Holiday Outlook: Distributors See Silver Lining In Cloudy Economy

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Sky's-the-limit price increases on fuel and food may be squeezing the economy, but they could be a boon to the CE business come Christmas.

According to distributors, who represent an increasingly critical component of the industry pipeline, a stay-at-home mentality combined with cheaper flat panels and a looming digital-broadcast transition could make for a merry holiday selling season.

"High fuel prices will continue to impact our economy as a whole, but new innovations in CE products, the upcoming switch from analog broadcasting to pure digital transmissions coming up in February of 2009, and declining pricing on products such as larger LCD TVs will keep the category growing," said Joel Blank, executive VP of ArchBrook Laguna.

Pain at the pump will also compel more people to shop online, he added, further driving growth of e-commerce solutions.

Mike Hench, president of the Edge Distributors Group, an alliance of 15 independently owned regional distributors serving custom installers and residential systems integrators, concurred. "Some consumers have made the decision to curtail travel and vacations due to high gas prices and have chosen to spend that money on improving their at-home lifestyle," he said.

While Henry Chiarelli, president of DBL Distributing, remains "cautiously optimistic about the golden quarter," he agreed that soaring energy costs will keep people closer to home, resulting in a "nesting effect that will encourage consumers to continue to spend on CE products during the holidays."

Warren Chaiken, president/COO of Almo, is even more upbeat. "Our outlook is quite positive for the '08 holiday season. As energy and food costs are rising, consumers are spending more time at home. Therefore their home entertainment experience is top of mind, and spending in home entertainment categories has been steady," he observed.

Nevertheless, Almo is taking a "moderate approach" to the fourth quarter and will continue to analyze the market on a month-by-month basis to ensure that it is prepared for any scenario, Chaiken said.

Curt Hayes, president and chief finaicial officer of Capitol Sales, also believes that consumers will focus on gifts for the home as they cut back on spending and personal travel. "Electronics are typically a popular holiday gift category, and as consumers recognize the excellent price points for HDTV, especially in light of the digital changeover in February 2009, we believe that this will be a strong category for the holiday season," he said.

To that end, Capitol will be "aggressively purchasing HDTV and related key categories" to stock up for the holiday season in order to maintain the company's 98.5 percent fill rate, Hayes said. He also believes customers will be ordering via Capitol's Web site to take advantage of free freight on UPS orders for most products — including LCD TVs up to 32 inches — to help offset their own rising costs.

To Dan Schwab, co-president of D&H Distributing, the holiday outlook is "very strong," with e-tail demand projected to surpass historical fourth-quarter uptake. Schwab is encouraged by his company's record home entertainment sales during the May-June period and a threefold growth in its small appliance division year-over-year.

Besides the advent of gas-price-prompted stay-cations, he too pointed to lower HDTV price points and the upcoming analog-to-digital broadcast transition as important industry drivers in the fourth quarter.

"Although the economy is currently in a tight position, price points on LCDs, and especially plasmas, have hit an all-time low, and consumers are starting to realize that it's time to take advantage of their buying power," Schwab said. "Combined with the lower price points and a lack of channel education regarding the details of the transition, consumers are simply upgrading their entertainment experience with a new television."

Still, it won't be an easy ride. "Consumers are now approaching CE spending with a 'Do I need it?' as opposed to a 'Do I want it?' mentality. They're shopping smarter and buying smarter. Manufacturers need to really appeal to specific demographics and consumer needs if they want to work their way out of the corner the economy has driven the manufacturers into," he said.

Despite positive indicators, Edge's Hench, who is also principal of Electronics Source, a distributor, and LP Hench Company, a sales representative firm, believes that the industry should still be prepared for a "restrained" holiday season.

"Last year, even though we were feeling the effects of the homebuilding slowdown and tightened credit, consumers still had faith in the economy," he said. "We're still dealing with those issues, but we now have higher gas prices and higher food costs to contend with as well. These are real-world issues that affect all but the very wealthy. Consumer confidence is very low. The results of the upcoming presidential election may help the situation somewhat, but if people don't have available cash or credit, they won't be making many discretionary purchases."

To combat the slowdown, "We must be the best possible supplier to our current customers and aggressively find new ones," Hench said. "We will do this by doing what we've always done — maintain proper inventories, great customer service, and the best dealer training and support."

Whether tough times will prompt another season of painful price promotions remains to be seen. According to D&H's Schwab, "It's really too early to tell if the fourth quarter will bring conservative or aggressive action into play. With the existing recession and the presidential election upon us, only time will tell what year-end has in store for the CE industry."

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