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2000: CE Rings In New Millennium With A Bang Before The Bust

8/28/2006 02:00:00 AM Eastern

The 21st century began with a bang for the consumer electronics industry.

Riding the triple tailwinds of a strong economy, brisk digital adoption and general millennial good cheer, CE retailers were riding high in January, following perhaps the best holiday selling season ever.

“This is my 26th year in the business,” Sound Advice senior VP Michael Blumberg told TWICE on the eve of International CES, “and it's shaping up to be the greatest season I've ever seen.” That wasn't just hyperbole: 144 top CE merchants agreed in poll by Neretin Associates that fourth-quarter sales were the strongest ever of any year.

Driving the record-busting business were sales of newly affordable DVD players and a seemingly insatiable thirst for big-screen rear-projection TVs on which to use them.

The sales surge sent bottom lines soaring. Best Buy reported a 51 percent spike in earnings for the fourth quarter, while RadioShack's net rocketed 30 percent and Rex reported a record $9.6 million in earnings for the period.

Also fueling CE sales was the advent of e-tailing. 2000 was to become a watershed year for e-commerce, as the channel found its footing and gained wider acceptance from manufacturers and consumers. Indeed, some 10 million first-time e-shoppers hit the Internet that holiday season, and e-tailers' infrastructure held up surprisingly well, even if inventories didn't. “Our infrastructure was well prepared for the added volume, and our Web servers, fulfillment operations and customer service all rose to the occasion,” said Jeff Tauber, chairman of Cybershop.com, which lives on in name only as a shopping portal aggregator.

Alas, the good times were not to last. March came in as a lion and left like a bear as the technology bubble finally burst, sending the economy into a tailspin. The downturn weeded out the weaker players, among them Tops Appliance, Roberds and American retailing icon Montgomery Ward, which all shut their doors that year. No. 1 CE chain Best Buy was not immune either, projecting by November that pricing pressures on DVDs, PCs and major appliances; a more “cautious consumer environment”; and a “broad-based softness” in demand would take a toll on earnings.

The shakeout was more severe on the e-commerce side, where start-ups flamed out or sold out with increased regularity.

In retrospect, most telling was TWICE's first-ever ranking of the Top 25 e-tailers in CE. Among the online leaders on that list that either folded or were absorbed were Egghead.com, Cyberian Outpost, Damark International, NECX Direct, Roxy.com, and CE Internet pioneer 800.com.

More surprising are the number of dot-com players, including Amazon, Buy.com, OneCall and eCost, that survived the first cut and continue to thrive online as brick-and-mortar chains flexing their multichannel muscles as a new generation of CE specialty stores like Newegg and TigerDirect joined the fray.

Elsewhere that year, the debate over digital TV transmission standards dominated industry headlines, as broadcasters, cable system operators, content providers, regulators and consumer electronics manufacturers battled it out on convention floors and in the halls of Congress, Federal Communications Commission chairman Bill Kennard fired the first round in 2000 by issuing an ultimatum during CES that gave the industry four months to settle the matter on its own. “Your time and our patience are running out on this issue,” he declared. “The industry has to bring the years of negotiation to closure, or the FCC has to act.”

The threat worked, and by March two of four long-awaited compatibility standards for DTV and digital cable systems were ironed out in a voluntary agreement between the Consumer Electronics Association (CEA) and the National Cable Television Association (NCTA). But one month later at that year's NAB convention, broadcasters were still split over keeping the current 8-VSB modulation standard or adopting Europe's COFDM scheme.

As feuding factions testified before a House Telecommunications Subcommittee that summer, the only thing that all parties could agree on was that the FCC's mandatory digital transition deadline of 2006 was set way too early. But as others bickered, CBS pressed ahead with plans to expand its delivery of HD content that fall by producing their regular series shows and airing more specials in 1,080i, and CEA projected sales of 550,000 DTVs and monitors that year.

On the product front, digital cameras, one of today's top-selling CE products, gained critical mass as lower pricing brought more models within reach of the consumer. The NPD Group reported in March that sales topped $1 billion in 1999, representing 36 percent of all camera revenue at retail, while unit sales of digital cameras were expected to reach 2 million in 2000.

Falling prices, relatively speaking, had also become an issue for HDTV. Heading into CES that year, Thomson “determined that it's time to jump start the sales of HDTV,” said senior VP Mike O'Hara, and accordingly cut the suggested retail price of a 38-inch direct view set by 50 percent to just under … $4,000.

Finally, in a hint of things to come, Philips offered the first glimpse of the blue-laser optical disc recording system that it had been co-developing with Sony since 1997. Philips said the product, then called Blue Disc, wouldn't be marketed any time soon.







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