Holiday picture still fuzzy for digital camera sales - Brief Article

DSN Retailing Today, Nov 6, 2000 by Laura Heller

Digital cameras are expected to number among some of the hottest selling products for the coming holiday selling season. But given a softening economy, slower consumer spending and even higher energy costs expected with the coming of winter, it's worth a second look to see if these expectations will amount to little more than a pipe dream for retailers hoping to cash in on the digital-imaging boom.

In mid-September, market-tracking firm NPD Intelect, a joint venture of The NPD Group and GfK AG, projected that sales of digital cameras were on track to achieve triple-digit growth by year-end 2000. The market research company estimates that unit sales in the United States will reach 4.2 million sold to consumers, a 127% increase from 1999 sales of 1.8 million units.

But since this date, rising oil prices, increased interest rates and stock market volatility have forced many analysts and retailers to rethink projections going into the fourth quarter.

But even with the prospect of slowing sales, most are bullish on the digital technology market overall, and digital imaging in particular. "[I said] 4.2 million cameras will sell through to consumers, and I'm not changing that number at all," declared Neil Portnoy, senior manager of NPD Intelect. "With the strong demand for digital cameras and the holiday season upon us, the main issue the camera industry faces is not demand but supply."

According to Portnoy, shortages may occur because manufacturers of digital-imaging products must vie for components with makers of other products such as wireless phones and hand-held computing devices -- all of which use many of the same internal parts, such as flash memory. But shortages are predicted for some new, hot product every holiday season, and this year is no exception. In fact, one retailer scoffed at the prospect. "You hear that every year," said the source. "There will be a lot of cameras out there for consumers to buy." In fact, industry sources assured DSN Retailing Today that manufacturers may actually be more prepared this year than in the past.

But the 2000 holiday shopping season may shape up a bit differently than those of the recent past. Last year was one of the most profitable holiday seasons for consumer electronics products, where the digital-imaging category generally falls. Therefore, topping last year's sales may present difficulties even in a continuing strong economy, and all retail indicators are pointing toward the opposite.

The Consumer Electronics Association's (CEA) recent eBrain Market Research report takes these factors into account, analyzing the stock market's previous run up and recent decline, rising gas prices, a tight labor market and spending habits that continue to outpace wage increases. "When these and other factors are combined, it makes for a slightly unstable position, which many consumers acknowledge," said the report. "Overall, 19% of Americans say the economy is better now compared to a year ago, while 59% say the economy is about the same. The remaining 20% say the economy is worse now, and 2% are unsure."

The study actually looks at consumers' perceptions as to the nature of the economy, rather than economic indicators used by statisticians; for it's the perceptions that will likely have the largest effect on sales.

"Whether or not the worst is over is an unknown variable," said the report. "The uncertainty is likely to put a damper on holiday shopping. Twenty-eight percent of consumers expect to spend less on holiday gifts this year as compared to last year." On the plus side, 21% of consumers surveyed said they expect to spend more this year compared to last year, and 50% expect to spend the same amount.

Regardless of economic conditions, digital cameras are expected to top holiday wish lists, according to the CEA. The association estimates that digital cameras, along with DVD players, CD recorders and mass storage devices will top the shopping lists of many consumers. According to the eBrain survey, digital cameras ranked second among the top video products holiday shoppers expect to purchase, up from No. 5 the year before and surpassing the ever-popular VCR for the first time.

According to the CEA, consumers want the capability to efficiently capture and share their experiences. Digital cameras undoubtedly satisfy this need. Better resolution and ease of posting images to a Web site have drawn more consumers to the product category.

Falling prices are helping as well. According to NPD, the average price of a digital camera dropped from $544 in 1999 to $513 as of September 2000. These prices have declined prior to the start of the holiday season when retailers are expected to begin promoting digital products even more heavily.

In fact, there's nary a retailer out there not currently promoting digital cameras across a wide range of prices. Target features an Olympus digital camera for $299.99 on the home page of Target.com, and alternatively offers a low-priced, low-resolution JamCam for $99. The same Olympus models sells for $329.99 on Kmart's Web site, which also offers Panasonic and Fuji models for $699.95 and $369.95 respectively. On the lower end of the spectrum, Kmart sells a low resolution unit bearing the Yahoo Name for $59.99, although the retailer markets this product in its toy department.