The following was published in Dealerscope Magazine in December 2010:
The last three years have been a volatile period in the history of consumer electronics. While a recovery is slowly taking shape, I believe the next few years will offer as much change as the in the last year or so. Here are a few trends worth watching:
Store-within-a-Store Model Expands
In the late 1990s, Apple’s presence within major retailers began to change, ultimately transforming into the now familiar store-within-a-store model. This gradual transformation pulled Apple products together within the store. Instead of merchandizing Apple products within the category where the products would sit next to similar devices, Apple products were increasingly merchandized next to other Apple products. The retail presence for Apple changed from an existence within categories to one of brand. As the Apple ecosystem of products expanded, so too did Apple’s store-within-a-store presence. While this trend has yet to catch-on widely within the U.S., it is starting to emerge outside of the U.S. for other brands. We’ll see this trend accelerate in the U.S. and beyond.
To create a 360-degree experience (a combination of hardware, software and ecosystem) for consumers, companies are highlighting how the interoperability of their different devices can provide a seamless experience for the end-user. The store-within-a-store model is also expanding slowly as the more traditional categorical view recedes. When devices move away from conventional category definitions, brand becomes the natural organizational default.
In the last year, this trend has begun to take hold in U..S retail through branded displays that highlight a suite of products. The trend will also become more prevalent within specialty CE retailers (see our cover story on page ?? for more on this trend) as Apple’s impact on audio continues with the expansion of offerings like AirPlay-integrated speakers.
The Rise of the Apps and the Changing Nature of the Traditional Retail Demo
Physical music was down nearly 20% in units and 21% in revenue in 2009 and continued to decline in 2010. This year is on track to be the first year digital music sales surpass physical music sales. DVD sales have also been steadily declining since 2007. While the sale of physical media will likely linger for many years – products rarely rise or fall as fast as most expect – the trend is apparent. This decline continues to have an impact on the proverbial “middle of the store.”
At the same time, mobility and portability will continue to define consumer electronics. The intersection of mobility and digital media/apps are forever changing the landscape for large retailers. Product mix within the middle of the store is shifting to support this rising portable lifestyle, while apps will have a strong influence on how that segment evolves. Apps will have a strong impact in other areas of CE retailing, but there are a few ways dealers can take advantage of the trend.
While apps were originally bite-size experiences designed for an on-the-go mobile world, they have morphed into all encompassing elements of a portable world and are also transforming the in-home technology experience. Manufacturers are increasingly integrating an app approach to their traditional offerings. They are enabling consumers to interact and control their devices through apps, which will open up the number of devices consumers can use in creating a 360-degree experience.
Herein lays the crux – and the opportunity – for the modern-day CE retailer: Consumers don’t always have perfect visibility into the potential of a given technology or device. They don’t always recognize how they can integrate new technologies into their lifestyle. Historically, the retail demo was used to show how a particular device works. But future retail demos will quickly morph into something used to highlight how a potential device integrates into a given lifestyle.
Retailers are well positioned to bring to light how a given technology or device, aided and driven by apps, can integrate into a lifestyle to become a solution-oriented technology. That’s an important facet when US households are already inundated with technology and own on average 24 devices. Despite what retailers will actually merchandize and sell in the next few years, apps will dominate the retail demo.
Black Friday will be both Bigger and Smaller in 2011
Black Friday has become a massive retail phenomenon. In 2010 it was bigger than ever by almost all conceivable metrics. Despite becoming the colossal event that it has become, it will also shrink in 2011 in some important ways.
As the industry traverses the mediocre economic recovery, retail sales traffic has become an ever-important barometer. With consumers continuing to retrench (something that will continue for another three years), sales events have become important catalysts. As Brian Dunn discussed at CEA’s CEO Summit in 2010 in what he referred to as the new normal, “consumers are coming out for events. Our spikes are higher and our valleys are lower.”
This is no event comparable to Black Friday. A US-centric shopping event it continues to expand in overseas markets. Internet searches utilizing the term “Black Friday” continue to grow outside the US. In 2010, Amazon made a concerted effort to push Black Friday to the U.K. by offering discounts on certain items. I expect this trend to expand. Black Friday will get bigger by expanding internationally. Soon, foreign-based retailers will begin offering Black Friday deals.
In 2010, Black Friday encompassed more retailers than ever before. Both online and physical retailers offered Black Friday deals. Building of the momentum of Black Friday, retailers offered CyberMonday deals, and American Express introduced Small Business Saturday. Black Friday will get bigger by encompassing more retailers.
In 2010, Black Friday offerings included a wide breadth of products. CEA’s Black Friday research showed purchases increased almost uniformly across a wide list of categories both within and outside technology products. Stretching far beyond tech, a host of products were discounted on Black Friday. For example, our research found nearly 20% of consumers bought appliances during the weekend.
While appliances are a category typically reserved for holiday sales earlier in the year, shipments of appliances increased significantly in advance of Black Friday, and discounts ensued. In 2011, I expect Black Friday will be larger by this metric as well and will encompass an even increasing portfolio of categories.
In 2009, a select few retailers began offering early Black Friday deals but in 2010 this was a widespread strategy. Retailers also offered more post-Black Friday deals than ever before. These moves have dissipated the effect of the event. Search volume for the term “Black Friday” had increased every year since at least 2004. However, in 2010 relative search volume failed to set a new high during the week of Black Friday despite setting new highs for both the week before and the week after (see chart).
Black Friday has morphed from a single-day event into a broader period. I believe this trend will swell in 2011. With consumers becoming conditioned to the deals and discounts of Black Friday, I expect early October will prove to be a very weak period. In 2011, Black Friday will probably start earlier and with more force. Because it is dissipated across November it will be a larger gross event, but the actually day – the day after Thanksgiving – will shrink by some metrics as consumers look for deals in November.
These are just some of the trends influencing tech retailing in 2011. We linger in a delicate economic environment where the consumer remains timid and therefore retailers will continue to experiment with an assortment of approaches in an effort to drive traffic and capture consumer attention.