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Gadget fatigue hits online sellers
(IDG) -- Even before the holiday muzak began playing at department stores, consumer electronics retailers were brimming with hope. They expected a tsunami of digital gadgets that consumers wouldn't be able to resist. Merchants swooned over cameras that would deliver perfect shots of sunsets, devices that would let you send e-mail from your kitchen and jukeboxes onto which you could download your entire music repertoire from the Net. Chain stores like Best Buy and Circuit City as well as online retailers -- particularly Amazon.com -- were banking on this technical wizardry to deliver a big fourth quarter. But it doesn't look like that's happening. The government reported last week that retail sales declined 0.4 percent in November from the previous month, and consumer electronics was among the worst-hit sectors. Obviously, the slow electronics sales are the result of the slowing economy, but the glut of gadgets doesn't help. The Consumer Electronics Association projects more new products will be introduced from 1998 to 2003 than for the entire previous history of the industry. This deluge has overwhelmed many shoppers, and already stores are drastically reducing prices to try to win customers over. Executives at Amazon.com, Best Buy and other stores say sales are strong, but the price war is likely to get uglier in the last days before Christmas, as retailers try to clear their inventory. "They don't want to carry over anything," says Walter Loeb, publisher of the Loeb Retail Letter, explaining that merchants expect 2001 to be grim. At a Circuit City store in San Francisco one evening last week, the few people milling around seemed more interested in watching the breaking election news on the store's televisions than in buying one. "Compared with last year, the flow traffic of customers has gone down dramatically," remarked Christian Franco, a Circuit City clerk.
Shoppers explained that they were disillusioned by high prices - even though many items were on sale -- and were confused by the dizzying array of products. Bill Maddox, a programmer, was searching for a gift for his family on the East Coast, but was finding it tough to stay below his $600 limit. Though in years past he purchased some quirky gifts -- like a robot arm on wheels -- nothing had caught his fancy. "I'm really going with the idea that I could skip [gadgets] this year," he said. While digital toys are alluring, some newly cost-conscious consumers, who bought gizmos last year when times were flush, may prefer to wait a while for an upgrade. Other shoppers may shun the latest high-end gadget in favor of last year's hot items that, thanks to lower production costs, are now cheap. For instance, DVD players can be found this month for as little as $79, way down from last year's average price of $300. Electronics retailers make less money off these sales, and discount stores like Costco and Wal-Mart are cutting into this market. To make matters worse for electronics merchants, the one item that could have broken through the clutter and boosted their fortunes -- the Sony PlayStation2 -- is almost entirely out of stock. So as Christmas approaches, electronics sellers are slashing prices. It started this summer with Circuit City, the No. 2 seller of consumer electronics. The company had revamped its stores earlier this year, pulling home appliances from its shelves, creating havoc in its stores and frustrating many customers. To lure them back, the chain cut prices heavily, forcing competitors to follow suit. This price competition has caused margins to drop. So while Best Buy, the No. 1 electronics retailer, saw same-store sales grow 5 percent in the last quarter, profits fell 27 percent. Sure, some new gadgets, like handheld computers, are doing well. On Amazon.com last week, seven of 25 top-selling electronics items were handheld computers. This has helped Amazon's electronics store achieve 14 record-sales days this holiday season, according to Richard Chin, the unit's marketing director. Still, most of its top-selling items were discounted between 10 percent to 46 percent, raising questions about how much money Amazon.com made from those sales. The season's sales may boil down to the feelings of shoppers like Firinn Taisdeal, who saw no must-have items as he browsed the empty aisles of Circuit City. Taisdeal, a project manager at a dot-com, said he had money to burn but wasn't moved to take any out of his pocket. "Who wants a camcorder, a pager, a phone and a Palm all in one?" he mused. Technology is already too intrusive, he added, noting that he recently got rid of his cell phone. "You can't get away from it," Taisdeal said, "unless you get it off your body." RELATED STORIES: Fact check: Economic slowdown doesn't mean recession ... yet RELATED IDG.net STORIES: Holiday shoppers get thrifty RELATED SITES: Amazon.com, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||
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