By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Despite last month's stomach-churning gyrations in the equity markets, sales of consumer electronics and major appliances — and premium products in particular — continue to hold their own, retailers and distributors report.
If consumers are despairing over their dwindling 401Ks, they're seemingly drowning their sorrows in purchases of new homes, big-screen TVs and stainless steel refrigerators, which continue to prop up the economy.
Why the disconnect between plummeting share prices and discretionary spending? Federal Reserve Bank Chairman Alan Greenspan attributes it to low mortgage rates and the extra cash that came with the massive stock redemptions.
"Fixed mortgage rates remain at historically low levels and thus should continue to fuel reasonably strong housing demand and, through equity extraction, to support consumer spending as well," he told Congress last month during his semiannual economic analysis.
But investors were less certain of continued consumer confidence, and sent shares of Best Buy and Circuit City sharply lower following the steep July 19 sell-off. Their fear: that purchases of home entertainment products would be postponed if times got tougher.
As former UBS Warburg analyst Aram Rubinson noted, "Consumers have been working hard with every stimulus at their back — rate cuts, decreased travel spending, refinancing and energy prices. From here on in, the stimuli are likely to get fainter rather than stronger."
Still, apart from the typical summertime slowdown, signs of fatigue are few. "The first quarter was good, the second quarter was about the same and July held up," said Warren Mann, executive director of the MARTA Cooperative of America.
Tom Campbell, a corporate director at Ken Crane's Home Entertainment Centers, pooh-poohed the stock market effect. "Some publicly-held retailers are blaming the market for the downturn in their business," he said. "While at some point it will certainly have an affect, for a number of us, especially the independents, business has been exceptionally strong, particularly in better products like plasma."
Indeed, despite lowered expectations due to stock market concerns, Ken Crane's enjoyed its biggest July in its 53-year history, Campbell reported.
While No. 1 CE retailer Best Buy insists that its strategic growth objectives remain securely on track, one public CE specialist that is attributing at least some of its woes to Wall Street is Tweeter Home Entertainment Group. Last month the chain reported a 4.6 percent decline in fiscal third quarter sales and projected a 5 percent to 7 percent dip in revenue for the next quarter due to slower traffic and a debilitated Dow (see story, p. 3).
In a conference call, president/CEO Jeff Stone cited a direct correlation between the equity markets and Tweeter sales, something that management has been tracking for the past six years. "Our business runs a parallel line to what goes on on Wall Street and consumer confidence," he said. "We need a couple of months of stability in the financial markets, and our customers will come back."
To help jump-start traffic in the meantime, Stone plans to increase print advertising with 16-page weekend inserts that will emphasize extended financing and "wise buys" — older, full-margin models that can be sold at lower price points.
According to NATM Buying Corp. executive director Bill Trawick, sales are still higher than last year, but their pace has slowed recently. "Appliances have softened [in July], and sales are slower than what they were trending earlier in the year. In consumer electronics there has been some softening of sales too, with projection TVs not matching the sales pace of earlier in the year."
But Marty Friedman, president of premium white goods distributor Eastern Marketing Corp., says lighter store traffic has more to do with summer doldrums than worries about Wall Street. "It may be slow but it's also 95 degrees and people would rather go to the beach," he said. "Business is still strong, particularly at the high end. So a big doctor lost $300,000 in the markets. That means his assets are down to only $4.3 million. He still wants to buy, and only the best."
Friedman's take on the market turmoil? "It's probably a little bump," he said. "All I know is that all of the high-end stores say they're doing great, and are fixing up to do even more business."
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.