Electronics Marketers Face Flat Sales This Holiday Season

Normally Sound Industry Prepares for Its First Pounding in Years

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YORK, Pa. (AdAge.com) -- Flat is the hottest thing in electronics for the coming holiday season. Not flat screens for TVs and computers, but rather flat -- or potentially declining -- sales growth, as the usually resilient industry looks to take its first pounding in years.

"This season will be like no other in recent times. In the forecasting biz, we call it a 'market discontinuity.' That is, a break from the past," wrote analyst Roger Kay in a blog post. In a follow-up interview, he said, "Dollar volume is going to be low, discounts are going to be heavy, and in general, industry profits will be down."

Best Buy, which like the rest of the industry had been relatively immune to the bumpy economy, recently reported a 7.8% drop in U.S. sales for October, following a 2.4% decline in September. Competitor Circuit City has filed for Chapter 11 just in time for the holidays, and many industry watchers are concerned it may not survive.

'Most difficult climate we've ever seen'
"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen," said Brad Anderson, vice chairman-CEO of Best Buy, in a statement. And he warned that more is in store for the holidays. "The company anticipates that comparable-store sales for the four months remaining in fiscal 2009 (November 2008 through February 2009) could decline by 5% to 15%."

NPD Group analyst Steve Baker said he's changed his guidance twice in the past few weeks, lowering expectations as the market continues to fall. "This is probably going to be worse than most of us can remember. Certainly the worst since the mid-'90s, when electronics started to become a key gift-giving, retail-driving category," Mr. Baker said, adding, "That said, though, even our worst numbers will still be better than overall retail numbers."

The truly optimistic Consumer Electronics Association still forecasts growth, although its prediction of a 3.5% sales increase for the fourth quarter is half last year's tally.

So what are marketers doing about it? A few, such as Hewlett-Packard and Sony, are launching new campaigns, but others are sticking to more cost-effective and direct methods such as inserts, in-store and online marketing, and price and value messaging. Dell's website, for instance, touts "Season's Savings."
Emily Ketchen
Emily Ketchen

Feel-good messages
A holiday feel-good message is also present in some of the ads. HP launched its "Practical Magic" campaign, created by McCann Worldgroup, San Francisco, last week with a "dual strategy that HP really delivers a magical product this season, the TouchSmart, and that there is also a 'magical' value," said Emily Ketchen, senior VP-group account director at the agency. "Certainly for the notebook shown in the ads, there is a lot of functionality that is very attractively priced."

The campaign includes "significant TV and online," Ms. Ketchen said, and includes print supplements and several videos that are being seeded online.

Sony is playing into a popular holiday tactic: the wish list. It's running a series of teaser PlayStation 3 ads called "Reflections" that show people on a city street staring up at fragmented images from a game, and ask at the end, "Have you started your wish list?"

Mr. Baker said no matter the method, the most important thing to do right now is to reach out to customers. "The best way to talk to people today is to just talk to them," he said. "You just have to be in front of them, get them in the store or online or wherever they might buy, and then you have to sell them on the features or benefits of your product."

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