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TWICE Retail Roundtable: Top Holiday Takeaways

Las Vegas –  Amid this week’s record cold snap, consumers and retailers may still find warmth in the memories of Holiday 2014, and the abundance of 4K TVs that Santa managed to slip through the chimney.

Indeed, top CE merchants attending TWICE’s annual Executive Retail Roundtable last month at International CES said 4K, along with premium headphones and PCs, helped spur the industry’s best fourth quarter in years.

Also contributing to the glad tidings were controlled promotions, an extended shopping season, the solid macroeconomic backdrop, and a growing predilection for mobile shopping.

All this sets the stage for what panelists hope will be continued momentum through the first half of the young year, abetted perhaps by rich new opportunities in connected home solutions. (See that discussion here.)

The following is an edited transcript of the Christmas conversation.

The Participants

Mehrdad Akbar, VP, wireless, tablets, wearables and connected home, Walmart

Stephen Baker, industry analysis VP, The NPD Group

Ryan Ciovacco, president, connected solutions & CE, Sears Holdings

Brian Coupland, business development VP, Staples

Noah Herschman, COO, DHgate

Tom Hickman, electronics senior VP, Nationwide Marketing Group

Laura Orvidas, VP CE,

Michael Schwab, co-president, D&H Distributing

Fred Towns, president, New Age Electronics

Evie Wexler, president/co-founder, The Little Guys

David Wexler, VP/co-founder, The Little Guys

David Workman, president/COO, ProSource

TWICE: So, was Santa good to the CE industry this past holiday season?

Tom Hickman, Nationwide Marketing Group: I was reflecting back on this meeting from last year when we were using terms like “Snowmageddon” and making excuses, trying to figure out why we had such a soft holiday. But I am very happy to tell you we didn’t have any of that going on this holiday. We had a great Q4. If the holiday had ended in the middle of December our guys would have been fine. Thankfully it didn’t; they always want more.

As much as I would love to think that it is the collective genius of the people in this room, every economic indicator is pointing to the fact that things are on the rebound. Consumer confidence, unemployment and the stock market have been in incredible shape. People are starting to come back. There are discretionary dollars to be spent. Luckily for us, it gets spent in our category. We had a flat first six months but crushed the back half of the year starting in August-September.

TWICE: The stars were aligned and gas prices were down. But macro-factors aside, how did the various product categories perform?

Dave Workman, ProSource: Similar to what Tom has already opined on, the back half of the year was exceptional. I would characterize the holiday as probably the strongest we have seen in six or seven years overall. It wasn’t one thing, although television was clearly a standout performer with upside performance in 4K television.

What helped us was there was a lot of concern about off-brand product and the price points that were going to be generated from Black Friday and whether or not it was going to do the traditional “drag the baby down” for the season. But it just didn’t seem to be the case. Consumers wanted brands. If they were going to spend the money on the technology, they were going to spend it on a brand, and that really helped our channel.

Besides the television product, we also saw it with luxury items, the custom business that is represented by so many of our dealers. It was a season built on not one product but many, and that goes back to the macroeconomic indicators, with a little more confidence in the consumer.

The good news out of all of this is that in all of my years in the business I have found that if you have a strong holiday it tends to be an indicator for the first half of the year. We always wish and pray thinking that every start of every new month is going to change direction somehow, but momentum is a fluid thing. With the strength of the holiday, I think we can look for a good first half of the year for all. I don’t see any reason why we shouldn’t keep this trend continuing.

4K Was King

TWICE:There were some precipitous price drops on tier-one 4K during the season. Has pricing recovered?

David Wexler, The Little Guys: For us it is about 4K and getting that part of the business started. The margins are there for once in a long time, and if some of the price compression would stop that would be even better. But it wasn’t the same effect it had been in years past. I agree with David, people were willing to go the next step.

Because there is another level of performance, what we are seeing is that the original plasma customers, the original SXRD customers, and the customers who bought XBR or a premium product in the early 2000s, are now taking a step. Fortunately, there is a product to fill that spot for them. It’s a $2,000 to $4,000 television, even $7,000 for a 65-inch TV. It’s a beautiful thing. It’s really nice.

We had the same trend with a tough first half. The freeze hurt us because the building stopped in Chicago. Nobody broke ground or did anything. The second half just kept building, and [as of Jan. 6] we are booked solid with installs through almost the end of February now. We are insanely busy getting the installs and those kinds of things done. It’s positive.

TWICE:A lot of the promotions, particularly on the TV side, were vendor controlled.

Michael Schwab, D&H Distributing: Very much so.

TWICE: Was that a good thing? Is it OK to give up a little control in exchange for a tamer marketplace?

Workman: It wasn’t insane. There was an atmosphere [during Holiday 2013] of desperation promotion. There were over-inventory situations across the board, and people were panicking. It was nonsensical.

This past holiday was more strategic in the way that promotions were taken to the market. As a result, margins held through the back-end of the season. It is always going to be promotional during this time of the year, but it was planned strategies, not panic strategies.

The thing about November was November was made before Black Friday for most retailers. The promotional cadence from the first of November through the third week, before Black Friday hit, really built the gains.

When the NRF [National Retail Federation] numbers started coming out and it looked like Black Friday was down, as we were trying to lap the opening Thanksgiving Day stuff and all of the rest of it, the numbers didn’t look very good. What NRF didn’t take into consideration was that the month was already made with the way that the business had been promoted in the earlier part of November, and really what happened after was that it was promotional.

Wexler: From our perspective, there was no reason to lower the prices to the point that they were lowered to. We didn’t sell one more TV because it was $1,299 instead of $1,599, or $1,899 instead of $2,099. That was 100-percent unnecessary from a small, independent’s perspective. It was just as many sets as it would have been the other way.

Stephen Baker, The NPD Group: TVs were rocking. This was the best TV year we have had in a while with over 9 million units, up 5 percent, and up 1 percent in dollars.

ASP [average selling price] was up for the five weeks to $362, but the 65-inch was up over 100 percent in units. Even the 33- to 49-, and 50- to 64-inch were up double digits in units this year and up in dollars despite the aggressive promotions that we saw around 40s and 50s. That was good and helped solidify the base of the TV market.

4K was 4 percent of total units, which is amazing considering that the average selling price of a 4K TV was over $1,500. The overall average selling price was $362, so 4X was the average selling price for 4K. Half of the 4K volume was 55-inch. Another 30 percent of that volume was 60 and above. 4K was 25 percent of all of the 65-inch televisions and 11 percent of the 50-inch and above. Just rocking, great numbers.

The total units in 4K was around 400,000, something in that area. They are solid numbers. We have seen them going up all year, and had a nice hockey stick as we got into Black Friday.

Outside of that, the other category that performed pretty well unexpectedly was PCs, which were up in units and basically flat to down a little bit in dollars.

The other category, which I know Fred [Towns, New Age Electronics] spent a lot of time on was headphones. Headphones were up another 20 percent. We sold three-quarters of a billion dollars in headphones in five weeks. That is a category that has come from nothing, and not being a category that the industry really thought of as a core category, to the fourth-largest dollar value of any category that we tracked over the holiday.

Fred Towns, New Age Electronics: Yes, the headphone business and categories like that were rocketing through the roof. And as Steve also said, PCs were very hot for us this year. We had a great year in the PC categories.

Whither Wearables?

TWICE: How’d wearables do over the holiday?

Towns: The biggest problem we had was being able to get enough. As many new companies come out and introduce their products, they are trying to figure out where the waterline is of where the product is going to go.

It skyrocketed in a lot of cases, and people are really trying to find a different way to use the devices, whether for health or tracking fitness or just to receive their e-mails. Some people want to look at it as a watch or a piece of jewelry with an indicator. Of course the fitness person is always looking at it from the health aspect, and even Apple, when they introduced their new 6 product, embedded a new application in their software that ties in with fitness tracking.

Everybody is acknowledging the fact that it is an important category. People are always trying to find some way to improve their health. There was a lot of request and demand for those types of products. We found that anything that was connected was pretty exciting this year.

TWICE: Laura, are you responsible for Amazon’s Wearable Technology store?

Laura Orvidas, Yes. I’m a huge fan; I was looking around to see if anyone else has a wearable on today. I’m scoping out new wearables on this trip.

We have 450 wearable technology SKUs, some of them exclusive to Amazon from some new manufacturers. We have the Mio watch, which tracks your heart rate if you don’t want to wear those bands that can be a little bit constricting. Instead you get to wear your watch.

TWICE:Industry expectations going into the holiday season was that wearables would be a popular stocking stuffer. Was that the case?

Orvidas: We continue to see strong growth in wearables and are excited about the category, but it is still in its infancy in terms of adoption. There are still a bunch of consumers out there that are not quite sure how these products interact with their devices or how they are going to help their health. The awareness is growing, and as we figure out how the data will help our lives we will continue to see adoption of wearable technology.

Fifty Days of Grey

Schwab: Usually coming out of Christmas there is something that is sold out or was hard to get and people would be scrambling. But last season there wasn’t one must-have product. I didn’t sense that across consumer electronics, that there was one device or one technology that was a must-have.

My observation was that you could almost call it the end to Black Friday as we knew it. I would replace that term with, instead of Fifty Shades of Grey, maybe Fifty Days of Grey, grey not being black, but stretched out over 50 days.

Over the month of November and the first 20 days of December is when the momentum hit. I don’t think you had the accelerated price depression with everyone focusing on Black Friday. You had incremental changes with ebbs and flows in pricing throughout the season that allowed people to see profitable opportunities within the holiday that they don’t normally see.

Baker: It is interesting. Every year we come here, and every year I hear panelists telling me that people are buying earlier and the promotions are earlier. I have to tell you that the sales numbers don’t show that. The percentage of sales and the volumes that happened the three weeks before – I’m going to call it Thanksgiving week now instead of Black Friday week – the last five years have been almost exactly the same within about 3 or 4 percent. It probably has more to do with the calendar than anything else. Certain categories may shift around, but from a total perspective we are really not seeing more and more dollars being spent earlier.

Where we are seeing more dollars spent certainly in the last couple of years is Thanksgiving week and then the following week, Cyber Week. Those two weeks definitely seem to be gaining share and prominence. Some of that is just the calendar and how many days you have left to go until Christmas. That has an impact.

We tracked about $15.7 billion in sales over five weeks. While that was down over last year, if you take out tablets, which was a total disaster in general and down something like $800 million in revenue from 2013 to 2014, we are basically flat or a little bit up.

Towns: One thing from our side was very different this year: We were shipping many different products and deals very early. Sales that were happening in July and August were really for Black Friday in some cases for big retailers.

We found that the planning aspect of it was far better this year from the manufacturers and brands that we represent than in years past. In years past, they would see what was starting to stagnate and all of the sudden they would decide to make this move.

Schwab: I would agree with Fred, the early plans paid off. The strikes in California really caused havoc for people who were waiting for goods to arrive late in the season. Inevitably there were containers that landed after Christmas unfortunately, because of the timing of everything. Anything coming by ocean freight was at risk if it wasn’t planned early enough to clear the harbor in time for the holiday.

Towns: That’s very true. Gaming was definitely delayed at the ports. A lot of products from the key brands were anticipating a big holiday season because they introduced the year before, but this was the season where they were supposed to have improved supply. The delays really hurt the holiday.

TWICE: Was there tightness in any other categories?

Schwab: From that perspective, I would say we were waiting on housewares. Anything that you can’t ship economically by air freight, if it’s bigger in size but lighter in dollar value, you have to ship ocean freight. That is what we were waiting on.

Going Mobile

Mehrdad Akbar, Walmart: Apart from what consumers are buying and when the shopping period starts, another interesting dynamic we saw was how they are shopping. We are seeing a massive proliferation of online shopping. People are buying through their mobile device and picking up in the store.

The shopping patterns and behaviors are also changing. It started sooner and continued through December, but our ability to be there for them regardless of how they want to shop, when they want to shop or where they want to shop also really helped our consumers.

TWICE:I believe Amazon reported that 60 percent of its holiday sales originated from mobile devices.

Orvidas: Sixty percent of our sales were mobile as we went into the holiday season. What was interesting about that is we did see the mobile percentage accelerate as we got later in the holiday season. We are definitely seeing a consumer change, moving to mobile and away from the PC.

TWICE:Was that an increase over 2013?

Orvidas: It was accelerating throughout the year. If you look back a few years, [the percentage of mobile-based purchases was] very small. It’s continuing to be a larger share of consumer purchases. As everyone is adopting smartphones and people are getting more used to the technology, they are getting used to shopping on apps. At Amazon, we have one-click purchasing. It’s easy to buy from your mobile phone.

Akbar: We saw that too; about 50 percent of our dot-com traffic came through a mobile device.

TWICE: For holiday?

Akbar: It’s actually been a trend that started even before that. That is what I was talking about, that we are seeing the customers change in how they shop, when they shop and where they shop. It is an interesting dynamic, and it’s our job to be able to provide 4,300 locations where they can come and actually pick up what they want. Ten percent of the actual mobile sales are done in the stores. We are seeing a very interesting dynamic that allows us to be able to serve our customers better.

TWICE: How far away is the tipping point, when people will choose mobile shopping over desktop throughout the year?

Orvidas: I think people will shop multiple ways. They will continue to shop in stores, they will continue to shop on the PC, and they are going to continue to shop with their mobile devices. It really depends on the customer use case. If I don’t have a ton of time, or I’m in the car and I think of a purchase, it’s really easy for me to go on the mobile phone and just buy that item right away. There are a ton of consumers who think of something and if they are able to buy it while they are waiting for their coffee or out and about, they will take advantage of the mobile platform.

Sometimes when you want to do research, it’s harder to do that on a phone. They will seek out a PC or a tablet to do that research, and they will have more dedicated time and focus to do that shopping.

Baker: I’m going to add a kind of iconoclastic piece to this. One problem with just talking about mobile is that we mix the app world with the website. If you’re on a tablet, that typically counts as a mobile kind of purchase. Everyone has tablets, but we use them very similarly to the way we use desktops. I love to hear people talk about did I buy something with an app, which is much more likely to happen on a phone, or did I buy through the website, either on a mobile OS or on a mobile device like a tablet or on a PC. That is a much more accurate perception of what people are actually doing.

I don’t think a lot of people are doing TV research on their phone. Even if you have a really big phone, it is still not that easy. You don’t get the depth of perception. You don’t get all of the easy multimedia things. When you are on a nice tablet, you can get all of those things, but having that count as mobile is a little unfair. It is more similar to the experience that you have on a notebook or PC than you would on a mobile app. We should wrap those things in tighter bows in terms of how we are seeing things.

Related:TWICE Retail Roundtable: Opportunity Knocking On Connected-Home’s Door