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CE to Show Modest Growth as Prices Firm

For a category given up for dead a few years ago, consumer electronics seems to be turning around. Last year, CE chains expanded rapidly and full-line discount stores started beefing up their CE departments. This year, sales through discount and mass market channels are projected to increase modestly to $13.3 billion, and expansion should continue through 1990.

Of course, most of the gains have been made at the expense of other outlets. At least two major CE chains are in serious danger, JCPenney got out of the business last year, many discount chains have deemphasized the category, and mom and pop operations nationwide are struggling.

At the same time, however, Silo and Circuit City have stepped up their expansion plans, Sears will open some 300 Brand Central departments by year-end, Montgomery Ward has upscaled its Electric Avenue CE power departments, and regional chains like The Good Guys have established themselves as profitable, growing businesses.

The growth has come in the face of product shortages, declining prices, bitter competition, and the lack of any one superhot product, like yesteryear's videocassette recorder. With increased interest in larger-screen TVs, audio components, value-added videotape recorders, camcorders, computers and many other products, prospects, at least for the chosen few, are much brighter than they have been since the "death" of the VCR and the microwave oven.

The hot home office category will also play a part in the discount CE field. As the potential in the category has been realized, first CE chains, then general discounters have moved in. Several computer and fax machine suppliers have recently noted that, long-term, national CE specialty chains like Circuit City and Silo are their most effective outlets, and that discount stores could also play a part in these emerging businesses.

CE has also seen a stabilization of prices, which has stemmed the decline of margins somewhat. Consumers, despite having become accustomed to ever-decreasing prices on electronic goods, should not be put off too badly. While prices have solidified in many areas, most new products now contain added features. For instance, a remote color TV probably sells for about the same amount as a non-remote model last year.

That trend was perhaps the major story at this summer's Consumer Electronics Show in Chicago, where buyers said that while there was relatively little in the way of new and revolutionary introductions, the wide availability of value-added products almost made up for the lack of innovation. "I'm seeing a lot of very saleable product," said one buyer, in a very typical comment.

Along with strong home office and video sales, the industry should see a rebirth of the audio component business. Perhaps because of the popularity of enhanced digital equipment (CD players, most noticeably), sound quality has become more important to consumers. Retailers such as Tops and Silo have been quick to pick up on the trend, but full-line discounters, generally specialists in inexpensive rack systems, have started adding components as well.

While growth in videotape has more or less stalled, audio tape seems to be rallying, particularly high-end chrome and metal formulations. With the price war over in audio tape, manufacturers have turned to value-added promotions, like Fuji's recent inclusion of a sampler compact disc with five-tape bricks and Sony's offer of a three-issue subscription to Rolling Stone magazine with a purchase.

The result has been steadily growing sales, mainly at the high end. Full-line discounters, however, seem to have been slow to move into the market, particularly in offering five- and 10-tape bricks.

Overall, specialty retailers, as in most categories, seem to be making the largest gains in the CE market. Because of the high-tech, brand-oriented customer the category attracts, those who specialize and make a considerable inventory investment tend to prosper. On the other hand, retailers like Wal-Mart, which offers a limited selection of very sharply priced most-wanted items, can make a major impact.

Another major impact will be made by Sears' and Ward's power departments, which will add some 1,200 highly competitive retail locations to the CE scene. With well-advertised prices becoming more common, and the "we'll beat any competitor's price" promise almost standard, the CE consumer will become ever more educated and price-conscious.

And that could mean another round of the price wars of the recent past. And, probably, another round of chain failures and retrenchments.

This year, discount stores should ring up $6.5 billion in CE sales. Specialty discounters will garner $5.9 billion, while $0.9 billion in CE business will be done by catalog showroom chains.

At full-liners, CE will turn 3.5 times annually and achieve a gross margin of 16.2 percent.

PHOTO : CE at Ames, Winsted, Conn.: Sales of audio tape (right) have been picking up steam,

PHOTO : particularly high-end chrome and metal formulations, while growth in videotape has slowed.

PHOTO : The trend toward adding components to inexpensive stereo rack systems (bottom) is

PHOTO : accelerating among full-liners.