By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Specialty CE retailers and system integrators may get one more year of high mileage out of flat-panel TV before the category becomes saturated and overrun by mass-merchant discounters.
When that happens, the CE retail channel could enter another period of consolidation before the next big technology comes along. Industry players contacted by TWICE said merchants had better have a new strategy in place beforehand, or risk flaming out like such former luminaries as Lechmere, Luskin's, Sun TV, Tops and, most recently, CompUSA.
"There's probably one more year of reasonably good growth in TV," said Dave Workman, executive director of the Progressive Retailers Organization (PRO Group), a buying organization for A/V specialty dealers whose members include the likes of Abt, Bjorn's, Crutchfield, Ken Crane's and Myer-Emco. "The compression of [average selling prices] has robbed the industry of two years of growth. All boats rise at the front end of the cycle, but we're at the tail end now, which is setting the industry up for another period of contraction."
Workman said CE retail tends to ebb and flow in four- or five-year cycles that mirror the launch, growth and eventual commoditization of high-profile CE introductions like the VCR or DVD player.
This year he anticipates CE sales growth to slow to between 3 percent and 4 percent.
Tom Galanis, operations VP of New York metro area chain Sixth Avenue Electronics, believes that macroeconomic factors will also contribute to a shakeout, which could come as early as this year. "The economy is weak, the dollar is weak, and things will get a lot harder out there," he said. "It's like the jungle — the weak guys, the ones who don't run their businesses efficiently, the ones that don't advertise aggressively, will go away. The retailers that promote themselves better, that have the services side in place, will grow. There are always opportunities for the strong."
Warren Chaiken, president/COO of national brown- and white-goods distributor Almo Corp., agrees that "the potential is there for some of the weaker players to get sucked up by others in the industry or by those looking to get in. Public companies are expected to surpass last year's numbers, and without organic growth the only way to that is by acquisition."
Another factor contributing to a possible shakeout is economic uncertainty. "Gas prices are high, consumer confidence is low, the sub-prime mess is growing, and the election outcome is unclear. This environment is different from any we've ever been in. Am I concerned? Yes."
Nevertheless, Chaiken remains optimistic. "The times are a little tougher but people are still buying. I expect this month to be strong thanks to the Super Bowl, and I expect demand to remain solid as prices come down and a new generation of product ships. TV will continue to do well too, thanks to the ticking bomb that is analog conversion, and to lower prices that will encourage consumers to add HDTVs to the bedroom, guest room and kitchen."
Ed Kelly, president of the $11 billion Nationwide Marketing Group, which represents some 2,800 independent dealers, is equally optimistic. "Although the housing crisis has impacted the Central U.S., and Florida is in deep straits, the doom-and-gloom sentiment isn't there. We're doing business, we're making money, and we're OK. Business moves in faster cycles, and hopefully we can stabilize the sub-prime mortgage situation and the housing market will level off."
In the meantime, vendors are stepping up to the plate to help dealers through the rough patches. "The manufacturers are going to be more aggressive this year with their marketing and dealer support," he said. "They're pushing this thing hard."
And while Kelly also differs with Workman on flat panel's prospects — like Chaiken he sees the analog cutoff driving another two or three years' of growth — he agrees that dealers should be looking beyond TV. "We're crazy to focus on a $1,000 set alone," he said. "If you can attach a $599 wireless surround-sound system and a $100 cable, you've converted your sale from $1,000 to $1,600 and your profits from $200 to $500."
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.