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The Big Yawn

Having just returned from my annual Black Friday morning shopping trip I am struggling to suppress a yawn. Not just because I got up at 2:45AM, but because I have to confess, once again, that I just didn’t see anything as I shopped today that either changes my general outlook on the holiday for tech or provides a window into how aggressively consumers may be shopping for electronics. As I said last year, giving away highly-desirable products in limited quantities for outrageously low prices is always going to draw a crowd. However, at some point you begin to bump into the realities of installed bases, low prices, and relevancy. This year’s struggle to determine what the most relevant, most exciting products to sell was especially acute and I believe will lead to lackluster results, similar to what we’ve seen all year.

Everyone wants big flat-panels at very low prices, and this year we once again broke ground with new low prices on certain products, under $500 46″ LCD, under $400 42″ plasma, under $200 32″ LCD, however those aren’t really the types of products the industry wants to sell, nor are they the ones we have been promoting. For consumers accustomed to seeing falling prices I think it is difficult for them to see the continuing value every year. As absolute prices fall the savings get slimmer, and the features get narrower and as manufacturers and retailers struggle to balance cost, retail pricing, and excitement.

Laptop deals stalled, again, at the $200 price point, and netbooks offered little opportunity to reset customers into lower-priced solutions. It was notable that there were no screaming ads on 3D or Internet connected TVs, nobody offering huge gift card rebates with iPads (or any tablet for that matter), very few non-Wii video game deals, a small number of smartphone deals (although admittedly the complexity of the phone transaction makes it very difficult to maneuver through on a volume day like Black Friday) and a general paucity of the industry’s latest and greatest technologies being showcased to consumers at attractive prices. Black Friday has really become a volume day to sell entry-level products to entry-level consumers and then make up the difference on upsells and in-store opportunities. It is no longer a good day to move technology forward (either online or in the stores) but a day to backfill the installed base and leverage the high interest level electronics currently have in the retail landscape. All that said let’s look at some of the details of today’s observations, both of the retailers and of the products.

From a product perspective this was clearly the year of the flat-panel (although I think we have said that before, but this time we mean it). With lots of excellent new pricing levels flat-panel is certainly the star. As I mentioned earlier, pricing levels on everything from 32″ to 46″ FPD were very aggressive. But, in terms of declines from the trendline, it felt more like this year’s sales prices represented similar values to ones we have seen in previous years, and this year’s products were focused on entry-level pricing. For LCDs this meant an aggressive return to 60 Hz refresh rates. For example,40″-44″ 60hz LCDs represented 55 percent of sales through the first 10 months of 2010, but for Black Friday that is likely to be far higher. With plasma it meant a continuation of the push towards 720p as a means to reduce costs and meet specific price points. From around 75 percent of sales last holiday, 720p represented as much as 90 percent of 42″ plasma sales during 2010. Expect that trend to continue.

Expect this to be a big holiday for Blu-ray, especially networked and wireless players. Almost every retailer had that product, and had it at price points below $100, the magic point at which features and format differentiation disappear and consumers just buy based on price. After flat-panels the biggest crowds in every store we were in were around the notebook area, even though $300 full-size laptops have been available all month and most of the retailers just met those criteria. However, there were a couple of under $200 notebooks on promotion at Walmart and Best Buy. Those will certainly sell out but likely will represent just a small portion of the sales results. Notebook PCs are always a strong seller for Black Friday, but with prices stagnant it was very hard to show savings against the norm. Small electronics, like GPS, digital cameras, and picture frames, traditionally a staple of Black Friday ads, remained so this year, but a quick look around most stores showed less traffic for those than for the bigger ticket items. Finally, this was the year the e-reader burst onto the scene with wide distribution in a variety of outlets and heavy coverage in the Black Friday circulars but few must have deals and even less in-store promotion.

Among the most interesting retail developments was the emergence of Target as a more aggressive player for Black Friday electronics. As Target mostly eschews the PC category (although they do have netbooks, but none were promoted this Black Friday) they were very focused on the flat-panel market and the specialty electronics products that they do very well. With some of the sharpest prices on flat-panel and a one hour earlier opening time, allowing them to get a jump on their competition, Target stores were busy. The lines at 4AM were long, but orderly, and most of the customers seemed to have gotten into the store by 4:15AM. Hhgregg celebrated their first Black Friday in the DC area with strong focus on TVs as well. They also seemed to have significant traffic in the PC department. Best Buy’s lines were as long as ever although the lines seemed to have dissipated a little earlier than in prior years. With limited quantities of doorbusters it is certain that all of those sold out quickly, but with significant in-store inventory on TVs and Blu-ray, Best Buy seemed poised to enjoy considerable success there. In addition, the PC department was as crowded as ever. Walmart was practicing aggressive traffic management, and despite being open all night was allowing very few customers into the store. Lines remained more than one hour after the 5AM start of Black Friday sales. In the parking lot there was a steady stream of flat-panels heading out the door as Walmart’s customers, probably more than most, were focused on the doorbusters and entry-level product offering, almost all of which was cleaned out in that first hour of sales.

As we said earlier, nothing we saw on Black Friday changes our viewpoint that electronics will have a rough holiday season year. We expect this year’s Black Friday results to be in line with recent sales trends as both TVs and PCs face challenging comparisons to last year. With crowds appearing similar to us as we saw in the last couple of years it is obvious to us that the big rush toward Black Friday has plateaued. While crowds aren’t getting bigger, they aren’t getting smaller either and clearly that incremental shopper is now choosing to make his Black Friday (or Thanksgiving Day) purchases online. Black Friday is not getting less important it is just branching out into new venues and seeking new opportunities. We will be exploring some of this change in Black Friday selling habits through some additional posting in the next few days as well as dissecting some of the results from NPD’s 2nd Anatomy of Black Friday consumer survey, which will be conducted this weekend. In addition, after NPDs Weekly Retail Tracking Service posts the actual sales results on December 6th we will be participating in a Webinar with TWICE magazine on December 8th to review the sales numbers.

Stephen Baker, Vice President, Industry Analysis
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