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It's shaping up as a breakout year for portable GPS as prices fall to below half of last year's levels, new retail channels embrace the product, products become easier to use out of the box, and sales to date outpace projections.
Thales Navigation, which markets Magellan, had anticipated industry growth at about “2.5 times this year, and now it is tracking about three times,” said CEO Henry Gaillard. The Telematics Research Group of Minnetonka, Minn., raised its North American sell-through forecast for all portable navigation devices, or battery-operated handhelds that feature car navigation, from 2.7 million units, to 3 million units, by the end of the year. This would represent more than a tripling in sales from 2005 levels of about 750,000, to 850,000 units for North America last year, said supplier TomTom. Sales for the United States alone will hit 2.5 million, Telematics Research forecasts.
Garmin chief financial officer Kevin Rauckman credits a low penetration rate to the hockey-stick growth rate. “What we're experiencing is a market that's growing very quickly and the penetration rate, in general in the U.S. and Europe, is still very low. The U.S. is around 2 million units and Europe around 8 million units. The total addressable market is more than 400 million cars. We're in the early stages of growth in a portable market that we think is going to become quite large.”
Part of the high growth this year comes from retailer support and media attention, said TomTom president Jocelyn Vigreux. “The investment and focus that retailers are putting into navigation is above expectations,” he said.
Wal-Mart is offering GPS in its stores this year for the first time (vs. Web-only sales), and automotive chains such as Pep Boys and Murray's Discount Auto are also now carrying the products, said Magellan.
Several retailers polled by TWICE said that GPS is outselling expectations. “We're smoking in portable GPS,” said Dan Jeancola, merchandising senior VP for Car Toys of Seattle. “Portable and in-dash navigation are the hottest products on the floor, along with satellite radio.” Car Toys expects to carry from nine to 11 portable GPS models this year.
Margins on portable GPS run a slightly over 20 points, retailers said.
For years the navigation market was encumbered by high price tags and poor ease of use. Until last year, many units required owners to transfer maps from a PC to the portable player, creating a difficult “out-of-the-box” experience.
Last year suppliers were able to begin offering preloaded U.S. maps at $1,200, stoking demand, and now low-end models with preloaded maps sell for a street price of $399 — with further declines possible for Christmas.
Wal-Mart is already leading the pack with a Magellan portable GPS with built-in regional maps at $299. Magellan said it developed the SKU, called the 300R, for Wal-Mart as a limited offer, but “this is not the main direction we are going in. Preloaded full coverage is the main direction of this company,” said a spokeswoman.
TomTom said it has no plans at present to go the route of regional maps, claiming it already tried this and found it unsuccessful. “I think a region-based offering is not what the mass market is looking for. Operationally, it is difficult to maintain; you have to ship the right SKU to the right place,” said Vigreux.
Some industry pundits say the skyrocketing growth of portable GPS will be cut short in the next few years by new GPS-enabled cellphones, but these devices may capture only the “casual user” segment of the GPS market, they admitted.
According to Strategy Analytics, however, the casual user may be the largest potential segment of the market. The company points out that 60 percent of new car buyers spend only 5 percent of their travel time going beyond familiar destinations. For these users, GPS on a cellphone may be adequate, the company said. The company predicts cellphones will win over 30 percent of the 88 million unit navigation market for the United States, Europe and Japan by 2010.
Thales Navigation senior director worldwide product marketing Raj Mitra begs to differ. “We don't expect the growth rate to [slow] in the next two to three years” due to cellphones, Mitra said. He and others claim a certain class of users will continue to want devices with larger screens that are easy to use.
Strategy Analytics points out that about 18 percent of new car buyers are heavier users of maps in the car, requiring maps or directions more than 20 percent of the time.
By 2011, TRG estimates the market will split between cellphone and navigation users. The company estimates North America will see 10.6 million GPS users and an additional 10 million GPS-cellphone users with about 5 million in-vehicle navigation users (both OEM and aftermarket), for a total of about 25 million users.
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