The glory days may well be over for the consumer electronics industry.
Lagging sales, retail price wars and crucial component shortages have taken some of the starch out of an industry that once took double-digit growth for granted.
But down is not out, especially when it comes to the Summer Consumer Electronics Show here, which lasts until Tuesday at McCormick Place. (The show is not open to the public.) No one here wants to talk about slumps or failing retail chains. Only new products, please.
However, despite the glitz and glitter at the show, the industry faces a bumpy year. Even the normally optimistic Electronic Industries Association, which sponsors the semiannual trade show, is projecting a scant 4.5 percent growth in factory sales for 1988 overall for the industry, which includes audio and video products, telephones, home computers and games, and software and accessories.
Year-to-date figures for sales to retailers at the end of April for several key products have been even more discouraging. Total television sales, which include all models except projection TVs, were 3.7 percent lower for the first four months of 1988 than the year-earlier period, down to 6.5 million units from 6.8 million. Even home videocassette recorder sales, which include the hot-selling camcorders, were down 11.4 percent at the end of April, to 3.4 million units from 3.9 million a year earlier.
For the full year, the Electronic Industries Association estimates the lowest level of sales to dealers of VCRs (including camcorders) since 1985, at 12.5 million units, down from last year`s 13.3 million. The shortfall will come in the table model category. Color TV sales, excluding the tiny liquid crystal display models and the oversized projection models, are expected to grow slightly, to 19.3 million from 19.2 million.
Certain hot products, such as camcorders, compact disc players, cellular telephones and video games, are expected to continue robust sales.
”There`s not going to be a slump this year,” said Neil Vander Dussen, president of Sony of America Inc. ”We`re going to see some growth, though it will vary by product. The year is going to be better than people have been predicting, assuming there is no political action to cause a downturn after the election.”
He suggested that in some cases, Sony may be unable to meet demand, but not because of production cutbacks. Sony will be exporting more TV sets from its U.S. plants to other parts of the world because of the weak dollar, reducing the number of TVs available here, he said. And Sony has no plans to expand production.
But the good news-for manufacturers and retailers, though not necessarily consumers-is that the small price increases recently tacked on color television sets are expected to stick. Even VCR prices have shown some signs of stabilizing.
Zenith Sales Corp. President Gerald McCarthy is projecting cautious optimism. He believes the video industry is in better shape than it has been for several years, despite a generally pessimistic outlook.
”We`ve seen some production cutbacks in the business, and that`s produced a healthy climate,” he said. ”The pipeline supply of TVs and VCRs is the healthiest level we`ve seen in June in many years.”
Zenith, normally skeptical about price increases announced by its Asian competitors in recent years, is confident that this round actually will stick. ”We`re seeing a real slowing in the price erosion we normally see in the color TV arena,” he said, adding that Zenith will be making selective price increases in products with added features. Nonetheless, he said consumers should not be too distressed.
”We`re not talking about more than $10 on the retail price on most video products,” he said. ”I can`t imagine too many customers deferring a purchase because of an increase that small, but the difference makes a major impact on the profitability of everybody in the business.”
McCarthy said Zenith and other manufacturers are beginning to take steps to put the brakes on the destructive price wars that electronics retailers have been waging in recent years.
”We acknowledge that they price and sell at whatever levels they choose,” he said. ”But as of July 1, Zenith will no longer subsidize their advertising programs under our cooperative activities if the ads are at price levels lower than the minimum suggested advertised prices. Other manufacturers seem to be taking a similar approach.”
He said the company will be offering dealers special incentives to promote and display the more profitable high-end product lines.
The crisis in the video game industry, which had more than $1 billion in sales last year, is not due to flagging demand or pricing pressures. It`s the worldwide shortage of memory chips that has video game makers, on both the hardware and software sides, worried about the upcoming Christmas season.
Memory chips are used in video game machines and to an even greater extent in the game cartridges. Some software manufacturers fear there could be a shortage of game cartridges for Christmas. Nintendo of America, which has more than 70 percent of the video game market, has not reduced its plans to produce 7 million machines this year. As a result, they fear there may not be enough chips left over for their products.
”Everyone who is producing software for Atari or Sega or Nintendo is getting far less business than they otherwise would,” said Roger Buoy, president of Northbrook-based Mindscape Inc.
Mindscape is licensed to produce software for Nintendo, which keeps a tight rein on the market by producing 40 percent of its own software, allowing each licensee to produce just five titles, and manufacturing all the actual cartridges itself.
”We`re all on the quota system, because they can`t get enough chips for the cartridges,” Buoy said.
Nintendo planned that there would be about 30 million pieces of software to go with its 7 million machines this year, and a spokesman says that will not change.
”The problem is, we probably could have gone with 5 million to 10 million more game cartridges if there were no shortages,” said Peter Main, vice president of marketing for Nintendo. ”But these laments of dealers who say they could have sold twice as many cartridges if they could have gotten them are probably not legitimate.”
”Demand will undoubtedly exceed supply, but we think there will be a sufficient number of cartridges to satisfy game owners,” said Gregory Fischbach, president of Acclaim Entertainment Inc. ”However, customers might not find the ones they want at Christmas. Instead of getting their first choice, they might have to take their second.”
Nintendo`s Main said that to try to alleviate the problem, it is encouraging software makers to voluntarily discontinue slow-selling titles to ensure there are enough chips for new releases.
”We look on the shortage of chips as a storm cloud with a silver lining,” said Emil Heidkamp, vice president of the consumer division of Konami Inc., located in Wood Dale. Konami, a subsidiary of Konami Industries, of Kyobi, Japan, makes Nintendo games under the Konami and Ultra labels.
”The shortage is keeping the video game industry from overheating the way it did in 1982 and 1983,” said Heidkamp. ”Back then there was too much, too soon. Inventory backed up, prices went down and retailers got stuck. Everybody could get into the video game business then, and there was a lot of second-class stuff around.
”Today`s shortages are keeping us from doing that,” he said. ”We`re being hurt in the short run, but this guarantees us more success in the future. The table is set for a great 1989 if the chip situation improves, as we`re told it will.”
