The digital revolution is just warming up: an HDTV in every home? It could happen sooner than you think - ce & entertainment - trends

DSN Retailing Today, Dec 15, 2003 by Laura Heller

Sleeker, smarter and smaller has been a theme for consumer electronics every year for the last few years. Now the mass market is adding "cheaper" to that list. As the plunging price of DVD players demonstrated in 2003, there is virtually no end to how low prices can go for hot CE product. In 2004, the trend toward affordable CE "splurges"--once reserved for higher channels of distribution--will only get stronger, as products like HDTV and other home-theater add-ons continue to trickle down at mass.

Affordable "high-end" product, however, is only part of the picture for 2004. The coming year will also reap the rewards of several product innovations of the last few years.

"There are certainly a lot of products just starting to emerge and make an impact," said Sean Wargo, director of industry analysis for the CEA. In the trade group's Technologies to Watch report published this fall, five are identified as strong growth products--home operating systems, Wi-Fi, recordable video, mobile gaming and high-resolution audio. A product with more near-term popularity however, is the digital camera and cell phone combination.

"Sales doubled from 2002 to 2003 and should be even bigger next year," said Wargo. "We estimate approximately six million [units] should ship this year, and 12 million are estimated for next year--that's about 20% of the total handset market."

In fact, wireless is expected to boom now that cell phone numbers are portable. "New things to do with your cell phone, that's of interest to consumers," said Stephen Baker, director of industry analysis, the NPD Group. "Whether it's cameras, PDA's or walkie talkie functions, people will be paying attention because of the portability of the phone numbers."

The real beneficiary here should be retailers, who represent a variety of service providers and sell the handsets. Even if a phone number can now cross carriers, the hardware can't. Consumers signing new contracts will need to buy a new phone.

In the home entertainment department, HDTV and flat panel displays will continue to build momentum, and that darling of the CE category--DVD--is expected to remain a bright spot as consumers adopt recordable formats and units that combine DVD playback with a VCR or hard drive recording. "The shift to DVD recording is really just beginning," said Wargo, who expects to see more than two million units shipped next year compared to 700,000 in 2003. The anticipated increase is attributed to format issues that have become moot and prices are in the $300 to $350 range compared $1,500 two years ago at product introduction.

"As products converge, wireless networking is going to be the big thing next year," predicts Baker. And the confusion this trend brings with it may be both a blessing and curse to retailers. "As we get more and more merged devices, it will be harder and harder to figure out how to merchandise, display and convey what a product can and cannot do," Baker said. "Retailers will need to show more set-ups of how things work together to compete with a Dell or Gateway." Both of which are increasing their presence in the CE category. That same confusion, however, will help drive consumers to specialty outlets as discounters have a more difficult time effectively selling complex technology. "It's a tough one to sell in a big box," Wargo agrees. Specialty retailers aren't the only ones profiting, though. Increasingly, discount department stores are cashing in. Consumers are more technologically savvy than ever and the Internet provides research material, making it much easier to buy complex products in a self-service environment.

If 2003 was considered a good year for the CE category--and it was, with an estimated factory-to-dealer sales of $95 billion, according to the CEA--then 2004, which is expected to top $100 billion, can only be better. With an improving economic forecast, a burgeoning digital product cycle and new technology creating both interest and confusion among consumers, CE is poised for another banner year.