High Margin Potential Driving Vendors In 2007

By John Laposky On Jan 8 2007 - 8:00am

In the wake of a severely promotional holiday selling season for CE hardware, accessories executives contacted by TWICE in the days leading up to International CES were almost unanimously positive about the state of the high-margin business for 2007.

Citing increased demand for such categories as flat-panel HDTV, wireless networking, digital SLR cameras, portable digital A/V players and VoIP, among others, vendors said that many retailers are increasing their efforts to tack on accessories sales to hardware purchases in order to make up for thinning margins.

"Going into 2007, accessories will be more important than ever," said Noel Lee, head monster at Monster Cable. "A holiday season of flat-screen TVs at record unit sales, but low profits, demonstrates the need for accessory attachment selling. That's where Monster's M4 program has been hugely beneficial to all of our retailers — being able to teach and manage the art of attachment selling of accessories."

According to Kent Shiplet, strategic marketing VP for Jasco Products, "The 2007 outlook for CE accessories business is extremely bright. Vendors who pay close attention to technology shifts and the resulting impact on sales trends will prosper. The dynamic nature of the CE business presents endless opportunities for CE accessory companies.

"While there are always external, economic and global factors that can potentially affect sales," he continued, "the CE accessories category is often the least affected by these factors. As our product lines maintain, enhance and expand the use of CE equipment, the consumer demand remains reasonably stable."

Tom Malone, senior sales VP at Audiovox, also cited tight margins as a strong incentive for retailers. "While it's true that technological innovations, such as the advent of the HDMI cable, reduces the need for the number of accessories, factors such as the falling prices of flat-screen televisions, which has resulted in increased sales of these products, has driven the need for accessories. Also in conjunction with falling prices on flat screens, is the fact that margins for both the retailer and manufacturer have decreased, so retailers and manufacturers both want to sell more high-margin products such as accessories."

A key driver is ever-increasing demand for new technologies by consumers. "We are in the midst of an electronics revolution, with product categories such as flat-screen TVs, wireless technology and mobility devices becoming more and more accessible to consumers," Glenn McIlmail, president of Philips accessories said. "And they will need the accessories that complement these new devices."

Don Patrican, executive VP for Maxell, sees HDTV, specifically, as the "centerpiece to the whole business. It is one of the greatest technologies ever rolled out by the CE industry and it is poised to get much bigger. This is a technology that will be accessible across all demographics, all economies … the entire spectrum of the population will get the chance to own an HDTV."

Other categories cited by Patrican as fast growers include MP3, especially docks and speakers; Microsoft's Zune portable media player; DVD camcorders; and care and maintenance products for camcorders, cameras and media.

From Sony's perspective, there plenty of business opportunities to come out of wireless. "We've seen steady growth in our accessories business in 2006, and will be building on that success going into 2007," said Andrew Bubala, personal audio accessories senior product manager at Sony. "Stereo Bluetooth-enabled phones and other devices, which offer new ways to enjoy music, continue to build critical mass, presenting new opportunities for the accessories business. One of the key technologies for Sony accessories in early 2007 is Bluetooth. Additionally, we are seeing more customers make superior sound quality, comfort and fit a priority."

Brett Allsop, co-president at Allsop, saw opportunity in a range of "external factors, such as higher adoption of broadband and continued emphasis of technology in schools, media and social communication. The U.S. market will follow the trends happening now in countries such as Sweden, South Korea and Japan. At this point, our country is slightly behind the cutting edge. This will change as broadband adoption increases. Computer and electronic technologies are merging and our youth use them completely differently then boomers, Gen Y and Gen X," he said.

Allsop also saw the easing of oil prices as a positive for vendors and their shipping and manufacturing costs, and also the consumer, adding some discretionary income to the average wallet.

Imation's Scott Popovich, sales and marketing executive VP, concurred, pointing out that "the economy has started treating the average American better than it has in recent years, putting more disposable income in the consumer pocketbook. In the past year, we've seen more than a 2.5 percent wage growth, plus an upturn in the equity market, which has plumped up 401(k) accounts and other consumer investments, not including housing. Despite a downturn in the housing market, consumer confidence and spending have so far remained strong."

"Barring any unforeseen economic events," he continued, "consumer confidence and aggressive pricing of consumer electronics and computer products should precipitate strong retail sales. Demand for accessories should follow that."

Case Logic is forecasting continued significant growth in mobile, photo and MP3 accessories for 2007. "New hardware introductions in laptop computers, portable hard drives, compact digital/SLR cameras and new MP3 platforms are all contributing to our current and anticipated growth," said Andy Youngs, marketing and design VP. Youngs also cited the ease in oil prices and how that has helped in controlling product costs for vendors and continuing to spur consumer confidence and retail spending."