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CE Reinvention & History

Pioneer Electronics’ decision to drop out of the TV market is understandable and not completely a surprise. The news put a period on a decidedly depressing quarterly earnings reporting season over the past few weeks.

There were a few exceptions, but whether it was losses; lower sales or decimated net profits for the fourth quarter; or projected annual losses, layoffs and reorganizations, the news was bad for many of the biggest and best in the business.

Japanese CE makers got hit worse than anyone, due in part to exchange rates for the yen. When you consider that around 20 years ago a top Japanese executive once said that if the exchange rate with the U.S. dollar went under 200 yen, it would be tough to make a profit, the 90 yen rate used in many of the most recent quarterly reports is mindboggling.

One top exec with a research firm told me the other day, “We can’t rely on all the macroeconomic models that we’ve used over the years to predict trends. It’s a brand new era.”

It may be a “new era,” but on that last point, in the CE business at least, I beg to differ. History does repeat itself in some ways.

Some economists have said the toughest recession prior to this was in the early 1980s. But in the CE business the oil embargo of the mid-1970s was probably deeper.

The embargo began in October 1973 and helped create a stock market crash, gas-rationing lines and all the rest. That year CE industry sales were $6.9 billion, according to the Consumer Electronics Association. Sales dipped by $900 million in 1974 and another $800 million in 1975, only rebounding close to the 1973 figure in 1976 with $6.8 billion in sales. By 1977 sales were $8.2 billion.

Color TV was the main CE category in those years by an overwhelming margin, consisting of about a third of total annual industry sales. Not surprisingly, its sales experienced the same type of dip in those years, according to CEA.

The point of this history lesson is not to depress anyone more than they are. I, for one, don’t think CE sales will dip that long and that hard due to this economy since the industry is more diversified, less reliant on one major product category and more ingrained in everyday life than ever before.

Prior to Pioneer’s announcement, and soon after, there had been speculation that another notable brand or two may drop out of the TV business.

It reminds me of a comment by Richard Glikes, executive director of the Home Theater Specialists of America, in an interview about the industry’s future several years ago. He said retailers would rely on “the top brands that got us here,” but added that some would go away. The result would be retailers partnering with “new brands that can take us into the future.”

Some of the industry’s top manufacturers from the mid-1970s are gone now. They hang on only as a brand owned by another company, a memory of past glories. Many of the leading CE retailers of that era are all but forgotten.

My point is that the CE industry is nothing if not inventive. This industry reinvents itself every few years.

Pioneer decided to adapt, change focus and drop TVs. Those retailers and manufacturers that can reinvent themselves and get through this difficult economy will be well-positioned to take advantage of the growth that is sure to come.

Those companies that that won’t adapt, or can’t, will be but a memory.