From: Retail Merchandiser

AUGUST 25, 2004 -- COLUMBUS, OH -- The consumer electronics landscape--for both retailers and manufacturers--is rapidly changing. Mass retailers, most notably Wal-Mart, and companies historically operating as suppliers to retailers, are becoming more relevant from a retail perspective reports Retail Forward in its recently released "Consumer Electronics Industry Outlook" report.

Over the next five years, Retail Forward projects consumer electronics store sales to grow 6% per year on a nominal basis, or 19.5% when excluding deflation. However, consumer electronics stores will face increasingly stiff competitive pressures, especially from mass retailers, and as such, growth is expected to slow in the short-term.

"In the coming years, category spending will be driven by digital and wireless products as well as price deflation and the continued commoditization of key technologies," comments Geoff Wissman, author of the report and a vp with Retail Forward specializing in consumer electronics retailing. "More players are aggressively competing for a bigger slice of the pie and competition will continue to escalate as Best Buy defends its turf, mass players make inroads and manufacturers evolve from direct sellers to full-fledged consumer electronics retailers," he adds.

Who's Playing in the Consumer Electronics Space?

The list of major players in consumer electronics retailing has experienced dramatic change in recent years. Mass retailers are becoming a major force in the channel, and "manufacturer" Dell has joined the ranks of the Top 10, after significantly expanding its product mix beyond computers and peripherals, inclusive of both Dell and other branded products. While category sales as a whole were up 2.6% in 2003 and Best Buy generated a solid increase, not all players participated in that growth. Some top players posted declines or very small gains-including Circuit City, RadioShack, CompUSA, and Office Depot.

In the consumer electronics channel the key to increasing market share is to attract and retain a larger number of customers. "The category is complex, and increasing share of wallet depends on an understanding of how consumers research products, how gender affects the buying process, and prevailing attitudes about the category," states Wissman.

Shopper attitudes reveal both challenges and opportunities for consumer electronics retailers. Retail Forward's ShopperScape survey finds that consumers looking for information about consumer electronics products most often turn to friends and family. Survey results also point to the importance of online sites in shopping for consumer electronics products. Another important survey finding indicates that the perceived effectiveness of the sales help strongly impacts store shopping decisions. "With technological innovation moving forward at a rapid clip, consumers need to be educated about new innovations, and the responsibility for this rests on the shoulders of the retailer and the manufacturer," Wissman believes.

What Lies Ahead?

Future spending: Up. Retail Forward projects that spending on consumer electronics products will be bolstered by price deflation and consumers' desire to upgrade technologies. Consumer electronics store sales are expected to produce solid growth over the next five years.

Technology never stands still. As digital products start to approach ubiquity, the next technology wave will have a common thread--mobility.

Customer service challenges abound. While digital and high-end consumer electronics products are available just about everywhere, the technologies themselves are still largely confusing to many consumers. Buyers are facing shopping process overload in some product categories and many retailers need to better address this growing problem.

Manufacturers reposition themselves. Most manufacturers have already started to transition to a digital product strategy. For some, this means closing analog manufacturing facilities while ramping up factories for digital products, but for others it means forming strategic alliances that wouldn't have been considered a few years ago.

Direct sourcing throws a wrench in the works. Original design manufacturers are rapidly knocking down barriers to entry in the industry, allowing smaller players to efficiently capture market share and retailers to benefit from private label programs. In the process, they are driving down margins in many categories, both for suppliers and retailers.

Retail Forward (www.retailforward.com) is a global management consulting and market research firm specializing in retail intelligence and strategies. To learn more, contact Katherine Clarke at kclarke@retailforward.com.