Predictions have been that consumer electronics sales will be up this holiday season, as high as 6 percent. So why are so few people in the industry smiling?
It’s all about profitability, or more accurately, the lack of it.
Retailers and manufacturers have had to promote more heavily than ever this season to get consumers to buy their products. While everyone loves CE, consumers have been trained by the industry to love it more when it is sold near cost, which is the most serious structural problem in this business. And it is only getting worse.
One regional retailer told me recently that his sales volume doubled in recent years, but that he’s making the same amount of money as when his sales volume was half as large. Much of that has to do with TVs, which have taken it on the chin for the past two years due to falling volume and price cutting.
But the problem isn’t just the weak economy or TV sales. Many regional and independent retailers we’ve spoken with this year now feel they are in direct competition with their suppliers. Those are the same manufacturers whose lines and brands these retailers helped establish. These dealers now feel their suppliers undermining their businesses for short term, profitless market share gains.
How? Here are just a few I’ve heard:
- Manufacturers are selling the same products they sell to retailers at cost or below cost on their own websites.
- Lucrative lines are being taken away regional and independent retailers and given to national chains or online retailers.
- Rebates on TVs have become an albatross for retailers due to delayed payments from manufacturers, Byzantine record keeping demands by suppliers, or worse, no payments.
And, separately, there is not enough space to discuss in detail the ongoing complaints by brick-and-mortar retailers about online retailers not paying local sales taxes - or the new Price Check app via smartphone from Amazon.com that gives consumers $5 to shop stores and then buy with Amazon online.
The cumulative effects of all of these factors during 2011, and more, are the same: Profit evaporation is accelerating in the CE industry at an alarming rate even for this business.
Profits are being thrown away by just about everyone to achieve short-term sales goals. And it doesn’t have to be that way.
This is the traditional time for everyone to take stock of everything in your life, which includes your business practices, and make New Year’s resolutions.
My suggestion a good resolution for this industry would be for manufacturers and retailers to sit down, maybe during International CES, and discuss on how they can form long-term partnerships that make profitability for both sides as important as market share, innovation and all that other good stuff that comes from this industry.
Merry Christmas and Happy New Year, and TWICE will see you in Las Vegas at the 2012 International CES in January.