By Mike Duff
Next year won’t be an easy one for consumer electronics, but it might not be a wash-out either as worried consumers scale back purchases rather than forego them entirely.
Certainly, the concluding holiday season has witnessed a change in the consumer electronics landscape.
As the holiday period opened, retailers saw strength in televisions driven, in part, by necessity.
“TVs are very popular, as well as the set-top boxes for the digital conversion,” said Sears Holding spokesman Larry Costello.
Consumer Electronic Association analyst Shawn Dubravac said that flat-panel television sales enjoyed greater popularity last year, but at a lower price.
“Flat-panel sales were up 43 percent for the year through the early part of December, but the average selling price fell as consumers switched to smaller, less expensive sets,” he said.
Several things came together to drive down the price. Early adopters who were coming back into the market after already purchasing their showcase televisions weren’t looking for epic screens for their bedroom sets. Outside of the electronics enthusiast set, consumers have been weighing their choices more carefully as the economy has worsened, balancing screen size and price. And shoppers began bargain hunting even before the official Black Friday start of the holiday season, taking advantage of price-comparison engines online and promotions just about everywhere.
The television category may start settling into replacement mode after the holiday season. At least that’s what Sony seems to think. In early December, it announced plans to shutter several manufacturing facilities, including a plant in Westmoreland, Pa., that manufactured televisions. Sony’s evaluation of television-market potential was a critical element in its decision to cut down on manufacturing capacity, along with the slowing global economy and exchange-rate factors, said company spokesman Michael Koff.
“You have almost a perfect storm,” he said. “It really necessitates this kind of streamlining.”
Tim Alessi, LG’s director of new product development, said, however, that television sales certainly won’t collapse. Consumers, while favoring less costly sets, continue to purchase a relatively large number of upscale LG models, and he noted that prices hadn’t fallen as precipitously in the holiday season as some had feared. If flat-screen televisions are becoming more of a replacement market, consumers won’t hesitate to buy them at need and may be willing to trade up.
“The television has become something of a necessity for everyday life, whether as an information outlet or entertainment,” he said. “Consumers may be cutting back on spending, but may say, ‘A TV gives me years of enjoyment.’ It’s not something people buy everyday, and they may stretch for a couple of features.”
For some consumers shopping in 2009, the actual television isn’t the issue but how entertainment is delivered. “DTV will drive energy around television early in the year,” said Ben Therrien, a Best Buy spokesman.
Consumers with free cash are likely to consider how they can best enhance the investments they’ve already made in electronics systems.
The situation suggests gains for Blu-ray players. At a point in the product cycle when sales should begin to rapidly improve, Blu-ray players may grow more slowly in the current economy, but they should continue to advance, Dubravac said.
“Blu-ray has momentum,” he said. “It should continue to do well next year. Part of the story there is we always expect technology to follow some linear adoption curve but electronics follows an S-shaped curve, slow at adoption then at an increasing rate until it arrives at a decreasing rate and declines. We’re a couple of years into Blu-ray and it’s starting to see some of that increase.”
Blu-ray manufacturers such as LG have tried to craft devices that derive value from the amount of entertainment delivered. The LG BD300 Network Blu-ray Disc Player, for example, plays high-definition Blu-ray discs, converts standard DVDs to 1080 pixels and can stream Netflix movies directly. “At $299 to $349 retail, it’s not cheap but not super-expensive, particularly when consumers can get that much use and enjoyment out of it,” Alessi said.
Similarly, smart phones are at an early stage of adoption and should continue to grow. The economy may depress the rate of growth for a while, as consumers may wait for contracts to expire rather than trading up on impulse, but they continue to generate excitement.
“We still have smart-phone unit growth very strong next year, we think at a 30 percent unit rate,” Dubravac said. “It would be higher if we were not in a difficult economic climate.”
Ancillary products are likely to make a strong showing in a weak environment as low-price enhancements to existing big-ticket systems. Take gaming systems as an example. Hot gaming systems such as the Wii have momentum to propel them into 2009, but the sales of game consoles will fall off significantly, as they do after every holiday season. Games, controllers and other elements that make the console more fun will sustain sales under the system umbrellas.
The potential of ancillaries extends beyond gaming, though. Evan Dash, principal owner of Innovative Technology, said his company continues to experience significant growth in niche markets where his products bridge technologies.
“In 2008, we launched Digitize Your Memories, which is a collection of products that allow the consumer to convert their old analog media like vinyl records, cassettes, VHS tapes, film negatives and more to current digital formats,” he said. “As the economy has slowed, the customer has been very receptive to stay-at-home, project-oriented solutions.”
With the Consumer Electronic Show just over the horizon, Dash said Innovative Technologies will continue developing niches where consumer are still willing to spend, including new applications of established technology. “We are continuing to build upon our success in Digitize Your Memories as well as launching new products in our Clockwise range,” he said. “Clockwise is a collection of alarm clocks that use voice-recognition technology to allow the user to set the current time or desired alarm time.”