FRS Prices Take Nosedive; Inventory Glut Blamed

By Amy Gilroy On Oct 8 2001 - 6:00am

Prices on FRS radios have continued to plummet this summer, causing some suppliers to predict an industry shakeout.

Average selling prices on a pair of 14-channel FRS radios have dropped by half since last fall, or from approximately $79 to a current $39, and are expected to decline further to $29 per pair in the next few months, said several suppliers. (See chart at right.)

Even the more expensive GMRS units are taking the plunge, falling from $149 to $99 a pair. Some suppliers predict this segment will hold its pricing through the remainder of the year while others expect further declines.

Several factors are responsible for price erosion, suppliers said, including a glut in inventory, price moves from Motorola and the maturing of the market.

Kenwood, consumer sales manager Chris Ryg said, "Prices started dropping pretty precipitously in the summer. The basis of it was there was still a fair amount of last year's product and all the manufacturers wanted to clear the decks for their new models. The closeouts tended to drive the pricing down in the category as a whole."

Unwired president Larry Richenstein joined others in saying, "Some people are talking about $19.99 a pair [for Christmas], but I really don't expect that to be a new price point everyone will hit. The cost to produce these radios hasn't come down significantly, so any of the major price drops are from companies stuck with inventory."

Midland Senior VP John Chass said, "A lot of the companies reacted to Motorola's move a few months ago when they lowered the price to $49 a pair for 14 channels and $59 for 38 codes." Previously Motorola units sold for $99 and $79 per pair.

Motorola blamed price erosion on oversupply and a shift in distribution into mass merchants. "There's been a huge drop in ASPs which started in the fourth quarter. The reason is there are 2600 Walmarts and 2200 Kmarts and over 1000 Targets, and their client base has a lower household income, so those retailers need less expensive products," said director of marketing Randy Schiff.

He also blames an "overassortment of product," claiming he's seen as many as 24 FRS SKUs at one store. "I think with the price plunges, there's going to have to be a shakeout in the marketplace. There can't be enough margin for smaller volume manufacturers to make a decent return on their investment," Schiff said.

Maxon's national sales manager Steve Koch blamed the "overforecasting syndrome" and expects further price drops. "Its like the stock market right now; no one knows where it will bottom out."

Suppliers have been looking to GMRS to boost ASPs and to fill consumer demand for better range. Audiovox VP consumer goods Ralph Etna said GMRS are now 15 percent to 18 percent of Audiovox category sales and that he expects the leader price to remain at $99 per pair.

Motorola's Schiff said, while sell in to the retailers for GMRS has been strong for the industry, sell-through to the consumer has been less successful. He notes that the economy may be having an impact on the category.

"For June this year over last year there was a 30 percent increase in first time unemployment claims," he said. "And with a weakening economic situation, while five-mile range seems too nice, the lower price points on FRS may look better to consumers."

Audiovox's Etna disagreed, claiming, "I think the GRMS category, in general, has held up very well and sell-through has been very good."

Motorola is expected to offer a 1-watt GMRS unit called the Talkabout T6400 in the future. It is currently awaiting FCC approval.

While some suppliers see product innovation as the key to boosting ASPs, others say the market seems to want low prices. Cobra senior VP Tony Mirabelli claimed that consumers did not respond well to the last round of innovations added to products this year. "When we as an industry have tried to add features such as GPS or a barometer for camping and hiking, it doesn't appear to have been very successful," he said. Audiovox, by contrast, said that innovation is the key to success for the category and to keeping marketing programs fresh and satisfying retailer demands for value added, step-up product. He said Audiovox expects to offer innovative products in 2002.

Where suppliers appear to agree is that the fourth quarter has been cast into an uncertain light given the recent terrorist attacks. Said Mirabelli, "It looks like we'll have a good third quarter. The fourth quarter remains to be seen. Consumer confidence is the key."