COMMENTARY It was a brutal holiday season for consumer electronics, as sales dropped 5.9 percent compared with the previous year, according to market research firm NDP Group. The small comfort is that the poor showing is slightly better than 2010's 6.2 percent drop from 2009. But it's still not what companies want to hear on the eve of the annual Consumer Electronics Show (CES).
That's right, even as consumer confidence is improving, at least according to the Conference Board, electronics sales are down. Maybe consumers are confident about everything but gadgets. Then again, when you look at the details of what was hot and not, as well as consider unit and dollar sales volumes, what becomes clear is that smartphones, tablets and streaming are hammering a number of categories important to the industry -- are and marching ahead at a pace that must scare the stuffing out of vendors and resellers.
What got the sales?
The product categories that really felt the hurt weren't PCs and TV sets, although there has been news that both were in trouble. Now hurt is relative, mind you. Between 2010 and 2011, unit volumes were flat and dollar sales dropped 4 percent. But that's better than the 7 percent drop in such categories as DVD players, standalone GPS units and MP3 players.
GPS and MP3 devices are victims of smartphones, which incorporate both capabilities. As people increasingly have much of what they need in a single piece of hardware, why buy other products? And fewer people need DVD players when so many people can stream from Netflix (NFLX) or Hulu, or find something visual to amuse themselves with on YouTube (GOOG). Interestingly, NDP found that home theater system revenue was up 10 percent and that standalone streaming device sales jumped by 65 percent.
For many years, experts kept talking about convergence and how amazing it would be for consumers. Well, it has finally arrived and, yup, it's pretty cool for regular people. But converged devices means that consumer won't need nearly as many gadgets, and fewer will be sold.
When stuff sells, it's for less
There's a reason that December sales were down at Best Buy (BBY). Same-store sales dropped by 1.2 percent year-over-year, and the drop between 2009 and 2010 was 4 percent. What sold? Tablets, smartphones, e-readers and appliances. TVs, game consoles and digital cameras were down. Oh, by the way, smartphones and tablets do a number on the latter two categories, since they can run game apps and incorporate increasingly sophisticated cameras.
The other pain point is price. According to NDP, unit volumes on TVs and computers were flat as total sales dropped, meaning that average product prices must be sliding. And prices have slid in many other areas. 'Twas discounting that sunk retailer profits during the holidays. People wanted deals, and the retailers had to comply.
But the demand for deals won't vanish because the holidays are over. Decades of expectations that prices will fall, as well as tough economic times, have conditioned people to both expect and demand that the costs of products continue to drop. This year, according to the Consumer Electronics Association, 22 percent of global device spending will be on smartphones, a category where most consumers get subsidized pricing.
Yup, better expect more downward pressure on what manufacturers can get for their wares. Has consumer electronics become an industry in which most vendors will walk around moaning?