RetailVision: CE Industry On the Rebound

RetailVision: CE Industry On the Rebound

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For every dollar spent by the average consumer on CE products today, households with incomes of $100,000 and more account for $1.69.

"That’s a huge number, and it’s surprising that so many more dollars go through that category of buyer," Steve Baker, vice president of industry analysis at NPD said during his presentation, "Fighting for Survival: Searching for Growth Opportunities in a Declining Market," here at RetailVision’s spring conference in Boca Raton, Fla.

Baker, with more than 15 years experience as an analyst, said those numbers surprised even him when he first saw them several weeks ago as apart of NPD’s latest research.

Other opportunities for retailers include e-commerce sales, which now account for almost 20 percent of retail sales; full-solution product sales and customer experiences; and accessories, to name a few.

One of the keys to finding new retail opportunities is to target the right demographic. Households with $100,000 incomes are a good place to start, Baker said. Although they account for 19 percent of the total households in the U.S., they were recently responsible for 29 percent of CE sales. By comparison:
– Households with income between $60,000-$100,000 make up 31 percent of U.S. households and account for 25 percent of CE sales.
– Households with income between $30,000 and $60,000 make up 26 percent of households and 26 percent of CE spending.
– Households with income less than $30,000 make up 25 % of households and account for 18 percent of CE spending.

The amount spent on consumer electronics by $100,000-plus households also fell far less – only 1.2 percent – between 2008 and 2009 compared to the other groups.

"We can see how the recession has impacted those in the middle income," Baker said. "The real opportunity is with the high-income customer."
Another highlight of Baker’s report is that more big-screen flat panels are selling online than through brick-and-mortar retailers. Share has remained fairly constant through 2008, with roughly 41 percent going through retail and about 50 percent selling though e-commerce sites.  

"Consumers will buy almost anything online today. It’s a growth opportunity," Baker said, adding that average ticket prices are higher online than through retail.

Retailers should also note that many of tomorrow’s hot-selling products, such as netbooks, begin on online before branching out to traditional retailers. New CE e-commerce sites – both broad-line and niche – will continue to emerge, establishing incremental sales opportunities for manufacturers and smart retailers.  

NPD also found that dollar growth for many key CE categories rose during the last few months. Video game software dropped precipitously through last summer and early fall, but rose by roughly 25 percent between October and February. General CE products rose about five percent from January to February, bringing the category out of negative territory. Cell phone growth also rose slightly through negative territory between those months, but is one of the few categories expected to remain relatively flat in coming months.

"We’re driving incremental unit volume every month," Baker said about the last several months. "People are still buying, they’re just not spending as much. People want consumer electronics. We have to remember that consumer electronics are no longer discretionary products, they’re necessities."

To tap into those sales opportunities, Baker suggests that retailers highlight traditional favorites: what sold well in the past should sell well now, he said. They should also explore under-penetrated niches by targeting special demographics and new channels.

Product categories with a high install rate, which help drive add-on and accessory sales, and stable prices are also areas worth focusing on, he said. Accessories prove especially powerful during tough times for several reasons, including
– When consumers can’t spend a lot, they’ll spend a little.
– High-volume product categories still generate big accessory volume.
– Falling prices on the core product leave consumers with extra to spend on smaller items.
– When everyone has one, everyone eventually has to replace one (mice, bags, USB cables, printer cartridges, etc…).

Despite some of the bright spots, Baker outlined a handful of major challenges the CE industry faces in the coming months, including:
– There are no hot products to drive discretionary spending or fuel overall growth in 2009.
– Consumers are more focused on price than features. They are less technology oriented that ever.
– Brand differentiation declines as price focus intensifies
– Circuit City’s demise means less promotional opportunity, shelf space and national visibility for CE.
– Visibility for the second half of the year is limited.

Challenges aside, most industry leaders are saying the last few months have improved. Baker agrees.
"It looks like things can’t get any worse," he said. "We’re bouncing around the bottom now. April numbers look like they’re rebound."

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