#1 – Overall consumer spending has increased, even with wage stagflation. This is due to the combination of increased disposable income with the rapid decline in gas prices (an extra $10 to $20 per week makes a big difference) coupled with greater consumer confidence (even without wage increases, the feeling that the economy has at least stabilized coupled with the cut in gas costs) has led to greater spending. The other macro factor that has often been overlooked is the multi-year lows in interest rates, allowing many homeowners to refinance their mortgages and cut down their monthly expense. So without any wage increases, consumers have more money in their pockets!
#2 – The Holiday season seems to have started slowly … except for Consumer Electronics. Overall holiday spending looks to be up 2 to 4%, while CE spending looks like it will end out up 7 to 10%. Two key factors for this are the explosion in TV sales this season, dominated by large screen sets (55 inch and above) and Ultra High Def sets, and the fact that so many CE categories are positioned for a great season (sound bars and home theater audio, portable audio and headphones, tablets and smartphones, health and wellness CE products, action cameras, notebooks and video game systems). That there are some many hot CE categories has meant that CE stores traffic has been solid for the year – not spectacular, as overall retail traffic continues to lessen as consumers increase their share of online shopping.
#3 – This is clearly the year that we have seen a tipping point in how consumers shop, with their first search being online (as opposed to checking out stuff in stores), online shopping taking greater share and omni-channel becoming more important. This is a long term trend, one that we see moving at a more rapid speed over the next few years. This growth has not been shared by all accounts online – it is focused on the very large players (for CE online, think amazon.com, walmart.com, newegg.com and bestbuy.com). The numbers for the last ten days online are incredible, with both page views and actual revenue up in the high double digits.
#4 – The positives in the CE industry are not shared by all players or all categories. Sears/Kmart continue to see double digit declines in overall CE revenue, as do the office superstores. The camera and camcorder categories are in a repaid decline, with no hope of a recovery. Smartphones continue to take a bigger share of the overall CE business – meaning other categories are hurting. And Apple continues to increase its share of the overall CE business; alone it is responsible for roughly half of the growth in CE. And the growth in Apple and smartphones are negatives in terms of margin, as both are low margin players – and the overall CE industry looks to be down between 100 and 200 basis points this year.
#5 – One additional positive note regarding the economy is job growth over the last three months, with a gain of 840,000 jobs in the US during that time. This has a double impact: those who have jobs now have spending money (impacting about 1.2 to 1.6 million people, based on families) and increased overall consumer confidence, as people see their family members and friends getting jobs and feel better about the overall economy. This is why we believe that the spending for apparel, sporting goods, housewares and toys will pick up as the season goes on, just not to the extent of CE products.
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