Smaller home audio systems show big sales gains

Discount Store News, August 24, 1998 by Laura Heller

The category is enjoying double-digit growth, which is expected to continue through the next year. "Mini-systems are the strongest selling items in audio today," said Todd Shraeder, gin, marketing, Aiwa.

According to the Consumer Electronics Manufacturers Association, component shelf systems grew 34% in June and 18% overall year-to-date. Although CEMA includes rack systems in this figure, the bulk of the category is buoyed by compact shelf systems as sales of the larger rack audio products have fallen off dramatically in the past few years. In fact the larger, bulkier systems that take up an average 4 ft. of shelf space per item dropped anywhere between 25% and 40% each year for the last four years at Best Buy, according to Jim Koestler, senior buyer, audio at Best Buy. The CE chain discontinued carrying rack systems in its stores in June and expanded the selection of mini-systems.

"Compact systems are going crazy right now," confirmed Amy Hill, staff director of communications, CEMA. "Compacts comprise [approximately] two-thirds of the home systems market. They are burning really hot."

Shelf systems are experiencing double-digit sales increases at Best Buy, according to Koestler, with some months in early 1998 seeing jumps in the 20% and 30% range.

The category growth is spurred by improved quality and falling prices. Consumers are now given a broader selection of more powerful systems with advanced features in a more compact package for radically lower prices than in years past.

"Unit sales of shelf systems are outpacing increases in dollar sales," confirmed Shraeder. Unit sales for Aiwa shelf systems increased 16% last year, while dollars sales increased 6% to 7%. While not ideally matched, "it's still pretty healthy growth," he said.

It's a conundrum particular to the CE industry: The more advanced the technology becomes the more competitive the pricing, which thins profit margins for retailers but makes the product more affordable for consumers.

Things also get smaller.

Consumers can now get powerful sound systems with good quality speakers in ever smaller and affordable packages. The newest mini is actually the micro; complete audio systems with a receiver, CD and/or cassette deck and detachable speakers that fit nicely on a desk or night stand.

Micro-systems are newly available but have not yet reached the mass market, as they are targeted to a higher-end niche. Micros are priced at about $299, although some have gotten down to $150. These high-end products are making inroads at specialty chains, and retailers can expect to see prices drop and wider consumer acceptance of the category in the future.

Best Buy has skewed away from most micro-systems but includes one from Aiwa at $149 in a new area devoted to "executive" products. While not officially a category, a slew of new audio products began cropping up in 1997 that offer an upscale executive look, spurred by the introduction of JVC's FS-7000 Executive Desk Stereo.

The differences in these mini-systems are mostly cosmetic. They feature brushed steel or wood grain finishes, and some sport a retro look. Best Buy recently took the space formerly allocated to rack systems and now devotes 12 linear foot to the hedgling category.

"It's a brand new category that JVC dreamed up and brought out," Koestler said. Although Best Buy didn't originally pick up the product, it will begin carrying it in the fourth quarter and is testing up to seven skus from the manufacturer.

Best Buy didn't have a historical base on which to make a buying decision, causing it to adopt a wait and see approach, Koestler said. But the product hit a cord with consumers, and Koestler reported that one East Coast retailer was moving 2,000 units per month after the product introduction.

Products such as these appeal to a second-time buyer and open up a new, higher-end niche market. Broadening the market with new product categories such as these is critical for retailers faced with dropping prices and shrinking margin. Making up the difference in volume is one thing, but a selection of viable, more expensive products is certainly preferable.

Going into 1999, Koestler said the industry might actually see higher average selling prices, enabling both retailers and manufacturers to realize improved margins more relative to an increase in unit sales.

"This coming year we are going to start seeing things like Dolby Digital moving into shelf systems," he said, as well as recordable CD options.

"We won't see anything in DVD, but manufacturers are beginning to talk about it" he said. He added that it may reach the market two years out, once a standard DVD music platform is agreed upon.

Retailers are hoping to see high-end shelf systems in the $699 to $799 range, something Koestler said will draw in high-end buyers, even as the increasingly low-priced systems maintain the other end of the spectrum.

"MiniDisc is just going to explode," Shraeder predicted. Indeed, the MiniDisc has already proven itself one of the breakout performers in the category. The product languished upon its initial release but got a second chance last year when Sony rethought its marketing strategy and put its full might behind the MiniDisc.