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Is The Consumer Electronics Industry Recession Proof? Not Really…
How will a slumping economy and volatile stock market affect the $160 billion consumer electronics market?
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October 17, 2008 by Richard M. Sherwin

On the morning of October 1st, only a few days after $1.2 trillion in market value was gone as the Dow Jones average dropped a record 778 points, a new Best Buy in toney Avon, Connecticut and middle class West Los Angeles were both crowded with customers. Two weeks later after the Dow rose a record 934 points, these two retail stores and similar online retailers like Amazon.com and J&R’s reportedly had the usual daily sales and consumer traffic.

None of the aforementioned retail locations were affected by the swinging stock market and banking crisis on a short term basis. In fact, mass market stalwarts Target and Wal-Mart, Costco and BJs, actually saw a slight rise in their CE business during the ongoing financial crisis, according to industry analysts. But now experts and some early sales figures for October are indicating the recession is starting to affect some segments of the industry.

Spending Trends
According to figures from Microsoft’s CE studies group, nearly 66-percent of consumers indicated they will spend less for major technology purchases until the volatility of the market steadies or their personal situation is better. They may, instead, focus their holiday shopping in technology on only CE and PC type gifts that fit specific family needs.

“The study showed that many people may forgo vacations and turn them into “Staycations,” says Greg Beilinson, Microsoft’s director of consumer marketing. “A new low priced notebook computer or stereo system could actually be the answer instead of a long holiday vacation,” he adds. “But we expect a very much more price sensitive consumer until things straighten out.” 

Other industry experts predict consumers who still want or need to spend discretionary income on audio-video or “edu-tainment” gifts, may be able to take advantage of lower prices on high-end equipment.

“Our store traffic is as busy as ever, but the customers are getting more cautious and price conscious,” says James Garson, CEO of DataVision, always a hot go-to location on 5th Avenue in New York City. “In my many years in the business through other recessions and bad market periods, our usually upscale customers didn’t blink at making that big holiday purchase…I think they’ll blink a little but still make that high end purchase even if its just to prove that they are still living in their customary financial position.”

Looming Price Cuts?
Unlike the NPD, major CE and PC manufacturers, along with the CEA would not speculate on steep price drops for the holiday season…but other industry wags expect that some of these products will have price adjustments if the market woes last into November or December, which many experts predicts will happen.

“I expect that while large screen HDTVs have already experienced a steep drop in prices from last year, there will be many more price adjustments in that category before Thanksgiving,” says Len Wanger, a industry analyst at William Harris & Co., a Chicago based technology firm. A spokeswoman for the toy and game industry says Microsoft and Sony are mulling price cuts for their video game systems.

A slowdown in sales of HDTVs may have started almost to the day that the recent crisis began, says Craig Moffett, an analyst at Sanford C. Bernstein & Co. Moffett says spending in the electronics category fell by 14-percent year-over-year in September, following modest declines of 3-percent and 6-percent in the previous months.

CNBC also reported that, retailer Best Buy Co. last week disclosed in regulatory filings that same-store sales had declined 2-percent, after forecasting growth of above 4-percent in mid-September.

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Richard M. Sherwin - Contributing Writer
Richard Sherwin is a former syndicated technology columnist and TV/Radio analyst, who has also been a marketing executive with IBM, Philips, NBC and a chief advisor to several manufacturers and service providers.

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