CE market never more digital nor dynamic - consumer electronics - Guest Column - Column

DSN Retailing Today, Jan 5, 2004 by Gary Shapiro

Happy New Year! As I write this, we are in the midst of a decent retail holiday selling season. Consumers want our products to stay informed, entertained and connected. Consumer electronics were at the top of many holiday wish lists with DVD players, digital cameras, notebook PCs, cellular phones, video game consoles and MP3 players among the hot items. What's more, each product category has strong growth forecast into 2004 and promises to contribute to CE profits.

Desktop computers and laptops were No. 2 on wish lists this holiday season, second only to apparel. And for the first time, digital cameras were listed among the top five items consumers most wanted. Sales of digital cameras are expected to outpace sales of film-based cameras for the first time this year. Music-related sales are exceeding expectations, too. Through the end of October 2003, wholesale shipments of digital music players, including players using both solid-state memory and hard disk drives, soared 68% to 2.1 million, according to Consumer Electronics Association (CEA) Market Research.

Digital technology has given retailers an advantage by allowing products with a digital label to be priced at a premium. Many retailers are transitioning successfully from analog to digital technology, selling digital camcorders and cameras, DVD players and digital TVs at a tidy profit.

However, the digital value proposition may be eroding from the seller's perspective. Cheaper products are arriving in the country, including lower-priced DVD decks, MP3 players, digital camcorders and VCR/DVD recorders. Witness the much-talked about off-brand $29 DVD player that supposedly caused a shopping frenzy at Wal-Mart the day after Thanksgiving. While consumers can buy more with their dollars, some worry that prices have dropped so low that the unit growth cannot make up for the dollar decline. That remains to be seen.

Another concern is the crowded retail marketplace. While some stores are expanding, such as Best Buy, which plans to open 60 new stores this year, and smaller chains such as Fry's Electronics and Conn's Inc. continue to grow, others are pulling back. New entrants into the CE space, such as Gateway, Dell, Wal-Mart and soon HP, are competing with traditional CE business titans, like Sony, Samsung, Panasonic and Sharp. Even computer retailer CompUSA has extended its product offerings to include home electronics.

Further intense competition generated by discounters such as Target, Wal-Mart and Costco is causing price deflation and eroding profits. And there is the problem of lower-priced Chinese-branded products competing on home turf with brands of well-known CE companies. As CE prices continue to fall, this has raised fears of a further squeeze on margins.

More than ever, the winners will be retailers that are nimble and can change products and strategies quickly. The biggest challenge for retailers may be to find a way to stand out when everyone sells similar merchandise for roughly the same price. Whether it's a product, service or a price difference, it is increasingly important to inspire consumer confidence, provide value and capitalize on your unique selling proposition.

In 2003, for the first time ever, in order to help the industry address the challenges and the opportunities in retail, CEA broadened its tent to include retailers as full members. As the industry faces new challenges, it is critical for manufacturers and retailers to have a neutral venue in which they can gather to work cooperatively to address these challenges. CEA is that venue.

CEA's membership structure allows for full interaction among all levels of the industry, from manufacturers to distributors, installers and now retailers. The industry will benefit as all segments come together to help determine the direction and related programs to spur industry growth. And growing the industry is good business for all of us.

For more information on how to get involved, visit www.CE.org.

Gary Shapiro is president and ceo of the Consumer Electronics Association, which is hosting the Consumer Electronics Show, Jan. 8 to 11, in Las Vegas.