What's Hot, What's Not for Holiday Retail Electronics Sales

Tim Herbert, senior director, market research for the Consumer Electronics Association, sat down with Craig Zarley, Everything Channel's industry editor, to talk about the outlook for consumer electronics sales for the upcoming holiday season following his RetailVision keynote. Here are his insights:

What are the biggest challenges buyers face as they prepare for the holiday season?

In some regards deciding what to buy is the biggest challenge. We are in a very fortunate position in that there are so many amazing products. You go down the list from flat panel displays, to GPS, to smart phones to video game systems. Consumers really have a lot of options. This year there is quite a bit of economic uncertainty so consumers will have to be more budget conscious than they have been in the past and they will have to make some trade offs in terms of what types of products they will be giving as gifts this year.

Where do you see the biggest opportunities for growth? What are the hot products?

In terms of revenue growth, the hottest categories include flat panel displays. To date, shipments are up almost 40 percent this year. There has been greater tension because of the DTV transition, which will take place Feb. 17, 2009. That has driven some store traffic.

But what we are also seeing is that consumers have upgraded their primary living room television years ago, now they are also ready to upgrade the television found in the bedroom, the family room and so forth. That category will continue to do well. We see the transition from many traditional cell phones to smart phones. There has been a lot of attention with the iPhone, but a lot of other manufacturers as well have introduced products. This will drive consumers into the stores to think about what are the new capabilities, what are the new features, and what are the new things that I want to be able to do withy my mobile phone.

And the third really big category is the PC category. And the transition that is taking place now is the move from desktops to laptops. This year we will sell more laptops than desktops. This is a reflection of consumers' desires to work communicate and be entertained anywhere at any time.

Let's turn that around. Which product areas will be less attractive to consumers?

We have seen categories that are tied to other categories that are experiencing slowdowns. Examples are products tied to housing. Certain categories of in-wall speakers. Certain categories of home systems. So far this year they have been struggling a little bit. Categories that are tied to vehicles are an example. We have seen slowdowns in certain categories of in-dash units. Partly though this is structural in nature. It is not just the slowdown in vehicle sales, but it's consumers wanting to integrate their own portable devices into the car.

The category that is doing well in vehicles is integration type products. Being able to integrate your MPS player. Being able to integrate your smart phone. Beyond that other categories are beginning to reach their market potential. A good example is digital cameras. Household penetration stands at roughly 3 out of 4 consumers owns a digital camera. We are reaching the point where all the consumers that want to buy one have already purchased one. It's a different selling proposition when you are selling a replacement or upgrade versus a first time purchase. That category in terms of units has probably peaked.

What kind of growth are you seeing in services sales versus straight product sales?

That is something for a couple of years several retailers have introduced different types of installation, different types of maintenance services. In the past couple of months we've seen the number of retailers offering these services exploding. It's even gone beyond retailers to other types of service providers. For example, AT&T [is] offering set up and maintenance of certain types of electronic products.

The number of consumers that have utilized these services is still relatively low. Based on our research, about 15 percent of households have used these types of services, but the expectation that they will use these services over the next 12 months is much higher. We could approach 30 percent of consumers at least considering to use these types of services. It's a combination that there are more services available. These services have become more refined. Electronic products have become more complex. Many involve a content component. Many are networked. And many consumers feel that for a nominal fee, to have it installed professionally or maintained professionally, it's completely worthwhile.

What about extended warranty services? In your keynote, you mentioned that in the last 12 months, 36 percent of consumers purchased or considered purchasing extended warranties, but in the next 12 months, only 16 percent were considering purchasing an extended warranty. Why is that?

It's an interesting issue. Part of it is a testimony to the durability of electronic devices. For the price, these products last a very long time and in the majority of cases they will operate with little or no problems for their useful life. The figures are a reflection that consumers that they are necessarily expecting to need to buy an extended warranty, but I expect that when it comes down to it, many will end up buying them because they want that extra insurance and want to sleep well at night.

What we are seeing is that retailers are probably doing a pretty good job if the actual number of extended warranties sold is greater than what consumers expect to purchase. That means that retailers are offering it and that sales associates are reminding consumers that it is an option.