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Discount Store News, Jan 7, 1991 by Pete Hisey

New CE Products to Boost '91?

LAS VEGAS--If it's darkest just before the dawn, it's about 4:45 a.m. for the consumer electronics industry.

As retailers and manufacturers head for the Winter Consumer Electronics Show, the CE industry finds itself buffeted on all sides by slumping sales, a mild summer that killed air conditioner sales, bitter competition in major markets, and now, by recession and financial regulation.

If it weren't for the runaway success of small-format camcorders, large screen televisions and the continuing CD boom, results might have even been worse for 1990.

But they were bad enough. Circuit City, formerly king of the same store sales increases, showed its first declines in that important area throughout the fall, and a FASB Technical Bulletin concerning accounting for income from the sale of extended warranties will probably intensify those declines. One major New York area chain is rumored to be restating income from the past two years as a result of the ruling. Sales in some major markets, notably Los Angeles, have reportedly slumped, and sales of major appliances are at all-time lows at some chains.

Highland Superstores, which has suffered growing losses for the past two years, reported a loss of $13.5 million for the nine months ended Oct. 31 and conceded that it was looking for a buyer or some sort of merger or other cash transfusion. Other regional chains also reported sharply declining sales and escalating losses.

Those looking for this CES to solve the industry's problems will probably be disappointed. While hundreds of desirable products will debut here, there's no massive revolution on the horizon. Digital audio tape recorders at mass market prices may appear, and some sort of recordable CD system may be on its way, but on the whole, this will be a show of added features.

On the other hand, some of these value-added products have immense sales appeal. For instance:

* A new line of RCA 35-inch color televisions introduced in early December were a hit with attending press members; * AT&T unveiled the first practical digital telephone answering machine, which will sell for about $100 or less; * Sharp is set to show the QWERTY keyboard version of its Wizard pocket computer as well as a ceiling-mount version of its 100-inch LCD projection television; * Sony will have its literary version of a Walkman (a handheld electronic `book').

One potentially explosive product might or might not appear at this show. Nintendo is rumored to be ready to introduce 16-bit technology, as well as some home computer applications for its existing 8-bit installed base. The company denied it; two buyers from major chains said they expected to see it.

Additionally, with 8mm and VHS-C camcorders entering the must-have realm, there should be a flood of new products with added features at what has become the market price--about $800 or less.

In our convenience-oriented consumer market, the attraction of these ultra-convenient products will continue to grow at a phenomenal rate. Now might be an auspicious time to introduce 8mm home recorders, as more and more households are looking for add-on and replacement home decks. The day may be near at hand when consumers keep a VHS deck for playing rental videos, and an 8mm deck to record from television and camcorders. A product similar to Go Video's dual VCR, with one VHS and one 8mm deck might make an appearance in the near future, perhaps even this month.

Compact disc players have continued their phenomenal growth, virtually wiping out the LP and making inroads into cassette sales. That trend will continue, and ever more sophisticated machines at mass market prices are reaching retail shelves. However, the profit margin on these machines, except at the high end, is declining rapidly.

Home theater, at present, still exhibits high profit potential, but mass sales are nowhere near levels that can support the consumer electronics business. This is a category that will grow through the '90s, but as usual, the growth will really take off when prices drop significantly. Right now, the price point for a 35-inch television with all the trimmings is out of reach for most Americans, particularly with the threat of a full-blown recession fast becoming a reality.

One other bright spot, home office electronics, should continue to grow, perhaps even spurred by the unemployment that normally accompanies a recession. Office superstores and CE chains have reported strong gains in the category, as more and more Americans work from home, at least on a part-time basis. Products that were luxuries only two years ago, like fax machines and laptop (now notebook) computers, are becoming commonplace.

And, predictably, prices are plummeting. This summer may see the first fax machine retailing at under $300, and laptops are becoming smaller, more powerful and cheaper, all at once. Psion will have its mobile computer line available for shipping at this show, and other leaders, like Panasonic and Sharp, plan to introduce new models here. Buyers will track prices very carefully; the potential in this category is enormous.