Vendor Influx Points Way To Lower Prices, More Ads

By Amy Gilroy On Aug 7 2006 - 6:00am

An influx of vendors into the portable GPS market points to more price competition and more consumer advertising in the fourth quarter, suppliers told TWICE.

Vendors are bracing for “cutthroat” competition that promises to drop street prices by $50 to $100, driving down entry-level pricing to $269 or less for models with preloaded maps. During the fourth quarter of 2005, retail prices on portable GPS were closer to $699 on models with preloaded maps.

All told, more than 40 brands are competing in the business, whose market-share leaders are Garmin, TomTom and Magellan.

“I think you will see low-end pieces going to $269,” said Cobra navigation director Dave Marsh. “They will have low brightness screens … and limited points of interest. They will have some limits on routing choices … but, yes, they will exist.”

Top brand models could go as low as $299, retailers said.

“Our business is driven by volume. With the new players not being able to capture market share, and with the established players making sure the new players don't, there is a price war going on,” said Christain Bubenheim, VP/general manager for Magellan consumer sales at Thales. He also admits to a price war among the top three brands.

More than a dozen companies have entered portable GPS market during the past 18 months. The latest include Sony, Alpine, Pioneer and Whistler, soon to be followed by Audiovox. Sony offers one model but plans to expand its Nav-U line in the fall.

Garmin, TomTom and Magellan together own about 80 percent of the market, according to industry members. Market-share figures from The NPD Group place the trio's unit sell-through share at 87 percent in the United States from March through May. The NPD numbers exclude Wal-Mart, Radio Shack and certain other discounters.

Lowrance, arguably a top-five vendor by share, believes 30 to 40 vendors compete and that many are happy with shares in the half-percent range in the segment, which is expected to triple in sales this year to about 2.5 million units in the United States (see TWICE, July 3, p. 32).

Suppliers will help fuel that growth by doubling advertising budgets for Christmas, said Bubenheim. He expects suppliers to spend $60 million to $80 million in advertising in the United States in the fourth quarter, compared with about $25 million to $35 million during last year's fourth quarter. “You will not be able ignore portable GPS,” he said.

Although sales are rising, margins are falling, in large part because of Internet sellers. “There are discounters out there making two to five points, so it forces you to sell an item at prices you normally wouldn't sell at,” said Jeff Kirshblum, VP of Harmony Electronics, Brooklyn, N.Y. In theory, the products offer a minimum of 15-point margins, he said.

Jimmy Garson, CEO of Datavision in New York, said he already sees some portable GPS models at $299 and expects to see more by October or November.

Three retailers described the climate for the upcoming Christmas season as “cutthroat.”

With the influx of so many new suppliers, however, one would expect a glut of merchandise, but retailers complained of recent spot shortages on key products.

Tom Bancroft of Crutchfield, however, said the shortages are minor (measured in weeks, not months) and are due, in part, to the emergence of an early adopter phenomenon in the GPS market. “Every product that comes out has a little better feature or better interface that just hits the consumer's hot button, so you'll get a short-term outage or it will be difficult to get,” said the merchandise director for marine, GPS and accessories.

Bancroft cited the Navman NavPix iCN 750, which lets consumers snap a photo of a location through the unit's built-in camera. To navigate to that spot in the future, users tap on the photo stored in the unit.

Because of spot shortages on key products, Neil Riffer, mobile electronics buyer at ABT Electronics in Glenview, Ill., said he will buy-in heavily for the fourth quarter. “You can't depend on a 30-day supply,” he said, noting his plans to place 60- to 90-day orders on certain products.

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