EXPECTATIONS ARE HIGH FOR 2004, RETAIL EXECUTIVES TELL CES
Executives of 5 of the largest U.S. CE retail chains told a CES “supersession” panel all indications were that 2004 would be strong. Most cited flat-panel TVs as a category that fared extremely well for them in 2003 and should only perform better this year.
On the other hand, most executives indicated audio wasn’t one of their strongest categories last year, and interest in analog TVs continued to decline as consumers continued to show a preference for all things digital. But most indicated there was an opportunity for growth in audio.
Best Buy CEO Bradbury Anderson said “if we saw one weak thing in December, it was our analog sales -- whether it was analog audio or analog television.” Circuit City CEO Alan McCollough seemed to agree but said there was an “opportunity to do a better job” selling more audio products with the TVs being sold. The executives said consumers needed to be shown how good audio products could enhance their video experience. Tweeter Home Entertainment Group CEO Jeffrey Stone said one area in which the CE industry clearly could do a better job was in audio for flat-panel TVs. He said the industry had been “a little slow in providing the right applications” for it. Stone said one of the main reasons many consumers were buying flat-panel TVs was that they wanted to get rid of traditional TVs, which they saw as nothing more than big, ugly boxes in the middle of their living rooms. Noting that flat-panel TVs had pulled CE retailers “almost into the fashion business,” he appeared to suggest consumers didn’t want big, ugly speakers in their living rooms, either. Stone said “as we get better at that as an industry, hopefully we'll see a little bit better audio business.”
Stone also said flat-panel TVs present an “incredible opportunity” because “the industry finally has a product that speaks to a woman.” Saying women were more involved in major CE purchases than ever before, Stone indicated that female customers seemed to be far more open to buying a flat-panel TV than rear- projection TVs for largely aesthetic reasons. But he said that also represented “a challenge for retailers,” who were “used to dealing with guys” primarily.
While Anderson called 2003 a “watershed year” for Best Buy, in which it posted “some of the strongest [comparable-store sales] we've had in many years,” McCollough and CompUSA CEO Larry Mondry referred to the year as a transition for their companies. Stone said Tweeter “really spent most of our energy” in 2003 “integrating the 11 companies that we had acquired over the previous 4 or 5 years.” He said Tweeter “took a hit a little bit on the comp-store sales side” last year. But Stone said Tweeter “entered the calendar year with better momentum than we [had] in recent time and really feel optimistic about the future -- this year especially” as “new technology products for us [are] really driving the business.” He said flat-panel TV sales represented “almost 20% of our revenue in the 4th quarter.”
RadioShack CEO Leonard Roberts said the strategy his company followed in 2003 was one “that finally worked for us.” He said the company was “focused on some of the basics of the business,” including supply chain management and controlling costs. The company had expected only “nominal top-line growth” in 2003, but he said RadioShack was “postured now to hopefully get back to some great growth numbers as we move forward.” Not in RadioShack stores’ future, however, are sales of flat-panel TVs, Roberts said. He indicated the stores were too small but said that didn’t mean the company didn’t have other ways to sell flat-panel TVs. Although Roberts didn’t say so specifically, his comment seemed to suggest the company could sell flat-panel TVs online sometime.
When asked by the moderator, CEA Pres. Gary Shapiro, about the impact of the entry of PC companies including Dell and Gateway into traditional CE categories, Anderson called the development “a fundamental change in the traditional methods of distribution” that certainly “provides a challenge” to traditional CE retailers. He said “it’s going to make life more difficult” now. But he said it was a problem that should prove to be “good for us in the long run.” Stone called it an “indication that the ‘convergent future’ that we've been hearing about and talking about is really at the doorstep.” The industry, he said, is “really starting to see the morphing of the IT world and the AV world.”
McCollough said he wasn’t overly concerned about competition from online retailing by new competitors. He said “TV is becoming more and more of a fashion statement and it’s something that you want to see before it ends up in your home.” He predicted competitors would “certainly sell some” big-screen TVs using alternate distribution methods but said “in the end, the vast majority of that kind of product will be sold at retail.” Another major force in CE retailing today, the executives agreed, was Wal-Mart. But McCollough said there was room for specialty CE retailers and discounters and Anderson said Wal-Mart had “done us a huge favor” by driving down costs of the products it bought.
On e-commerce, Roberts said the CE industry was “underestimating the impact of broadband penetration that’s going to accelerate substantially around the country.” Roberts said: “We already have 30 million installed base today [and it’s] projected to be 40 to 50 million 3 years from now. With that kind of online all the time [access] I believe the Internet is not only going to play a critical role for the consumer, but a critical role for the very way we run our business.” Anderson said, “I strongly agree.” But Mondry said CompUSA was “having a pretty hard time” selling broadband to customers because there wasn’t a uniform national system in which to do it. However, he said he was “in agreement we'll get there.”
Asked about the growth of Chinese CE products in the U.S., McCollough said “I would expect it to be a real force as [we] go forward.” He said “this isn’t bad product that’s coming out of China -- it’s quite fine.” McCollough also said most customers didn’t care what country a TV or other product was made in, only that it provided good value. The executives also said HDTV content was becoming more plentiful in the U.S., something that would help sell HDTV sets. They also agreed satellite radio would be an increasingly strong category.
Anderson said illegal music downloading was having a “major impact” on Best Buy’s music business but said music downloading had had a “very positive” impact on sales of digital audio devices that Best Buy sold.
When asked by Shapiro how much of an impact returns were having on business, Roberts said it was less of an issue now, at least in part because “technology is better and we have a better educated consumer.” Stone said Tweeter “just [doesn’t] have a lot of them.” Mondry said CompUSA had cut returns “almost by half” over the last 18 months by instituting policy changes and the introduction of its “Unmatched” program that included stepped-up service. He said CompUSA now trained customers better to use more complicated products and even, in certain cases, hooked up the products for them. McCollough said the problem basically had been that too many products were just too complicated for the average consumer to use and they often would return the devices because they couldn’t figure out how to operate them. He said most consumers didn’t buy something planning to return it.
CES Notebook…
Las Vegas CES drew attendance of 129,328, 9.9% more than the 117,704 in 2003, CEA promoters announced after the show had ended Sun. They said 2,491 companies booked 1.38 million net sq. ft. of exhibit space this year vs. 2,230 in 1.25 million net sq. ft. a year earlier. “The hotels were packed, the flights were full and the exhibitors and attendees were thrilled,” said CEA Events & Conferences Vp Karen Chupka. Still, many attendees were overheard griping over having to endure waits of 2 hours or more for taxis at the Las Vegas Hilton when the show emptied at 6 p.m. opening day. Security lines at the “D” gates of McCarren Airport were inundated Sun. morning as crowds of showgoers attempted to leave town, and reports of 2-hour delays were common.
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Broadband remains a “national priority,” even as the number of broadband subscribers doubles every year, Commerce Undersecy.- Technology Phillip Bond said on an international regulatory panel at CES. He said a soon-to-be-issued Commerce Dept. report would show broadband in 25 million U.S. homes, but with broadband access at “very high levels” in this country if at-work access were considered. Daeje Chin, Korean Minister of Information & Communication, said that in his country more than 70% of households had broadband, with DSL accounting for 57% of the broadband market and cable modems 35%. The broadband currently is at 1-2 Mbps, but he said S. Korea would begin working next year on increasing that to 50-100 Mbps. Japan has 13 million broadband subscribers, including 800,000 with fiber to the home, 9.9 million DSL and 2.4 million cable modems, said Masahiro Tabata, senior vice minister of the Japanese Ministry of Posts & Telecom. In Germany, there are 4.5 million DSL customers, up from virtually zero in 2000, said Matthias Kurth, pres. of the German telecom regulatory authority. He said the move was being driven by independent carriers, who saw voice being “cannibalized” by mobile telephony and VoIP, so they had no option but go to broadband.
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Verizon’s broadband initiative is a step toward an “all broadband all the time life-style,” Verizon Chmn. Ivan Seidenberg told CES, hours after his company announced a $1 billion commitment to wireless broadband. He said the industry was “at the beginning of a communications revolution,” as evidenced by the devices at the show: “Clearly we have only scratched the surface in the enormous shift in the way we communicate.” The goal, Seidenberg said, is 100 Mbps everywhere. Verizon expects “thousands” of new applications and devices to emerge from wireless broadband, some from Verizon, some from consumer electronics manufacturers, but “many from our customers,” he said. Seidenberg said govt. had “done a pretty good job” with wireless by “pretty much staying out” of it: “Government can take another big step by clearing the way for broadband.” He said that would “put the U.S. technology industry back in the driver’s seat.”
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Sprint’s new technologies mean “multiple opportunities” for the carrier, including such things as location-based services and voice control systems, Chmn. Gary Forsee said in a CES keynote. In a presentation that was much like a 35-minute commercial for Sprint, including Sprint’s TV spokesman, Forsee said the key questions for long-term success included: Has the firm thought about the customer? Will it deliver value at a fair price? Can the new product be integrated with existing devices or services? Is it easy to understand, use and fix? Will customers be trading up too fast?
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The FCC and NTIA “did an unbelievable job” in clearing the way for ultrawideband (UWB), and the first products will be on the market this year, XtremeSpectrum CEO Martin Rofheart told a CES wireless “supersession.”. Reflecting the increasing importance of wireless at the CEA, the session featured standing room only and one of the longest lines to get into the room. Despite the regulatory progress on UWB, Rofheart said, industry standards still are not mature: “There’s still a lot of heavy lifting to do.” As a result, he said, most products will start emerging in 2005 and 2006. Camera phone sales have outstripped DVDs as the fastest-selling CE product ever, industry officials said, and most touted that and camcorder phones as their big new product lines. However, the market may not yet be ripe for high- speed wireless services like those Verizon just announced, said Len Lauer, pres. of Sprint PCS and COO of Sprint. Since the service is realistic now only for laptops, not mobile phones and PDAs, because of cost, Lauer said Sprint couldn’t see a business model for it. He said Sprint had the basic network in place and access to capital to begin high-speed wireless, but he didn’t believe the technology would advance enough to allow low-cost service to phones and PDAs for about 2 years. Disney Internet Group, meanwhile, is accelerating its offerings of downloadable video and other content for mobile phones in both Japan and the U.S., Group Pres. Steve Wadsworth said. He said Disney had 3.7 million paying subscribers for such content in Japan and “I see it starting in the U.S. All the pieces are coming together.”