Electronics set to explode in mass market - consumer electronics sales - Hot Growth Categories

Discount Store News, Oct 2, 1995

Consumer electronics as a percentage of sales at mass retail stores grew last year after nearly a decade of flat sales contributions. According to DSN's Annual Productivity Report (see Aug. 7, 1995, issue), CE sales jumped 12% in 1994 to $9.66 billion. Meanwhile, sales at mass specialty outlets, like Best Buy and Circuit City, leaped 42% to $16.40 billion, giving the mass market about 40% of the estimated $73 billion consumer electronics market.

And according to discount store and specialty retail executives, the growth will continue through 1996. Executives were asked in an exclusive DSN readers poll to identify three categories with the most growth potential over the next 12 to 18 months. Consumer electronics placed third in 29 categories mentioned, with 16.1% of respondents naming the category. That number could have been higher because computer software (No. 1), computer hardware (No. 5) and CDs, records and tapes (No. 10) are often considered subcategories of consumer electronics.

The vp/gmm level of retail respondents was particularly enamored of the category's potential. About 22.3% of those executives named CD as a top grower, virtually tying computer software for No. 1. Buyers also liked CE's chances, with 20% naming the category. On a day-to-day basis, these two levels probably have the greatest amount of influence over what will or won't be given more space at store level.

Apart from the dramatic growth in computer and music products, consumer electronics has much to recommend it. On a general level, the prices for nearly all traditional CE products like televisions, VCRs and cordless phones are plummeting as these goods become commodities, which plays to a general merchant's strengths. At the same time, though, dozens of new and desirable products are coming on-stream, already priced for the mass market.

For instance, Sony's new Play-Station, an advanced 32-bit video game player, was introduced in September at $299, just barely under the magic $300 price barrier.

Even dying technologies, like 16-bit video game machines, still have a lot of punch left in them from a mass market perspective. For instance, Nintendo's "Killer Instinct," introduced at Labor Day, sold 150,000 units at about $75 a pop in a single day. That adds up to roughly $10 million in 24 hours, almost all of it through major mass market outlets.

Other mature businesses, like blank audio and videotape, 19-in. televisions, two-head VCRs, boom boxes and shelf stereo systems, as well as cordless telephones, are similarly dominated by the mass market.

Commodities aside there are several desirable technologies, most digital, that are sliding down in price or up in consumer demand that should provide growth over the next two years. Lower-end home theater speaker systems, advanced cordless telephones, recording technologies like Sony's MiniDisc, big-screen screen televisions, home copiers and even home satellite systems are likely candidates for increased mass market sales.

Then there are the added-value versions of existing products that appeal strongly to the mass customer, who is rarely a hobbyist and is very likely to own a VCR with its clock blinking "12:00" nonstop. Products like Sharp's Viewcam, which simplifies the videotaping process, and a new RCA 8 mm camcorder that runs on standard AA batteries are examples of this classification, which is generally introduced directly into the mass market.

Products like Sony's PlayStation, along with 3DO's back-from-the-dead multiplayer (which has benefited greatly by wider distribution into outlets like Wal-Mart) and Sega's Saturn, are sure to stimulate sales. All are being rolled out nationally at major mass outlets, and each is now or will be shortly backed up by impressive game catalogs that reputedly pack more of a profit punch for retailers than did 16-bit cartridges. Nintendo will weigh in next year with its Ultra 64 cartridge-based 64-bit game deck, a product that could be a blockbuster due to out-of-this-world graphics and a low introductory price.

Americans appear to be going through another period of techno lust, one that is far more pervasive than the VCR boom of the early 1980s. Though not centered on one product as the earlier boom was, consumers are snapping up dozens of hot products. RCA, for instance, had an exclusive arrangement to sell DSS home satellite systems until December 1995 or until 1 million units were sold. The company passed the 1 million mark in April, eight months ahead of schedule, opening the way for Sony to market a competing system.

Despite the early bugs found in some Sony satellites, the competition is sure to drive prices down and open up a secondary market (disgruntled cable subscribers) that will almost certainly dwarf the original target market (rural consumers without access to cable). Some industry observers foresee stripped-down versions of the satellite systems retailing for as little as $299 two or three years from now.