Underneath these results are some truly interesting data points that show the health of the PC market through the channel. Notebook PCs saw an ASP of $764 in 2011, down just 5 percent from 2010 and actually up $4 from 2009. Desktop PCs also showed remarkably strong average selling prices, with 2011’s ASP of $638 down just under 3 percent from 2010, and up from $625 in 2009. Finding stable pricing anywhere in the IT hardware marketplace is a difficult task but in such a high-profile market as the PC market it is impressive. Equally impressive is the fact that despite these minimal price drops both desktops and notebooks have grown units in double digits in each of the last two years. The results has been the addition of 4.5m extra units, and approximately $2.2b, sold in 2011 versus the volumes posted in 2008 for all PCs.

Some of this is clearly the result of manufacturers making decisions to invest incrementally in the reseller and distribution channel as a way to reach the smaller businesses that have been growing their PC purchasing over the last year (as we mentioned in a blog post a few weeks ago). This investment has been primarily the result of the premier access the channel has to the SMB marketplace. NPD’s SMB Technology Monitor showed that 32 percent of expected PC purchases from SMBs with 50-999 employees were expected to be made through VARs and DMRs, the primary resellers in these channels.

Finally, the brand competition between HP and Lenovo also provides a strong source of motivation and sales strength in the channel. Over the past four years approximately 60 percent of all sales through these channels have been to one of these two brands. And according to NPD’s SMB Technology Monitor that is likely to continue as these two brands have the highest sales conversion rates to SMBs with 50-999 employees of any of the channel centric PC companies. It seems that by the objective measure of sales that business demand and the channel volumes show that the PC market has delivered strong results over the past four years. Despite the trials and challenges of the last four years NPD’s commercial and distributor POS data show that PCs continue to outperform the industry in both sales growth and channel opportunity and the SMB monitor points to continued demand ahead in 2012.

First, if anyone walked into Central Hall you would have thought you were in Korea. The two dominant brands on the floor were Samsung and LG. Not just because they had among the biggest, splashiest booths but because they seemed to contain pretty much every product in the CE world and beyond, from PCs to freezers, from digital speaker docks, to TVs and sound systems. They had the most futuristic displays and the most eye-popping presentations of new technologies, although in fairness they do choose to display all this technology, other companies may have equally cool stuff but keep it under wraps. NPD’s data has tracked the growth of these two companies for many years and both, especially Samsung, have accelerated their share gains across a host of categories in the past year. It is easy to see why when one sees their demonstrations of today’s technology and tomorrow’s innovations they appear poised to continue to grow.

The second revelation is that while brands are obviously important, this year it felt like most of the noise and excitement at CES came from the supply chain and not the brand owners. Intel and ultrabooks, Android phones powered by Google, Windows Phones, Windows 8, amazing new screen technology from Samsung and LG’s display technology companies, and giant screens from Sharp’s fabs were all the rage and generated most of the interest.

That is why it is more interesting as to why Microsoft gave up its starring slot at CES, just as the power in the industry appears to be moving back towards the supply chain and away from the customer facing brands. It appears to me that next year’s keynote could just as likely come from Intel or Google as it could from any consumer brand. The torch has definitely been passed and the CE business is changing and, as always, CES provides a great reflection of where the next generation of technology elite will come from.

Why would a company jump into a category that is not exactly a margin machine, where sales have been flat to slightly on the decline for most of 2011, where price competition is cutthroat and two retailers do nearly 50 percent of all the 3rd party consumer sales in the U.S.? Vizio says it likes to disrupt markets, and they feel this one is ripe for disruption. Most of us, however, who have followed the PC market for any length of time, would probably argue that this market is pretty disrupted already considering the near profitless volume for most of the brands and retailers. With pricing for Windows notebooks hovering below $500 there just aren’t a lot of price points not covered and regardless of the great value in an advanced feature set demand plummets at retail pretty quick once you hit about $600 for a notebook.

Vizio, however, brings with it some strong brand equity, which it has built up in very different demographics over the years by being a leading TV brand at Walmart, Costco, and Sam’s Club. Vizio promised a tablet and a smartphone at last year’s CES, and while the tablet arrived (and disappeared like most Android tablets) the smartphone has not been heard from again, a market much more in need of price disruption than the PC market.

The majority of Vizio’s distribution for its products, even the non-TV ones such as Blu-ray players, soundbars, a network router, and a line of cables, has occurred through that very narrow retail demographic of Walmrt, Sam’s, and Costco. It is likely that its PC distribution strategy would be focused on its traditional partners as well. However, even in those stores the shelves are crowded, and since the emergence of Samsung and Lenovo this holiday season, there are plenty of brands to solve almost any type of product need or price point a retailer might ask for.

1-Retail Relevance. While NPD clearly believes that consumers will acquire their technology hardware predominately at brick and mortar store-based retail for the foreseeable future, the challenges of retail, tough in any period, seemed to ratchet up in 2011.

The shifting tides of consumer hardware preferences, aggressive industry price declines, new category growth opportunities bypassing brick and mortar, the growing importance of service (and services), and the ongoing struggle to incorporate multi-channel retailing into the physical store experience (not to mention the economic challenges and the tidal wave of consumer empowerment) all washed over the retail marketplace. While many of these aren’t new, the combination of so many threats to the health of the retail channel created doubts throughout the industry about the relevancy and future growth opportunities in 3rd party retail.

While 3rd party retailers struggled to cope with these ongoing changes to the traditional retail model, new hybrid models emerged combining some level of content, services, retailing strategy, and hardware leveraging the growing demand for ecosystem buying among consumers that is being driven by the products being delivered today. The coming year doesn’t promise to be any easier but it will benefit from the hindsight of the 2011 strategies that retail took to cope with the avalanche of change.

2-Survival of the fittest. As we mentioned earlier, category change is a given in technology but never before have we seen so many traditionally strong categories fade as fast as we did in 2011. To exacerbate this problem, the new products that rose up to replace them have very different go-to-market models and supply chain valuations, creating significant hardship for the channel and many brands in 2011. In 2012 we don’t expect this trend to slow down; in fact the rapid decline in formerly robust product segments will represent a tremendous roadblock for the industry to deliver improved results in the coming year.

3-Disappointment-While 3D was clearly the biggest disappointment of 2011 other product segments delivered their own sad stories. Android tablets (along with other operating systems) not only didn’t meet sales expectations but were nearly invisible to the mass consumer market. As we mentioned above, the decline of once core categories like MP3, point-and-shoot cameras, and camcorders was much steeper than anyone expected. While PCs didn’t underperform they certainly didn’t exceed anyone’s expectations either. Stagnant TV sales too helped to make 2011 one of the most challenging years for CE. With these disappointments, more self-inflicted than usual, we have some hopes that 2012’s opportunities will be based on emerging product segments such as Ultrabooks, large screen flat-panel, and tablets that offer considerable growth potential and much less opportunity for industry missteps.

And while 2011 feels like a millstone around our neck, like the Phoenix, the tech business always believes something new will arise from the ashes. Whether what arises in 2012 looks anything like retail, or even consumer technology as we have come to view it and whether 2011’s challenges become more manageable in 2012 looks pretty unlikely.

In general, however, spending expectations have really been mostly choices about spending more or spending the same, as very few firms are making the choice to spend less. Less than 20 percent of firms under 999 employees expect to spend less on PCs over that twelve month period. And only about one-in-10 large firms indicated that they anticipated spending nothing on PCs, while nearly half of the fewer than 50 employee companies expressed intent to cut all PC spending in the coming year.
While the market speculation spins about the decline in the PC market it remains apparent that someone forgot to tell the customers. Spending continues on PCs, and on tablets, and few companies, even the smallest ones, are significantly reallocating their spending away from the personal computing needs of their employees. As we head into 2012 the SMB market continues to provide an important source of volume and dollars to PC market.

Sales results for the first three weeks were $5.5 billion, down 6.3 percent from last year. Sales for the second week of the holiday, reflecting the strength of the Cyber Monday events, showed the smallest decline from last year, while sales for the third week of the holiday (week ending Dec 10th) which is traditionally the slowest week of the period, showed the sharpest decline. These numbers are very much in line with our expectations as aggressive pricing and a dramatically shifting sales mix has combined to drive sales dollars down from prior years.
Four big highlights:
1-The PC is not dead. Overall computer sales, both desktop and notebooks combined, fell by about 5 percent from last year in both units and dollars, given the challenges in the market this year that is certainly a tolerable performance. Desktop sales have surprisingly been up with low single digit increases while notebook unit sales fell slightly on an overall flat ASP.
2-The bigger the better. Large screen TV sales have exploded. Unit volumes for 55 inch and above TVs are up 85 percent over last year while the rest of the market is flat. Large TVs accounted for 12 percent of sales this year compared to just 7 percent last year. Of course this growth came at a cost, as selling prices for the largest TVs, despite the aggressive Black Friday pricing on 32 inch and 40 inch screens, has fallen faster than any other segment. ASPs for 55 inch and above dropped 21 percent since last year compared to 18 percent for 40 to 55 inch and 15 percent for under 40 inch screens.

3-Old technology is just old. The great volume categories of yesteryear, products like GPS, point-and-shoot cameras, and camcorders imploded this holiday. Unit volumes fell 38 percent, 22 percent, and 41 percent, respectively. In fact, in recognition of their decline in star power ASPs in all three of these categories increased this holiday season compared to last year.

4-Ring in the New. While there may not be a lot to celebrate this year three product categories standout. Headphones, which have outperformed the industry all year, have seen revenue increase 68 percent from last holiday, and in the first three weeks of this holiday season generated as many dollars as the audio speakers, receivers, and home theater system categories combined. Streaming boxes and music systems saw sales jump 51 percent in revenue over last year. Speaker systems for portable devices like cell phones and MP3 players saw sales increase 5 percent over last year, impressive when you consider that MP3 player sales have experienced double digit declines.

With sales in older technologies and product segments showing their age it will be an uphill struggle to show any overall sales dollar growth for this holiday. Looking out into 2012 these same problems will surely continue to exist and the need to find a solution to the product changes roiling the industry will be paramount.

Electronics also continued to be the second most popular category for buyers during Black Friday after clothing. More than 23 percent of Black Friday shoppers purchased some type of electronics product, 15 percent more than last year and 50 percent above toys, which was the third most popular category. And they came for TVs which saw a 30 percent increase in purchasers this year over last year and passed computers as the most popular electronics category (excluding video games).

While the advertising focus seemed to be on the smaller screen TVs, that emphasis seemed to be a bit misplaced, or at least redirected by the consumer towards the deals available on larger screen TVs. Twenty-six percent of Black Friday tech purchasers plan to spend more than $1000 during this holiday season, which is 10 percent more than last year and higher than the less than 19 percent of total shoppers. We certainly observed this as we saw a lot of small screen (under 40”) products available at retail long after the Doorbuster rush had passed. The earlier buyers this year were clearly the big spenders.

Electronics retailers also fared very well. Best Buy was the fourth most frequently shopped retailer behind Walmart, Target, and Amazon - all retailers that sell a much wider variety of products than Best Buy. In addition, the number of shoppers - which fell across all retailers - fell much less sharply at Best Buy, and Best Buy’s customers who came actually purchased. More than 58 percent of Best Buy shoppers bought compared to just 38 percent of last year’s buyers, the biggest increase in conversion among any of the top four retailers. And to further cement the idea that great prices on big screens helped Best Buy to be successful, Best Buy saw an increase in male shoppers, and those male shoppers were much more likely to finish their purchase there this year versus last year.

We took our usual tour of Northern Virginia visiting three different Best Buys, two Walmarts, two Apple stores, a Target, Sears, Staples, Office Depot, Toys R Us, and a Radio Shack. All observations are based on these stores which I have been visiting for 10 years, so keep in mind line lengths, customers, and in-store experiences can vary widely from one store to another and one region to another.

Of course this year started out much earlier as we arrived at Toys R Us just a couple of minutes before opening time at 9pm Eastern and found a long line of people waiting to get in. At 9pm Best Buy’s line was also long, although shorter than I have seen in the past, and at this store they were getting ready to screen the Harry Potter movie in the parking lot. Around the same time the line at Target was very short (less than 20 people) while Walmart had wall-to-wall people inside the store as everyone jostled for position for the 10pm Doorbusters (which were not even the electronics products).

After we left the Fairlakes area we stopped by hhgregg, where a small line had formed and we drove by Kohl’s and a Macy’s on our way to a different Best Buy and Walmart in Sterling, VA. Interestingly, the lines at Kohl’s and Macy’s were nonexistent at this point. This led to my first real insight of this Black Friday, after I spent a few moments thinking about why those two stores (and Target as well) seemed to be so bereft of shoppers with such a short period of time remaining until opening. I could never remember showing up to check lines seeing key retailers, who had devoted so many resources to promoting their early openings, with such short or non-existent lines. And of course it then occurred to me that normally, when openings are at 4am, I never would have been there this far in advance. Typically I would begin my visits at 3am or later, so I had no real frame of reference for so far ahead of opening. And sure enough after I had checked the lines in Sterling at Best Buy and Walmart, and seen lines and customer counts that seemed very similar to previous years, my return drive-bys of those other locations, which occurred closer to 11:30pm were greeted with long, typical lines for the last hour before opening. At least for those retailers, the lines really do explode about 90 minutes before the doors open.

Best Buy, Walmart, and Target seemed to have lines and customer counts that were consistent with what we observed in prior years. Clearly, the aggressive pricing on flat screens, Blu-ray, and video game systems was generating the anticipated traffic. Around 11:30pm, prior to the electronics sale at Walmart, the inside of the store was totally congested - filled with customers still trying to check out the 10pm specials (and still shopping them in some cases) as well as jostling for position for the next set of products. hhgregg seemed to be busy but the line had disappeared by 12:15am, and the Target line was managed much like Best Buy with just a few people getting into the store at a time.

Because of the timing this year we actually made three different runs into Best Buy and Walmart and two runs into Target, with one run occurring between 2-3:00am and the last run around 7:30am. As you might expect between 2-3:00am the lines inside all three stores (and hhgregg as well) were still long as the crush of buyers waited patiently to check out. It appeared that most of the entry-level flat screens had been sold at this point. Later on we did notice, especially at Walmart but also at other stores that the higher-priced name brand 32” and 40” TVs had not seen the same level of velocity as the lowest priced Doorbusters. Again, this is entirely consistent with prior years and does not seem to represent a change or a poor omen for the remainder of the holiday season.

Among the other later opening stores we visited we mostly noted low levels of crowds and much shorter lines than at the midnight retailers. In fact, 45 minutes before opening, one Apple store had no line at all and unlike the first wave of retailers getting into any one of these stores at opening was fairly painless. We believe the lack of lines may be the result of the early bird retailers pulling customers out earlier in the night and then those customers, instead of shopping a number of other retailers, opted to go home at 4am or so instead of staying out as they might have done previously. It will therefore be very interesting to see if those retailers that opened later choose to open up at midnight next year (assuming the bigger volume stores repeat this year’s decisions on opening times) to take advantage of all the customer traffic that has now migrated from 4am to midnight.

Finally, the lack of longer lines has caused us to think again about the value proposition of Black Friday and the questions we posed in an earlier post about brick and mortar versus ecommerce. We are concerned that the best pricing we have seen in a number of years doesn’t seem to have generated incremental traffic. (we will have actual POS sales numbers in about one week and our Black Friday survey results will be ready Saturday, so we are speculating based on what we saw). And while we do believe that, at least at opening, most of the stores we have seen have exhausted the number of customers they can reasonably get through the store in a reasonable period of time, we do wonder where the increased numbers of customers that we should be seeing have gone.

As we said earlier we didn’t see them in the stores at 6am today, when lines were non-existent and shopping was easy, we didn’t see them at 8am at Walmart for their 8am electronics sales, and we didn’t see them at the other retailers either. It is entirely possible that the incremental increase in customers we should reasonably expect from these promotions have become the ecommerce customers we are now capturing on Thanksgiving Day. If it’s true, then it’s probably a good thing for most retailers, but if those extra customers just decided not to spend, then the holiday could turn out worse then we have already speculated it will be.

A combination of key traffic-driving categories such as GPS, MP3, and point-and-shoot cameras projecting significant holiday declines, a weak economy, and considerable consumer anxiety have shifted the retailer focus to promoting products that can drive incremental traffic into the stores. As a consequence, we have seen record-low pricing across a number of core categories with TVs leading the way. Notebook PCs, video game systems and software, and Blu-ray players have also seen significant price drops with the hope of driving motivated customers into the stores. We haven’t seen as aggressive pricing in tablets and e-readers where the leading products are typically covered by MAP pricing, and the alternatives are not perceived to be of sufficient customer interest to be worth the expense of Black Friday pricing and promotion.

Of course this Black Friday, like the last few, has been characterized as the year online shopping takes over brick and mortar. The preliminary view from here is this notion comes up short, again. After the first few hours of Black Friday shopping we found that the crowds were very similar to last year (stay tuned for more details later today). This can, however, precipitate an argument both in favor of, and against, the idea that retail shopping continues to maintain its strength.

With crowds similar to last year it could be argued that even the most aggressive in-store pricing of the past few years couldn’t generate incremental store volume. This would lead one to accept the notion of decline in retail shopping with the logical consequence being the on-going rise in ecommerce. However, we would say that the bulk of shoppers are not abandoning the stores, but that the retailers are catering to those in-store shoppers willing to wait for that door-buster deal. But there comes a point, which we are likely already at, where the ability of the stores to process these larger crowds falls apart and sales increases have to come from alternative channels, such as e-commerce. Therefore it is good business now that the retailers appear to have maximized Black Friday for them to shift some sales online, or move it into less crowded times with tactics like Thanksgiving eve or Midnight openings.

Overall we have seen nothing, either in the first couple of hours of Black Friday shopping or in the pricing and product tactics of the industry, to make us change our viewpoint to expect a very weak holiday season. Nor do we see any reason to believe that this year’s sales results will be anymore skewed towards online than we have seen in the slow increase in share that online has accumulated in the past few years.

But digging deeper into the data, it is apparent (and pretty intuitive nowadays) that consumers think about going online when they start the product research process. Twenty percent of consumers say they are most likely to consult an Internet search engine first, but in third place (after the time-honored tradition of “talking to friends and family” — the age-old truest diviner of consumer information and advice) comes the opportunity to schmy around the store. Fully 12 percent of customers say browsing the store is still the first thing they do, when they begin to think about buying a new gadget.

No matter what, though, the consumer’s the ability to see, touch and experience a product is critical.  Consumers are very reluctant to buy TVs online, likely for that very reason.  Our research shows that 56 percent of folks who purchased in the store and did their product research online, did so because they wanted to experience the product. Even among younger consumers — who the market tends to believe buys everything online — saw forty-nine percent of online shoppers finishing their purchases in the store, because of the value of seeing and experiencing the product.

Of course conversely that means 51 percent of online buyers did some of their shopping in the store precisely because they wanted to see the product, but then they abandoned the store to finish the transaction online. Clearly all consumers place a very high value on the entire in-store experience, including product demos, sales associates, convenience, and immediacy. Right now those are attributes not easily duplicated online, and they remain a core reason why the brick-and-mortar store shopping and purchasing experience will not be supplanted by online shopping anytime soon. Apparently a multi-channel approach to online selling still resonates strongest with the consumer.