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CE Sales Growth Slowed In 2006: NPD

2/21/2007 02:58:00 PM Eastern

Port Washington, N.Y. — The good news: retail sales of consumer electronics grew 3.6 percent last year to $111 billion. The not so good news: sales growth slowed from the 7.2 percent gains of 2005.

According to The NPD Group, which compiled the data through its consumer tracking service, the slippage came from sales declines in DVD players, home theater, desktop computers and printers, which offset strong gains in TV, notebook computer and MP3 player volume.

NPD also found that despite media attention on the growth of e-commerce, brick-and-mortar stores were still the preferred format for CE shoppers. CE revenue through physical stores grew 4.6 percent to $85.8 billion last year, the research group said, while online sales experienced only a half percent growth to $25.2 billion last year.

TV was the exception. Video volume in retail stores rose 15.7 percent to $18.2 billion and unit sales remained flat, while online TV sales jumped 40 percent in units and dollars to 2 million and $1.8 billion, respectively. Still, e-commerce only accounted for 8.7 percent of total TV dollars and 6.4 percent of total unit volume.

“While we saw good growth in online TV purchases, the e-commerce channel is just too small to have a material impact on the market right now, but that is likely to change,” said Stephen Baker, NPD’s industry analysis VP. “The average selling prices of TVs sold at retail have increased dramatically over the past few years. High-income early-adopters primarily purchase TVs online and pay early adopter prices, so as in-store pricing climbs and retail store consumers move towards more expensive TVs, we expect to see in-store pricing and online pricing become more in line with each other.”

Conversely, “as large-screen TV prices become more affordable we expect to see online TV sales grow as the mass audience which, to date, has been much more reluctant to purchase online begins to broaden its channel preferences,” Baker said.

In-store sales were the principal driver for the PC market as well. Two-thirds of the $54 billion in IT product revenue came through storefronts, making it the third straight year that brick-and-mortar sales have outpaced e-commerce growth, compounded, NPD suggests, by Dell’s well-publicized challenges. Nevertheless, e-commerce’s IT inroads, at least in desktop computers, are significant. Four years ago 70 percent of all desktops and 33 percent of all notebooks were purchased in stores. By 2006, 52 percent of all desktops and 63 percent of all notebooks were purchased in stores. NPD attributes the changing channel mix in part to the sharp growth of notebook PCs, combined with the flat sales of desktops.

Similarly, consumers continued to purchase MP3 players in stores, due in part to Apple’s retail store strategy, NPD said. Sales of MP3 players increased 23 percent to more than $6 billion last year, with nearly 78 percent of both unit and dollar volume derived from storefront sales, an increase of 5 percentage points from 2005.

“E-commerce is growing, but slower than retail,” said Baker. “As some of these structural changes evolve we expect to see online sales increase. However, for now, consumers continue to prefer the retail experience when they purchase technology.”

NPD also found that technology remains a rich person’s game, low-priced commodity concerns aside. Sales to consumers with incomes over $75,000 increased 5.7 percent and accounted for 43 percent of CE revenue in 2006, the research firm said, while the most significant growth came from consumers with incomes greater than $150,000, where sales increased 7.1 percent to $10.3 billion.