NPD Group Blog » What to expect when you are expecting

What to expect when you are expecting

Tuesday, December 23rd, 2008
By Stephen Baker, Vice President, Industry Analysis

Even though the holiday selling season isn’t over yet, it doesn’t feel unnatural to start setting expectations for 2009. As much as 2008 was a stress test for the electronics industry, 2009 is likely to raise our anxiety levels further and require even more constant monitoring than we needed last year to avoid heart failure.

Undoubtedly the first half of 2009 will be miserable, and not just because the first half of almost every year is miserable. NPD’s Consumer Spending Indicator does not provide much room for optimism. While we don’t offer forecasts, we can offer a bit of guidance/observations on some key signposts to watch for in the first half of the year that might provide some clue as to the level of anxiety to expect in the back half.

First is to watch the financial and sales performance in retail - and we don’t mean to just watch whether some of the more challenged electronics retailers are surviving or thriving. We believe that the overall tenor of retail activity will be an important indicator for the opportunities in electronics over the last six months of 2009. Keep a watchful eye on food and restaurant trends as spending there can indicate how consumers are feeling about the economy and their own personal situation. Track same store sales from Walmart, Target and all the big department stores for changes in consumers’ discretionary spending patterns. Finally, watch the retail Real Estate development industry. New power centers and lifestyle center construction, or lack thereof, is a great indicator of how much investment is going into retail. In addition, bankruptcies or severe consolidation among owners of retail real estate could be a sign that the retail market remains unstable.

Those are all general markers on the health of retail and the consumer. Specific to tech I have three areas I am going to watch closely over the next six months. First is the health of the point-and-shoot camera market. As a highly saturated product segment that everyone is familiar with, it has been a big area of concern this holiday. And even though the first six months of the year are the very slow season for these products, any sign of unit and selling price stability will be a positive gauge on the health of the overall tech market.

Secondly is the big-screen TV market. The volumes in this segment (the 40-inch and above generally, and the 46-inch and above specifically) are now meaningful to the market in a way they haven’t been before. In retail terms they will be facing tough comps in the first half of the year, the first time that has happened for this size segment in the flat-panel market. With the elevated volumes tough comparisons imply it will be telling to see if the largest flat-panel TVs can continue to generate the type of unit growth we have seen during the 2008 holiday season.

Finally, the notebook PC market will be another important indicator as to how slow the recovery might be. Notebooks ought to generate healthy comparative sales growth in the first half of 2009, with unit growth in the mid-teens bolstered by the impact of the netbook segment. Whether this is real growth, or cannibalization, it still should be a sign to know if consumers are willing to spend on electronics or not. The best way to determine this will be to track the impact of the lower-priced netbook segment on the overall selling price of the category. If ASPs fall dramatically then it could be a sign that consumers are, even in the PC business, pulling back and shifting spending to lower-cost, less-capable devices. A corollary to this is the need to become an Apple watcher. As was widely reported, our November sales numbers showed a marked slowdown in Apple computer sales, driven by a number of factors. But it is entirely possible that the dramatic fall in desktop sales, and the narrowing of the beat down Apple notebooks growth had been doling out to the Windows notebook market could be a sign of consumers closing their wallets.

December results and the first half sales reaction to any new products that are introduced at Macworld will show the willingness of consumers to spend. If Apple’s customers are holding back on electronics buying then that is a very concerning sign for 2009.

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