Retailers are guarded in their fourth-quarter outlook as they lay in plans now for the next holiday selling season.
Given the continuing economic slump, CE dealers are choosing to err on the side of conservative buy-ins, and are counting on suppliers to provide late-date replenishment should stockpiles run low.
But despite their Christmas concerns, merchants are also confident that several core categories, most notably high-end TVs, will help make the Yuletide bright for company coffers.
“We’re cautiously optimistic about the fourth quarter,” said Bernie Sapienza, VP/merchandising and purchasing for the burgeoning Tweeter Home Entertainment Group. “We’re not being overly aggressive, but we’re not running away or hiding either. I’d be a fool to say we see a robust Christmas coming up, but we’re not changing our position in the market. We haven’t had a [sales promotion] in eight years, and we’re gonna stay on course.”
Helping Tweeter maintain its tack will be DTV, which now comprises 90 percent of all sets sold. “It may be old hat now, but it’s a driving force,” Sapienza said. Also “wicked hot” is home theater in a box. Aided by shopper-activated in-store demos, Tweeter will focus on a new generation of $500 to $1,500 systems, leaving the $199 to $399 tier to the discount crowd. Tweeter is also “planning aggressively” for digital set-top boxes with built-in hard drives, and sees big business in mobile multi-media and in-home installation services, he noted.
Dave Workman, president/chief operating officer of fellow PRO Group member Ultimate Electronics, believes that “there’ll be some level of recovery for the Christmas season. It won’t be a train wreck, although the question is how long that can push through to the first quarter.” To that end, he said Ultimate is “managing our inventory and being cautiously optimistic in our buy. The last thing I want to do is create a self-fulfilling prophecy in which we lose three or four points of comps because I bought my way down to that.”
Instead, Workman is preparing for a “slight comp increase, and will scramble for inventory later” should he underestimate consumer sentiment.
On the product front, “big video is still hot and growing like weeds,” Workman said, and he remains bullish on better DVD, i.e. progressive scan and DVD audio, despite the bloodshed at the low end. “The industry has degraded DVD prematurely, and I expect there’ll be some yahoo out there thinking he can make his Christmas season with a $77 or $69 price point. And unfortunately that takes a consumer out of the marketplace.”
Other margin-damaged categories include digital camcorders and audio receivers, while sales of home and mobile audio, including mini-systems, remains soft, he said. In their stead, Ultimate is looking to the PlayStation gaming platform, a new category, to bolster sales and earnings.
Like her peers, Cathy Stauffer, VP/merchandising for Good Guys, is “buying very carefully. Everyone is cautiously optimistic that improvement is coming, if not for the holidays, then early next year. But key categories will still be in demand, and we’re going to make sure we have a very good in-stock position on core products.”
Among those items: step-up DVDs, including progressive scan, DVD audio and portable models; home theater in a box; satellite receivers with digital recorders; and, of course, high-end TV.
“HD and HD-ready TVs have become a core strength, and DTV will continue to be strong through the holidays,” Stauffer said. “Meanwhile, the plasma numbers are growing like crazy, and while LCD TVs won’t sell like popcorn, they’ll stimulate a lot of interest. We also expect there’ll be many more flat glass TVs.”
Dennis May, executive VP/chief operating officer of H.H. Gregg, said his crystal ball is also cloudy. “The economy is unsure, consumers are shy right now, and I’m not sure it will change by the fourth quarter.” Nevertheless, the NATM dealer is confident that categories that have been strong — including DTV, DVD and other digital products — “will continue to do well.”
Gary Richard, president/CEO of P.C. Richard & Son, also sees a strong fourth quarter for core digital categories like cameras, camcorders and big bucks TVs. “HDTV is starting to loosen, and plasma is starting to pop,” he observed. Nevertheless, the CE/majap chain scion said, “We always buy cautiously. We’ve built and have relationships with manufacturers, so we don’t have to fill our warehouses. If we need something, we can get it.”
Caution is also the order of the day on the buying group front. NATM members “are going to buy with confidence, but there is a cautiousness” because of the economy, explained executive director Bill Trawick. “One thing you don’t want to get caught with is extra inventory.”
Trawick said his members are counting on broader selections of 16:9 projection TVs going into the holiday buying season, as that category, along with DVD and combo units, has enjoyed growth among the group’s dealers. But falling prices in both DVD and projection TV suggests “some very competitive pricing through the rest of the year,” Trawick noted. “The market will be somewhat unstable in the second half, due to price moves.”
MARTA’s executive director Warren Mann said his group is fairing better than the industry overall and, hence, is feeling moderately confident about the fourth quarter sales scenario. “No MARTA retailer has gone out of business in the last year, and that has us cautiously optimistic,” he said, citing a long list of major appliance manufacturers and retailers who have taken a hit in the down economy.
In preparation for the holidays, MARTA has discussed stocking up on progressive scan DVD, HDTV and new generation refrigerators. Now that “mainstream America can get in [buy progressive scan DVD] for $400,” Mann said, he thinks they will penetrate more U.S. households.
Similarly, while Nationwide TV & Appliance director Ed Kelly believes the fourth quarter is “going to be fine,” even “good,” he acknowledged that some members “will be a little more cautious this time.”
“If credit tightens up, if they drop approvals, then that could really hurt us,” Kelly said.
But credit crunches notwithstanding, Kelly said his group has enjoyed huge growth in big-screen TVs and combo TV/VCR units, although “DVD leads the pack right now.” In addition, “Flat screens are really starting to move – that’s an exciting category” — and PVRs will likely fly off the shelves when they hit the $199 range, although he wouldn’t hazard a guess as to when that will happen.
Among the dot-com contingent, 800.com is also basing its fourth quarter plans on “cautious optimism,” said senior VP/merchandising and operations, Frank Sadowski. “Any experienced merchant will be cautious with purchasing, especially in A/V, because big-ticket items get hurt in a soft economy.”
Nevertheless, among Sadowski’s top holiday picks is HDTV, which continues to buck that rule by performing “extremely well” in spite of the economic uncertainty. He also anticipates “over the top” sales for digital photography, and expects “an enormous fall season” for progressive scan and other trade-up DVDs.
Conversely, danger zones include VCRs and home and portable audio, which “without question will be highly promotional and extremely competitive” as the big-box chains look to those categories as cannon fodder.
Perhaps most upbeat is Carl Gish, VP/electronics at Amazon.com. “We’ve heard and seen a lot of caution about the fourth quarter, but we continue to see growth and are excited about it,” he said. “We’re not expecting quite the same growth as last year, but CE remains the fastest growing category [for us].”
Fueling that expansion are DVD players, both portable and otherwise, as well as computer peripherals and expandable memory. Amazon has also enjoyed strong sales of routers and other home networking equipment. “It’s no DVD, but it’s a new and growing category that is attracting the early adopters,” he said.