games keep us entertained. Digital cameras and camcorders record the valuable moments.
“The exciting outlook is that device manufacturers continue to look for ways to converge function and fun into one device. Even more, the accessories for these devices are geared toward enabling the consumer to differentiate the device to suit their personal needs. However, these devices and all of their functions are dependent on one important accessory.
“Batteries and chargers are the accessories that enable the consumer to use their device at home or on the road. Without these accessories, the devices are rendered useless,” continued Goldberg. “The challenge for retailers is to know what accessories, including batteries and chargers, to stock for quick consumer consumption. The challenge for the consumer is to keep track of what batteries and chargers are needed for each device. Ideally, manufacturers of batteries and chargers will look for a way to utilize convergence in their power choices.
“Lenmar, a manufacturer of rechargeable batteries, chargers and accessories for consumer electronics, has created a family of fast chargers that addresses the need for one charger for multiple batteries. Lenmar's new Mach1 Fusion USB Speedcharger, rapidly charges lithium-ion battery packs and AA nickel metal-hydride cells that are used in digital cameras, camcorders and other consumer electronic devices, while simultaneously charging cellphones and PDA's. The Fusion USB will be released in Q1 2005.”
“When we look to the future for devices and accessories, as manufacturers and retailers, we must ask, 'Is it convenient? ... Can it be used easily, but more importantly, can it be reused easily?'” claimed Cliff Montgomery, Lenmar VP/sales and marketing, “If the answer is yes, the consumer has a positive experience and the retailer enjoys more sales and less returns.”
“Accessories continue to be a major focus for retailers,” said Noel Lee, head monster at Brisbane, Calif.-based Monster Cable. “The business and sell-through in 2004 has been outstanding.
“For the upcoming year, we anticipate that the consumer electronics industry will have a resurgence in audio components and, therefore, a resurgence in connections for audio components, such as speaker cables and audio interconnect cables. We also see the industry accepting high ASPs based on brand-name recognition and technology. So, we expect Monster's business to be extremely strong during 2005.
“We expect excellent sales in product areas in addition to Monster Cable and Monster Power. We anticipate seeing huge focus in categories such as Monster PowerCells, Monster Photo and Monster Game.
“Attachment selling through the M4 program has become second nature for our home theater retailers. We are now extending this program in other categories like Monster Performance Car,” said Lee.
“Accessories products which enhance the performance of digital entertainment systems will continue to be strong performers in 2005,” said David Geise, VP/Worldwide Consumer Accessories Solutions Business at Thomson. “These include products that distribute content from the PC to the living room, digital audio/video hookup products and advanced wireless speaker systems.
“A key initiative for Thomson is to allow consumers to enjoy their vast libraries of digital audio and video content stored on their home office PC in a different room in their house. The new Acoustic Research MediaBridge is an easy-to-use digital receiver that wirelessly (or via a wired connection) distributes digital photos, music and video from the PC directly to a television in a different room. It is the first receiver of its type to transfer high-definition content to an HDTV set. The Acoustic Research MediaBridge is designed to be displayed in the home theater section of the retail store and will be supported with a self-contained demo.
“Audio/video hookup products, ranging from digital HDMI and DVI cables to HD-compatible antennas, will also provide great opportunities at retail.
“The universal remote control category will remain strong in 2005 as consumers upgrade to more sophisticated products that incorporate HDTV codes and LCD displays,” said Geise, at the Indianapolis-based company.
“The newly-introduced HDMI and DVI cables in both the RCA and premium Acoustic Research lines are designed to provide convenient solutions for perfecting consumers' HDTV setups. The Acoustic Research branded 15-device home theater remote features a touch-screen display and a simple set-up process to effectively manage consumers' digital entertainment systems.
“Advances in 2.4GHz and 5.8GHz digital wireless technology provide a high-quality solution for rear surround sound speakers and other audio/video applications.
“Wireless headphones are another growth category that retailers can capitalize on this coming year.
“The continuous growth of portable electronics, such as portable DVD and MP3 players, as well as projected 50 percent sales growth of recordable DVD players in 2005, creates numerous opportunities for multiple accessories categories, including power products, surge protectors, blank DVDs, storage cases and more,” said Geise.
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.