Consumer Retail Electronics Industry Analysis

Industry Analysis The US retail consumer electronics (CE) market had reported revenues of $180 billion in 2010. The different revenue streams that make up the reported annual revenue in 2010 for the CE market can be divided into five key areas: Consumer Electronics (CE), which consist of video and audio products; Home Office which consist of PC’s, notebooks, netbooks, tablets, and mobile phones; Appliances; Entertainment Hardware and Software; and Services.

Total sales from the Top 10 electronics retailers grew by 6% in 2011 to reach $110 billion. The past two business cycles, have been marked by slow growth, the fall of an CE empire, Circuit City, and complete flat line growth of key product areas such as TV’s. The market showed minor gains after the fall of Circuit City, but the growth can be attributable to the redistribution of Circuit City’s customer base. The major players in this market such as Best Buy, Target, Wal-Mart, RadioShack, ect…, only grew by 4. 5% in 2011.

This is primarily due to the release of tablets, and netbooks, and not from existing product lines, already in place. It is definitely apparent that redistribution in consumer buying patterns like the shift to online shopping on retailers like Amazon. com has definitely impacted the nature of CE retailers. Cognizant Technology Solutions conducted a market study on the Retail CE market, in which they have identified 3 key areas which will continue to spur changes within the Retail CE market over the next few years.

These 3 key areas as identified by Cognizant are Consumer sophistication and frugality, cut-throat competition, and millennial consumer behavior. Consumer Sophistication and Frugality The shift from moving to a commodity centered market, with the advent of online CE retailers like Amazon, the affect is in the efforts of the sales staff, which has been highly reduced, shoppers know exactly what they are looking for, for the most part, and use these retail brick and mortar shops as showrooms, where they go to touch and feel the merchandise, before they actually decide to purchase these item.

These customers then usually retreat to the comforts of their home, or the nearest Starbucks, where they usually purchase the same exact item online usually through an online retailer like Amazon. In addition to this sophistication consumers have also become very frugal due to depressed economic conditions, and the high unemployment rate that is constantly rising. Consumers are looking for the best deal possible and if it means waiting few days for the item to be shipped then that is what they will do.

From a business standpoint this new ideal poses certain operational challenges, Profit Margins (PM), and Distribution. Prices of high ticket items such as large flat screens and high priced PC’s have consistently declined, the sales that have occurred for this submarket have strictly been for replacement or extension sales & services. These items usually have the highest margins of all CE products.

To curb this retailers have revised their revenue mix, by including more lower margin items such as notebook PC’s and TV’s, and higher margin products which are sure fire sales such as smartphones, and tablets. Retailers that have focused on single channel distribution strategies such as the retail store model have had to invest in multichannel distribution strategies to compete with the shift in consumer buying behaviors. This method of buying has forced retailers to offer more options in addition to maintain their brick and mortar establishments.

Cut Throat Competition Today’s CE retailers have always been confronted with difficult issues, but the pressures to produce a profit are even greater than ever before. Modern CE retailers face significant market competition from the likes of discounters such as Wal-Mart, and online retailers such as Amazon. An even more interesting dichotomy that has occurred in the CE market is the inability to determine supplier from competitor. This has occurred with Apple products, which designs and sells the most demanded consumer electronics.

Apple has strict controls as to who distributes their products, any retailer outside of this Apple sphere is at a severe disadvantage and missing out on an entire market of customers they could have had engaging in commerce. Generation Y and Consumer Behavior The multitasking, always electronically connected group of people we call Generation Y or better known as the millennia’s continue to drive the innovation that is occurring in the notebook/ tablet, and smartphone product lifecycles, which have consistently drove the need for companies like Apple, and the like to have product releases every 6 months.

This has created submarkets for the sales of accessories for the new products as well as service plans from Telecommunications Service providers for data plans to access the internet, and other media such as streaming music, and video via services like YouTube, and Netflix. This push for the access of media has forced retailers to get into the content provider business.

With the advent of the internet and mobile devices generation Y’ers have instant access to price differentials across different channels enabling them to compare, and price shop while in the actual store standing in front of a product. This has decreased the need for sales staff, and these groups of consumers have relied on prices shopping, and social media, looking at reviews products, as well as what their friends have purchased via Facebook, ect. to assist them in their CE purchases, this form of purchase has become known as “social purchasing”.