Retailers Reveal Challenges For Back Half

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NEW YORK –

Pundits are pointing to weakened financials at Best Buy, hhgregg and RadioShack as harbingers of CE’s future, but industry insiders have a different view.

Despite short-term challenges in CE and a stillstruggling economy, retailers, distributors and at least one tech analyst believe creativity and innovation will continue to fuel industry growth over the long haul, while more immediate opportunities like Windows 8, headphones, content-delivery devices and improved in-store and online execution will tide the business through the fourth quarter.

“The CE industry has proven to be remarkably innovative and responsive to the changing needs of customers, and while manufacturers continue to solve new problems and/or improve upon existing products, customers consistently show a willingness to pay for the best solutions in the market,” observed Ben Hartman, consumer electronics VP for

Amazon.com

. “Over the long term, we don’t expect this to change — great product innovations will continue to succeed and command a premium,” supported, he said, by “an environment where transparency and unbiased information are increasingly available.”

Jeannette Howe, executive director of Specialty Electronics Nationwide (SEN), a division of the Nationwide Marketing Group, similarly pointed to tech innovation as a safeguard against commoditization. “As long as we have a technology story to tell, consumers will look to the experts in the marketplace for advice and guidance,” she told TWICE. In addition, “The fact that all of these technologies have some connectivity involved keeps our members busy with installation services. We have seen a resurgence in larger-panel television sales, and when a larger TV is purchased, we are far more likely to see the audio system add on.”

Fred Towns, president of distributor New Age Electronics and its sister Jack of All Games gaming unit, believes some of the onus must also be on dealers to stimulate demand. “While certain categories can become commoditized, retailers that create remarkable experiences in store and online with unique product combinations can combat that, replacing consumer desire with perceived need,” he said.

But Dave Workman, executive director and COO of the Progressive Retailers Organization (PRO Group), doesn’t think commoditization and the “race to the bottom” can easily be halted.

“New technology is now treated as a commodity from the beginning in its pattern of distribution,” Workman argued. “The danger we face is that too much too early is being offered to general merchandisers vs. CE retailers. General merchandisers often view CE as a traffic builder and do not necessarily look at the category for profitability the same way CE retailers do.”

His answer: better channel management, with manufacturers offering multiple product tiers; niche products, which don’t offer sufficient traffic to attract mass merchants; and improving retailers’ ability to sell the market basket and a complete solution.

Stephen Baker, industry analysis VP for The NPD Group, dismissed the notion that CE is or will ever become a strictly commodity business. “There are more than enough steps and offers in quality, branding, features and design to prevent that from happening to the business as a whole,” he argued. “Certainly some segments can be commoditized, but the largest segments of the market will always offer enough diversity to allow for differentiation. Low margins don’t mean a product or a category is a commodity.”

That’s not to say the road ahead will be easy. Baker described the next six to 18 months as “pretty grim” for CE, as most products reach a relatively full installed base and unit volumes begin to saturate.

“With units stagnant we see revenue stagnant as well, as ASPs [average selling prices] continue to flatten out and price drops become less meaningful as tools to expand volumes,” he predicted.

But the bigger concern for Baker is the likely shift of CE devices from luxury items to necessities. “Necessities are by their very nature products we can’t live without and try to extend the lifespan of. Without a major uptick in the economy, or another reinvention of the CE marketplace, consumers are likely to rethink where they spend their discretionary dollars.”

For Bernard Luthi, chief marketing officer of

Buy.com

, a key challenge — and opportunity — lies in the growing Apple-Google-Amazon nexus. “There is definitely a consolidation happening in regards to innovation in product development,” he said. “Apple and Google are leading the charge,” the latter with Nexus 7 and Q, while Amazon with Kindle and a rumored mobile phone “is looking to get in the fray.”

At the same time, “hardware is increasingly becoming less of the main driver in consumer sales, as ‘ecosystem’ is becoming the hot buzzword and the Holy Grail of a sustainable sales model,” Luthi continued. “Again, Apple, Google and Amazon lead the charge, with others scrambling to catch up.”

Nevertheless, Luthi still sees opportunities for the back half of the year in networked content devices, mobile accessories like premium headphones and AirPlay speakers, and “smart” home products. Content- delivery systems like Apple TV, Boxee, Roku and the new Nexus Q, which help transmit movies, photos and music from mobile devices to big-screen TVs and robust audio systems, are one of the few growth categories at retail, he said, citing NPD data. “And as companies open up these devices to other apps, the user experience will be greatly enhanced” by allowing video conferencing, web browsing and gaming on a large screen.

He added that the introduction of the Nest home thermostat, and the buzz surrounding Belkin’s WeMo homecontrol line, are indicative of home automation and the concept of the “smart” home entering the consumer mainstream.

SEN’s Howe is especially high on headphones, which allow independent dealers to tap into the still-exploding smartphone and tablet markets. “I joked earlier this year that the International CES should have been called the International Headphone Show,” she noted. “Headphones, along with larger flat panels, home audio, control systems, networking and security should be relative bright spots. But that said, relative is a relative term. Most dealers have adjusted to the ‘new normal’ and are not expecting huge increases over 2011.”

New Age’s Towns sees the greatest holiday opportunities around the launch of the Windows 8 ecosystem, which will drive sales of Ultrabooks, PCs and accessories to personalize those devices. He also anticipates a fourth-quarter surge in gaming and entertainment, sales of which historically rise during the holiday season. This year, 10 of the expected top 25 gaming titles will be released during the period, along with Nintendo’s new Wii U and a flurry of promotional SKUs to help fuel demand, he said.

Towns also advised dealers to consider the female consumer. “She is the power player in CE purchases,” he said, “and the smart retailer will appeal to her senses by having the right look with fashionable, colorful and stylish accessories that can be personalized.”

NPD’s Baker is also bullish on Windows 8, along with anticipated new entries from Apple. “Tablets, slates and hybrid computing devices all will be in high demand as Microsoft roles out its new OS, and taking advantage of the interest and advertising hype generated by likely new Apple products will be an enormous opportunity.”

Retailers must also drive deeper awareness and adoption of newer products and technologies, and make their availability and affordability apparent. “Big-screen TVs are affordable now, and the consumer needs to know that,” Baker said. “High-end audio technologies like better headphones, soundbars and digital speaker systems have reached the mainstream, and retailers need to be aggressively talking to their consumers about why they want the flexibility these provide.”

Ron Eby, purchasing VP at D&H Distributing, agreed. “Don’t forget to get out there and talk to customers, and don’t be afraid to try new things. Give the consumer reasons to take their mobile devices back into the home. Toshiba, for example, offers a mobile app that allows its tablets to function as a remote for its Wi-Fi-enabled TVs.”

Likewise, Amazon’s Hartman sees “many opportunities to help customers find and discover products. As the demand for devices, content and services continue to increase, we see customers not only shopping for devices, but looking for integrated solutions within products.

Like Luthi, Hartman also discerns an opportunity to help customers integrate home entertainment solutions with connected TVs and audio systems that allow them to seamlessly access and share their favorite content, whether it’s streamed from Amazon, a cable/satellite provider or off their own portable device.

“Our goal,” he said, “is to listen to our customers and find ways to meet their evolving needs.”

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