CE retailers are girding themselves for a battle royale this holiday season.
While most Americans head to beaches and barbecues this month, merchants are laying in plans for a fourth-quarter slugfest over diminished disposable dollars.
According to dealers, distributors and buying group executives contacted by TWICE, consumer sentiment is unlikely to improve by the holidays, and value will be the new maxim for shoppers at all income levels.
Indeed, according to a recent Reuters poll conducted by America's Research Group, 40 percent of consumers said they will spend less this Christmas than last year, when retail sales plummeted across the board. As a result, CE dealers are gearing up for a bruising promotional environment, culminating in a Black Friday weekend that NATM Corp. president Bill Trawick described as “a bloodbath.”
Mike Decker, electronics marketing senior VP for the Nationwide Marketing Group, concurred. “This will be the most aggressive Black Friday that we have ever seen,” he said, as manufacturers vie for greater market share and with retailers like Best Buy and hhgregg already turning up the promotional heat to drive traffic.
Compounding the promotions is price erosion. “It's killing us on the CE side,” Trawick said, while the net effect, Decker projected, is limited unit growth in the second half while revenue dollars decline. “Manufacturers are continuing to reduce prices, which is contrary to a difficult and challenging environment,” he said.
In search of profitability, retailers are loading up on pricy LED-lit LCD TVs and high-margin accessories in hopes of trading up customers drawn to the steep seasonal discounts (see story, p. 18).
But deciding where and how big to place those bets is proving trickier than ever for merchants, whose usual planning tools are hampered by last year's atypical holiday season and the see-saw sales volatility of recent weeks.
What's more, with the exception of planned promotions, vendors are keeping production lean, leaving little room for misjudgments in forecasting.
“Nobody's carrying safety stock,” observed Dave Workman, executive director of the Progressive Retailers Organization (PRO) Group. “There's no tolerance for just-in-case inventory, so you need a solid forecast, and dealers and manufacturers both need to hold themselves to it.”
Buyers, like consumers, are also rattled by near double-digit unemployment and the still-ailing housing market, which is keeping even higher-income customers on the sidelines.
“The whole thing pivots on housing and it hasn't corrected itself,” said Richard Glikes, executive director of the Home Theater Specialists of America (HTSA). “I keep thinking it will get better but it vacillates. You'll have traffic for a week and then it's dead for 10 days.”
To help generate profitable sales, “dealers will have to promote differently,” said Jim Ristow, executive VP of Home Entertainment Source (HES), the A/V specialty division of the $12 billion Brand Source buying group. “We will have to show a real value to consumers, and will partner with vendors on a few key promotional models to drive the business.”
“Once we get the customer inside,” he said, “our members do a good job of selling more profitable goods” — as reflected in their ratio of LED to standard LCD sales, which outpaces the industry 2-to-1.
HES members are also culling their current customer base to drive repeat business and build deeper relationships with their clients, Ristow said.
Despite the challenges, Ristow and others expressed guarded optimism about the holiday season, especially as businesses go up against last year's precipitous comp-sales declines.
Also fueling growth is a substantial chunk of still-unclaimed Circuit City volume. “The market contracted around Circuit City's vacuum,” PRO Group's Workman said. “Even though Amazon and Walmart were the big initial winners, it takes time for the market to fill the pothole.”
The CE industry also continues to enjoy pockets of strength, be it by sales channel (e-commerce remains robust), geography or product category. “Right now our members are seeing tremendous sales activity on LED,” Nationwide's Decker said. “Our major supplier, Samsung, is doing everything possible to keep us in a plus inventory position. Once our fulfillment partner SED receives the product, it is basically already sold and out to members.”
“Christmas comes every year and people will spend money because that's what Americans do,” said Warren Chaiken, president/COO of Almo Corp., a national distributor. “Our CE sales have held up very well, and people who stopped buying at the beginning of the year have come back.”
“The holidays won't blow anyone away,” he said, “but they should at least be satisfying for everyone.”
Still, to ensure a satisfying season for MyerEmco, president/CEO Jon Myer is making the most aggressive strategic course corrections in company history. “Dealers have two choices,” he said. “Fight or die.”