Weak '87 prompts increase in higher-end CE - consumer electronics sales by discount stores - Annual Industry Report, part 2

Discount Store News, July 18, 1988

Weak '87 Prompts Increase in Higher-End CE

The consumer electronics industry tread water in 1987, with hot CD players, camcorders, home office products and stereo televisions offsetting a radical slump in VCR sales. However, the sinking of the dollar against the yen, coupled with a lack of new and exciting technology, could portend bleaker days ahead.

Overall, the industry inched forward about 4.5 percent, in contrast to its double-digit growth of the past, to about $31 billion in factory sales to retailers. Discounters, catalogers and CE chains accounted for $13 billion at retail, according to DSN research.

According to DSN research, specialty discounters did a little better in 1987 than did full-line discounters and catalogers, increasing sales from $5.5 billion to $5.7 billion. Overall, however, discount share growth in the market was nearly non-existent--$6.3 billion to $6.4 billion--perhaps because of the retailers' limited access to many of the hottest products, like CD players.

Strengthening CE Presence

That may change in 1988, as discounters appear poised to bulk up their CE presence, adding higher-end products and deepening selection. Wal-Mart, which is adding computers on a test basis this summer, and Ames, which is introducing sequestered CE shops to its new prototype, are only two examples.

Discounter retrenchment in the CE field seems to have built up profitability. Markup and margins increased slightly, and sales per square foot likewise inched up to $339.65 at discount stores. The return of profitability (along with announcements of price increases by many vendors) will probably spur further CE activity among discounters in 1988 and 1989.

Apart from currency differentials, one of the greatest obstacles to growth industrywide is a lack of new and innovative technology. Digital audio tape, the most publicized of the contenders, could well turn out to be a bust, and may remain a very expensive product. Tandy's recordable compact disc system, scheduled to appear in 1990, likewise may turn out to be a disappointment to retailers looking for the next big thing. According to the company, the erasable CD is more of a computer than an audio product. What the product can do in the home audio market remains a mystery.

Hope is on the horizon, however, in the form of emerging LCD color video technology. Sony's 8mm Video Walkman, for instance, may be a bit pricey at roughly $1,300 when it's introduced this fall, but its combination of portability, excellent picture reproduction, television reception and adaptability to a palm-sized video camera should make it the prestige item among early users at holiday.

Upwardly-mobile business travelers, vacationers and outdoor types alike are almost certain to jump on the product, and as the price comes down, it should spread comfortably to the population at large. With over 1,000 movie and video magazine titles already available commercially, the portable video should not run into the software shortage problems that are plaguing the DAT introduction.

LCD is also being applied to projection TV (by Sharp) and to portable TV monitors (by Sharp and several others) and could quickly become a new and profitable category.

Those products will not hit traditional discount stores right away, though warehouse clubs, catalog showrooms and, of course, CE chains will find them of immediate interest.

Discounters, which have virtually dropped out of the LP album market in favor of CDs, will probably be most interested in recent applications of CD to portable players, midrange components and boom boxes. These products will continue the spread of compact disc technology to the masses, meaning that discounters are primed to cash in on what has been the brightest CE success story since the VCR.

Discounters will also benefit from another major bright spot, home office equipment. Fax machines, personal word processors and home computers have all reached mass market level prices, and discounters are reacting by beefing up their home office presence.

Camcorders, which first entered the discount market last year, continue their hot growth curve. Sales were up last year to about $2 billion, and the Electronic Industries Association estimates a further 20 percent increase to about 2.4 million units.

Another bright spot may be the decision by most manufacturers of blank audio and video tape to call off the price war of the past five years. Nearly all of them have announced significant price increases, and most have added that they will forsake "giveaway" promotions. The idea, one manufacturer said, is to put more profit into these products for both the vendor and retailer. Among those manufacturers announcing price increases were Sony, Fuji, BASF and TDK. Since tape, like accessories in most fields, is viewed as the most profit-intensive area of the industry, the restructuring of prices will be good news to discount retailers.

EIA expects rapid growth in the Super VCR field (with built-in stereo capability and better picture resolution), but even at a projected rate of 3 million unit sales per year by 1989, the category is not likely to rejuvenate the suffering VCR market.