Execs Downplay Katrina's Q4 Impact - Twice

Execs Downplay Katrina's Q4 Impact

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Vendors, retailers and analysts are downplaying Katrina's long-term effect on CE sales as the industry heads into the all-important holiday selling season.

Notwithstanding the storm's catastrophic impact on local independent dealers, national chains will be largely unaffected by the disaster, analysts argue, given the insignificant percentage of stores located in disaster areas.

Moreover, pent-up demand for flat-panel TV, coupled with sharp price declines, should easily carry the industry through the fourth quarter, according to retailers and suppliers.

The greatest consequence of Katrina will likely be higher gas prices, which could boost freight costs for manufacturers and retailers, and curtail discretionary spending by consumers, particularly among lower income groups, analysts say.

So far, that hasn't happened. Despite higher fuel prices and the fallout from Katrina, chain store volume was up 3.8 percent year-over-year for the week ending Sept. 3, according to the International Council of Shopping Centers (ICSC), as shoppers responded to back-to-school and Labor Day sales.

Custom installers and other suppliers attending this month's CEDIA Expo also expressed confidence that their high-income customer base would be unaffected by the high cost of gasoline and home heating fuel.

Richard Glikes, executive director of the Home Theater Specialists of America buying group (HTSA), noted that his members had yet to experience any repercussions. August was a good month, he said, and the start of the football season, plus modest price moves, has jump-started HDTV sales, particularly in LCD and plasma.

“I still think that this will be the biggest year ever in consumer electronics,” Glikes said. “The effect of Katrina and higher energy costs will be on the cost of goods and the ability for us to move goods. I don't think it will affect sales since there is plenty of pent-up demand. Sales for LCD-TVs are up for us in the heavy double digits, and in certain cases speaker sales have doubled this year.”

Steve McNally, Sharp CEG's A/V sales senior VP, agreed. “The market was stretched for merchandise before Katrina, and [nationwide] demand is still strong,” he said. “There has been pricing pressure, but our business has been very strong. Our estimates on this year's HDTV business were more bullish than CEA's, and we have high growth over those aggressive projections.”

While Panasonic's product and marketing senior VP John Iacoviello said it is too soon to assess Katrina's full impact, “Certain major accounts say that there are fewer consumer visits recently, but that consumers are buying more. As for general CE market trends, flat-panel sales have been very strong and so have DVD recorders, and we expect that for the balance of the year.”

Not all observers were as certain. Sony's Stan Glasgow, consumer sales president, noted that “at this point nobody really knows what the effects will be. It is way too early, but there has to be an effect on business.”

Nebraska Furniture Mart's Jay Buchanan doesn't think that will be positive. “Oil changes affect everything,” he said. “It increases the cost of doing business. Transportation costs will increase for inventory. [More trucks to the Gulf Coast] means a shortage of trucking and a lack of transportation.”

Fred Towns of New Age Electronics agreed. “Transportation will be affected. There will be a surcharge on fuel. We are presenting to retailers [and] suppliers that we can send product to the store directly and eliminate the need for them to send product to [distribution centers]. Independents are used to free freight charges, but that will go away.”

While retail analyst Dan Wewer of CIBC World Markets pegged the amount of lost sales from affected Best Buy and Circuit City stores at about 1 percent of its total third-quarter volume (and far less for RadioShack), he described Katrina's impact on fuel costs as “the bigger and universal concern to hardline retailers.”

(In a conference call, Best Buy said the storm's immediate impact on its business appears to be “immaterial,” but was uncertain how consumers would respond to resulting gas price spikes. Of more immediate concern, said chief financial officer Darren Jackson, is the auto industry's employee discount promotions, which are siphoning off discretionary dollars.)

Higher gas prices will further constrain consumer spending, particularly on higher margin discretionary items, Wewer predicted, and will compel consumers to increasingly curtail their shopping trips.

According to an ICSC survey, discretionary spending on items including CE is already constrained. A poll of 1,000 households conducted earlier this month found that 59 percent are reducing their spending on non-essential purchases, including electronics.

Yet despite all the fallout, Bob Cole, owner of World Wide Stereo and president of Home Entertainment Source (HES), the custom A/V wing of the BrandSource buying group, predicted at CEDIA that HES sales will top $1 billion this year.

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