The industry's leading extended-service providers (ESPs) are predicting another solid holiday season for CE, although unit volume will likely come at the expense of price and margin — making warranty attachments all the more critical.
Here's their take on the factors that are already shaping Holiday 2008:
Joe Romano, client development senior VP, NEW Customer Service Companies: We are cautiously optimistic. Due to a late Thanksgiving and cost-conscious consumers holding out for the “best deal,” we anticipate a slow start to the fourth quarter. We also expect consumers to have less discretionary income and to be more selective in their purchases. However, we believe they will cut spending in other areas before they cut back on holiday gift giving.
Additionally, CE sales should benefit from the DTV broadcast transition and, as reported by DisplaySearch, the nearly 25 million TVs that still require transition to digital.
Keith Meier, senior VP/general manager, Assurant Solutions Extended Service Contracts: With consumers preparing for the digital conversion coming up in February of next year, consumer electronics sales should be solid despite the difficult economic times.
Michael Frosch, president, North America consumer products division, The Warranty Group: I believe the consumer will show up. We're seeing a continuation of price reductions, and there'll be more demand due to the digital broadcast conversion in February. Retailers and manufacturers will also provide a lot of price incentives, so the consumer will be incentivized to show up — and take a second look at service contracts.
Chris Smith, president, Service Net: The beginning of the month may have yielded a slightly more optimistic answer, but you have to take into account the major changes in the economic conditions recently, with the continued failures and bail-outs of the financial sector.
That said, in talking with retailers about their Q4 plans and outlook, overall unit sales will continue to grow, but with the retail pricing pressures you may see stagnant or only slight increases in the retail revenues. Overall, though, we are still hearing optimism for the fourth quarter.
You have to look at factors outside the economic conditions that seem to always still drive some consumer spending and are still strong today. First, people still crave entertainment — this will continue to drive the extremely hot segments of personal audio and flat-screen TV sales.
Second, economic conditions have driven more Web-based meetings, work-from-home situations and the need for information delivered outside the office. These telecommuting and information needs will drive the wireless, mobile phone and connectivity product categories.
Third, with the digital TV transition coming in February, more and more people will be upgrading their TVs to digital technology, which is driving unit sales within the flat-panel and home-theater-component categories.
So, the bottom line is really what you see in any fourth quarter holiday season — great potential for big unit volume in the CE space, with margin pressures at retail.
Kevin Rupkey, president/CEO, Bankers Warranty Group: We agree with the industry outlook that holiday sales will be up slightly over last year, as continued strong sales in flat panel will continue to buoy the overall CE market.
Neal Bobrick, sales senior VP, Warrantech: The transition from analog to digital broadcasting in early 2009 should stimulate television demand as many consumers will continue replace old models with new digital TVs. As competition heats up during the holiday shopping season, TV sales are expected to be particularly strong.
Consumer electronics in general have always been popular gifts, and this year will be no exception. Consumers will be in the market for gifts, but we believe there will be even more consumers in the market for their own personal needs as well — all which bodes well for extended-service plans.
Bruce Saulnier, president, AMT Warranty: There's little doubt that the country's current economic situation will be felt at the registers this holiday shopping season. Retailers anticipate a challenging season in Q4 and are responding by placing a stronger emphasis on attaching ESPs to product sales as a key source of profits.
Joseph Saieda, chairman, RepairTech: As slow retail cycles come and go as a result of a diversity of economic factors, there will always be times of great business prosperity followed by difficult commerce conditions. With an understanding of the “ebb and flow” of the economy and the commercial results that come about from this phenomenon, it is important to note that talented merchants will always find a way to make sales happen.
No matter what the rate of sale is in any given time period, it is intrinsic upon the retailer to find ways to sell and service their customers in the best possible way. Consumers will look to spend their discretionary income more this year on things that can be used at home. The travel industry has been and will continue to take a huge hit. It is our feeling that the customer base is looking for things to make their home life more enjoyable and consumer electronics products are the very thing that can bring a great deal of pleasure to anyone.
With sharp marketing, merchandising and salesmanship, the retailers have an opportunity to maximize the business that is out there to be had for the upcoming selling season when more than two-thirds of the annual retail business will be generated for most retailers.