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Retailers Reveal Challenges For Back Half


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

“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

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

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