PRG’s 2015 Hardware Symposium + BBQ
Product Realization Group (PRG) Symposium & BBQ in Sunnyvale, CA on Thursday, September 17 from 8:00 AM to 2:00 PM. Learn about the latest trends from industry experts, and meet like-minded professionals in an informal setting, while enjoying some delicious food and drink. We will also be featuring our Product Realization Roadmap. You will have the chance to gain valuable exposure to local high tech companies, service providers, and professional societies.
- Learn about how we are becoming more connected from our expert panel
- Meet PRG members and event sponsors in an informal setting
- Enjoy a delicious BBQ with PRG and Levin Consulting
Get 25% off when you register now: http://bit.ly/1Ut95e8
Best Buy and Walmart, to name a few, offer the store-within-a-store concept to give customers a dedicated offering of branded products. Best Buy is taking that one step further. This week, Macy’s announced that they are testing testing Best Buy CE Shops within Macy’s that will be staffed by Best Buy sales associates. This initiative is to spur growth and we see this as a win for both retailers.
Macy’s gets the advantage of bringing in added traffic, with the positive exposure of name brand products (they are the ultimate name brand store). Best Buy gets incremental volume, and more importantly, can show its key vendor partners the advantages of partnering with Best Buy extend beyond the Store within a Store shops at Best Buy to other high traffic outlets that enhance the image of the products (as Macy’s is considered a quality partner for higher quality brands).
We see this as an opportunity for Best Buy to increase their attempts at having exclusive offerings, at differentiating from amazon and as a step toward increasing their footprint without the risk of the additional real estate. This could well turn into a program like the Dixon’s store within Harrod’s – a very high volume and profitable partnership for both retailers. (click here to read article)
#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.
Levin Consulting Confidential v120514
There has been a lot of press about how the Black Friday weekend traffic and sales were down, in terms of retail traffic/revenue. We differ specifically for CE sales, based on the following:
#1 – Although overall traffic and revenue may have been down, it is clear that CE took a much larger share of the basket, and that overall CE revenue was up!!! Total CE sales, retail plus online, were up roughly 7 to 10% for the week, in our opinion.
#2 – CE has a higher proportion of e-commerce sales than other consumer products, and CE e-commerce sales skyrocketed. The three largest CE players – amazon.com, bestbuy.com and walmart.com, all showed double digit increases this weekend and for the entire week. And it is important to note that for the e-commerce business, it was a week long event, as retailers released their BF deals online early, and many consumers took advantage. In fact, one of the key factors for the reduced traffic overall was the continual shift to online purchases – for many consumers they appreciated buying the specials without having to deal with the crowds. We want to be clear in that we expect store holiday traffic to continue to decline going forward, as we have reached that tipping point where a large number of consumers are comfortable shopping online for major purchases.
#3 – The CE industry made a concerted effort to focus on bigger ticket purchases, cutting considerably their focus on featuring DVDs to drive traffic. Yes, Walmart sold an incredible amount of DVDs and Best Buy still sold a good quantity of movies and video game software – but the promotions for these categories were down – creating considerably shorter checkout lines for all involved. Focusing on the big dollar stuff, especially TVs, iPads and notebooks, led to big numbers without correspondingly big traffic numbers.
#4 – The number of strong categories for CE was the most in more than a decade, allowing for strong overall top line growth. Start with TVs, the hot item – and especially bigger ticket SKUs. Layer on iPads and notebooks – huge revenue producers. Add video game systems – big numbers, and up from last year. And then add all the other strong categories: Beats headphones, GoPro and action cameras, low end tablets (mainly at Walmart), fitness (FitBit numbers were fantastic for the week), cellphones (solid, with much of the traffic spread through the week instead of just on BF – and greater dollars due to the sales of the iPhone 6 and 6 Plus) – and as the weekend went on we saw good sales of bluetooth speakers, cellphone accessories, SanDisk memory products and we could go on and on.
Our key takeaways from the weekend are:
#1 – This should be the best holiday CE season in at least five years (and maybe longer). The large number of hot CE categories, the strength of the TV business and the dollars that represents, the lack of other “Must-Have” holiday items (except for anything related to the movie Frozen), the fact that Best Buy is in good shape financially and operationally (they set the table for the industry), the strong CE focus by Costco and Walmart, the much, much, much stronger price points on every CE category this holiday versus last (look at the ads and it is clear that we have much more consumer friendly pricing on 4K TVs, on better quality brands such as Samsung, Beats and Apple, on iPads … the list goes on and on) and the increase in consumer confidence (the combination of lower gas prices and the thought pattern of “might not be getting a better job, but at least less danger of losing the current one”) add up to a great holiday CE season.
#2 – As of today, and it looks like for the rest of the season, Best Buy is the big winner. We are not seeing the press about “will Best Buy make it?”, and “how can Best Buy survive against amazon?”. Best Buy has the best product mix, with leadership position in every hot CE category – large TVs, 4k TVs, iPads, notebook PCs, GoPro, FitBit and other health and wellness devices, Beats and other higher end headphones and bluetooth speakers, Samsung TVs … again, on and on. The key is that Best Buy has a leadership position in every major CE brand, meaning it will have better supply, it will be better merchandised (store within a store and in-store displays) and it will have a better selection.
#3 – The other winners for the week were Costco and Walmart, both with strong merchandising (though Walmart’s TV merchandising did not seem as strong as a year ago). Most of the top brands, incredible daily traffic and improved overall CE departments lead us to believe that both will continue to be have great CE seasons – clearly taking share away from their closest competitors. There were other winners last week, including amazon.com, Vendors selling Direct (way up form 2013) and select regional CE players (not all – there were an equal number of losers).
#4 – The losers are also clear – Sears/Kmart, the office superstores, HH Gregg – these players are all strong and important retailers and they are all losing share in the CE space. And this is a slippery slope, as once you begin to lose share you become less important to the suppliers and are less likely to get the hot products and the deals. Traffic counts for the CE departments for each of these are down double digits (our best estimates) – it does not bode a good holiday CE selling season.
#5 – Top brands are becoming more dominant. We do not have the NPD numbers as of yet, but we are willing to bet that Samsung gained major revenue share in TVs, Apple in cellphones, tablets and computers, Beats in headphones, SanDisk in memory, GoPro in camcorders/action cams. These numbers will slide as the season goes on, as the supply of the top brands gets constrained – but it clearly demonstrates that consumers like the best brands, want to purchase the top brands and will do when they are competitively priced.
#6 – Consumers are willing and able to buy higher priced goods – where those more expensive goods still show a good value, a reason to buy now, and clear, easy to understand feature/benefit advantages over the products below them. This was obvious all weekend in TVs, where consumers stepped up to better products. And it was true in category after category – here it was clear the value equation made it worthwhile.
Please note that these observations are based on a large number of store visits by the Levin Consulting team, and no “inside information” was obtained – it is our best analysis of what we saw. Please send any comments or questions to me. And thanks to the Levin Consulting team for all of their help in preparing this update.
These opinions are our best opinions – we look forward to getting actual numbers and sharing those shortly.
Best wishes for a Happy and Healthy New Year, and for a Successful Holiday Selling Season!
Increase sales and save money! The Electronics Retail Summit Spring will be held March 22-25, 2015 at the Hyatt Regency Baltimore Inner Harbor. The cost of the event will increase by $1,000 on October 1st – register now to receive last year’s pricing. This event is traditionally sold out – early registration is highly recommended! Call Alan Semel at 216-595-9828 x125 to get the ball rolling.
We are very excited that ABT Electronics will join buyers from companies such as BrandsMart, Airport Wireless, NATM, Curacao, OneCall, Office Depot, TigerDirect, Toys R Us, Woot, Kroger and many more at the Electronics Expo being hosted August 3-5, 2014 at Turnberry Isle Miami in Aventura, FL. Check out our great retailer list. This will be a great chance for CE vendors to sit down in private, pre-scheduled meetings with a great group of buyers.
Crowdfunding is a great way to validate your business proposition and/or your product without the major expense of bringing the product to market. It’s equally as good for emerging start-ups as it is for established companies. Having an existing business doesn’t mean that you can’t take advantage of crowdfunding.
The Electronics Retail Summit Spring held March 30-April 2, 2014, hosted more than 4,500 pre-scheduled, one-on-one meetings between 141 vendors, retailers and distributors. Thank you to all of the attendees who helped make this a sold-out event!
Our client, Healbe, has launched their exciting product, GoBe, on Indiegogo. The Healbe GoBe is the only wearable device that automatically measures caloric intake as well as tracking calories burned and other important body metrics. http://igg.me/at/GoBe
Thanksgiving weekend is finally over – and by the way, the weekend is now five days long, going from Thanksgiving Day through Cyber Monday. Here are my thoughts, which includes input from our team in the field covering more than 75 stores in more than half a dozen markets in the Northeastern and Midwestern US. Further updates will be sent out over the next few weeks, including more detailed info on the warehouse clubs and office superstores. Please feel free to contact me with any questions.
#1 – More and more shopping is being done earlier in the week, through online offers. These offers first were sent to preferred customers, and then to the general public. Everyone did i – the big winners were Best Buy and Target, both of whom leveraged their customer databases to take share. All of the early shopping impacted the sales for the weekend – we think roughly three to five points of store sales moved ahead through this effort. This created a share shift, as those retailers that were aggressive in their efforts clearly took share from the rest of the field. Amazon’s Cyber pre-week was a big winner, as the this year saw a true “tipping point in shopping patterns, with online being a part of the everyday shopping for most middle and upper income customers, not simply early adopters. Big winners on this trend – Amazon, Best Buy and Target. Holding its own – Walmart. Losers – Traditional CE/Appliance Chains without large databases and strong offers, such as HH Gregg.
#2 – The top brands and the best values did exceptionally well – secondary brands and decent values did not do well. Brand winners were Apple (primarily tablets), Beats (headphones and speakers), Samsung (TVs and cellphones) and SanDisk (memory deals at every major retailer), along with new gaming platforms from Sony and Microsoft. Exceptional deals in cellphones, TVs, low end tablets and notebook PCs did well; sales were quiet in home and portable audio, as well as in appliances. This shows that the American consumer continues to get smarter and more sophisticated in their shopping – they recognize a real bargain when they see one! This holds true for all categories, as we saw similar results in apparel and tools.
#3 – Ridiculous deals (pricing well below street, often at negative margin) sold in ridiculous high quantities. Think of Walmart’s sales of TWO MILLION TVs on Thursday alone, along with 1.4 Million tablets – Mind Blowing Numbers!!! Offer TVs at a great price and you will sell hundreds of thousands of them (see Walmart at $98 for a 32 inch set, Best Buy at $169 for a 39 inch set, Target at $229 for a 50 inch set) – expect to see more offers like this over the next three weeks.
#4 – The weekend is for gifts. The next few weeks are for gifts, and for self-gifting – this creates a massive change in the mix. As customers buy gifts for friends and family, they are more likely to buy the price leader in the category. As they buy for themselves, they are more likely to buy step-up products at good values. The step-ups did not sell well this weekend; in our estimation, the percentage of OPP (Opening Price Point) merchandise sold was the highest in the last decade.
#5 – Apple regained significant market share this weekend in the tablet space. There were plenty of low priced and mid priced tablets sold, but in terms of dollars, the iPad dominated. The Walmart offer was incredible, especially in that they allowed an unlimited number of customers to buy one. Target sold an incredible amount of tablets, showing that mass merchants can sell higher priced tablets … when sold at or below cost! And Best Buy, with their matching offers, also sold a large amount – more than they projected.
#6 – Margins were the lowest we have ever seen on Black Friday. This is a combination of retailers’ eagerness to drive top line revenue without worrying about margins (yes, that means Walmart), the type of products purchased (see #4 above), the product mix (tablets are low margins to begin with) and the overall competitive environment. Best Buy warned on their earnings call about the margin for the quarter – we believe it will be lower than projected for every major retailer, be they CE, Mass or apparel.
#7 – The weekend was all about amazon. Retailers were pricing below cost to show a pricing advantage over amazon. Retailers were featuring their websites for purchases – all to compete with amazon. Retailers were starting their specials earlier – all to compete with amazon. And despite all their efforts, amazon was clearly the big winner for the weekend. The amazon site sales were phenomenal, gaining significant share in CE. The amazon marketplace sales were also through the roof – combined with amazon’s direct sales, there was a seismic share shift this weekend, one that we expect to continue through the end of the year and into 2014.
#8 – Store traffic for CE was down considerably, we believe 10 – 15% from last year. It looked even worse, as the hours were extended, for a smaller base of customers – this created many situations where there were store personnel standing around without anyone to help. This is also a result of the move to online shopping for CE, causing a further reduction in store traffic.
#9 – It is all about mobile, mobile products and mobile shopping. The lines for cellphones (congrats to Best Buy on the Samsung free smartphone promotion – the strongest cell promo of the weekend. now they have to figure out how to speed up activations so that the lines are not three hours long to get new phones). Tablets sales were scary good. And people were checking prices and shopping on their phones and tablets – this is a major changes from last year and makes the US consumer more like those in Japan and other markets, where mobile shopping is ubiquitous.
#10 – Opening earlier on Thursday was not profitable as it simply spread the customer count over more hours, while increasing labor costs in a major way … and it will definitely happen again next year!!! Yes, opening earlier does not make sense for everyone. At the same time, it makes sense for those that are looking for an edge. I personally believe that if the deals are good enough, opening at anytime will work – but it does not matter what I think. Retailers will look at the lines at Walmart, Target, Kohl’s, Toys’r’Us and others, and will open early on Thanksgiving Day.
#11 – Retailers are nervous, and will be more nervous over the next three weeks. Everyone is concerned about the shortened holiday selling season. Everyone is concerned about amazon and other online threats. Everyone is nervous about the economy, and the impact on consumers’ spending. This will make for some incredible deals over the next few weeks, and continued margin pressure for all.
Best Buy was well prepared for the weekend, with strong logistics (checkout and such, except for the cellphone activation process). They did a good job of moving sales ahead with offers to their loyalty card base. They did a good job on price matching, and being competitive. They had strong specials in notebook PCs, cellphones, tablets and select TVs. And yet, we believe that their store comps were negative five to ten points for the weekend – while their online sales were up 20 to 30 points, maybe even more. Their lines to get in at opening were down, anywhere from 10% to 75% in the stores we tracked. Their tickets were down, as the average price for their key categories (tablets, cellphones, TVs, notebooks) were all way down from last year. They did a great job on the new gaming platforms – but they did not get enough allocations and sold just a fraction of what they could have sold with more inventory. And Best Buy’s margins were crushed, as the average ticket on their attachments was way down (look at the huge drop in the average sale price of HDMI cables for example, their door busters were at terrible margin, their mix of products sold (see #4 and #6 above) suffered and their willingness to match Amazon, Walmart and Target gained them revenue while killing their gross margins. We give them an “A” for effort and execution – and a “B/C” for results and specials. The world is excited about Best Buy’s stock with good reason, as they have done a great job of re-engineering the company – not sure how well everyone understand how difficult this season will be.
Amazon was a winner by every count. Their sales were strong, up ≥30% in CE (our projection for the weekend). They caused price pressure on their competitors, another plus for them. did they make any money? Doubtful … but that does not seem to be an objective of theirs, nor do their shareholders seem to care. Grade them an “A+”
Walmart was a winner in terms of top line revenue, customer count, and taking care of customers (their process on their 21 guaranteed specials was amazing to see). Their traffic counts the first day (Thursday) was stronger than everyone else, both in raw numbers and increases from last year. Their use of walmart.com was a huge improvement from last year, and the site had strong sales. the rest of the weekend was quiet – it did not seem like Thanksgiving weekend. We believe customers shopped Walmart first, and then spent the rest of the weekend getting their other shopping done. Margins? Who needs margin when you have top line growth, that seems to be the new motto at Walmart for the holiday weekend. We expect them to report that they will miss their margin number for the quarter, and will beat their revenue number – though they will probably not say it in that order. We give them an “A” for the weekend.
Target also had a good weekend, with strong traffic on Thursday and a great promo on Friday that will drive sales the balance of this week. Overall, Target’s numbers were not quite as strong as Walmart, as their TV offers were much more limited in terms of the value of the offer and the quantity available for sale. The Apple offers were very strong, and helped to re-establish Target as a destination for Apple products. We expect Target to be at or slightly below their revenue number for the season, and below their projected margin number. Grade them a “B”.
HH Gregg had a tough weekend, as traffic and revenue was down noticeably. The lines to gt in the stores were half of last year, or worse, in the stores we monitored. As HH Gregg has done a nice job in changing their mix to feature larger screen size TVs, furniture and more appliances, that does not bode well for sales for this weekend. We expect that they were down ≥20% for the weekend, as their addition of Apple and a stronger web presence was not enough to carry them to positive comps. HH Gregg was not as strong on their TV offers as their competitors, and it shod in terms of revenue and traffic. And the industry’s move to mobile products as the lead in CE is not good for them. Their grade? A gentleman’s “C”.
Sears had a very difficult weekend. Their specials were not strong (they did not sell through) and their traffic was weak. They continue to bleed market share in CE, and are less and less of a factor. Grade? a “D”, as traffic and sales were both down considerably.
#1 – We believe that the CE sales for the weekend were down around 10%. Hot products sold better than last year, as the top selling SKUs take a greater share of the revenue than ever before.
#2 – Inventories are tight on the hot items (iPads, Beats headphones, etc.) and overstocked on everything else. Should make for an interesting end of the month in terms of promotions, both by retailers and by vendors.
#1 – Is there anyone out there NOT selling Beats Headphones? This was a door buster at the major players – Best Buy, Walmart and Target – as well as at Kohl’s, Office Superstores and pretty much everyone else. Beats proved they are THE player in this space – and sold numbers like we have never seen before from this category.
#2 – Midsize TVs – 32 inch to 50 inch – were the hot size for the weekend. Larger sets, even at great prices, did not do as well. The hot 60 and 65 inch deals at Best Buy did not sell out the first day – or even by Sunday.
#3 – The tablet has replaced the TV as the “must-have” holiday item. This is important, as retailers have a more difficult time selling high priced and high margin profits with tablets (cases, warranties, styli, etc.) than they do with TVs (warranties, power protection, installation, HDMI cables, mounts, etc.). This will lead to margin drops, both short term and long term, for CE retailing.
#4 – Deals need to be great to motivate consumers, just good ones are not good enough anymore. If this continues through the end of teh year, expect a fundamental long terms shift in CE margins (downward). Retailers need to adapt – and those do not, will not make it going forward.