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widebandmag.com
December 23, 1997
The Shifting Sands at WCES '98
The consumer electronics industry bids farewell to 1997 with the all-too-familiar "Wait 'til next year" refrain while wondering if 1998 will offer more reasons for hope than the year just passed. Though overall sales may not increase significantly, there are several beacons of light for retailers in the coming months-provided, of course, that several pitfalls can be carefully negotiated.
This was supposed to be the year that DVD lit a fire under consumers and helped drive up sales across the board, but for a variety of reasons, the rush to stores was somewhat muted. Instead, some of the trends looked more ominous: a shift continued toward made-to-order computers and Internet sales, while broadcasters sent out mixed signals on any serious commitment to HDTV.
It now appears that HBO and some HDTV broadcasters will go live in the second half of 1998. The advent of any type of digital TV could mean trouble for retailers in the early part of the year as consumers may scale back new television purchases while sorting out possible digital TV confusion. And there's potential for consumer confusion in other areas, too-like DVD and Divx, along with the continuing standards battle in wireless phones. Happily, a number of categories are likely to offset possible decreases in television sales.
When the Winter Consumer Electronics Show kicks off in Las Vegas next month, retailers will have a chance to scope out where the action is likely to be next year. Our thoughts:
Even though DVD player sales could go as high as one million units, that doesn't represent sufficient volume to provide a serious economic boost to the industry. DVD's value will continue to grow as a traffic builder. New high-end DVD players that will debut at WCES are likely to draw videophiles. New smaller units are likely to attract new buyers as well. But the real challenges continue to come from outside the hardware realm. If DVD rentals become widely available, unit purchases should accelerate. Confusion over the introduction of Divx players-backed by retail leader Circuit City-could further confuse prospects. We expect plenty of talk on this subject in Las Vegas, but it will ultimately be up to the market to decide a winner.
Similarly, sub-$1,000 computers will also continue to occupy a larger portion of the home computer and SOHO markets, but retailers won't be able to count on improving margins. Consumers will have more options, though, as microprocessor companies like AMD challenge industry-leader Intel for the low-cost crown. Despite buyer wariness in the television category, talk of digital TV will be on many lips in Las Vegas. But like last year's somewhat muted DVD reception, we expect most retailers to be realistic about the minimal HDTV sales promise in 1998. The real money in audio/video will continue to be made in high-end audio systems, which now appeal to a broader base of buyers as companies introduce more value lines. Talk will be heard at CES about finally setting a DVD-Audio standard, as retailers hope for a coming-together that will finally let the format move ahead. In the meantime, Sony's major push for the MiniDisc format (aided by reduced blank disc pricing) has the potential to help the format begin to achieve the popularity in the United States that MiniDisc enjoys in Europe and Japan. Digital imaging, a category widely considered to be overpopulated by manufacturers and suppliers, could face price pressures with an early shakeout of suppliers. But lower prices will draw more customers to stores, and most consumers are expecting to make their digital camera purchases from consumer electronics retailers. Growth in telecom will continue to come from the wireless community, as PCS carriers improve coverage across the country. The huge promotional efforts of upcoming handset manufacturers like Philips will spur advertising and promotion from most manufacturers, driving new customers to stores. Dual-mode phones that operate on cellular and PCS frequencies look to be one of the hottest items of the year. And in mobile electronics, navigation systems and GPS security systems will become more mainstream, offering solid profit margins for specialty retailers. |
