The annual flurry of holiday sales reports are in from America’s leading home computer retailers and consumer electronics outlets for 1996, and very few high-technology sellers are passing around champagne.
The just-concluded holiday shopping season goes into the books as the quarter when high-tech merchandise went from the status of a golden goose to that of a digital dead duck.
After three years of explosive year-end growth, sales of computers and other consumer electronics products drooped, leaving many manufacturers and retailers stuck with unwanted merchandise and deep-diving stock prices.
“It has been a bad year for the consumer electronics industry,” said Clark Johnson, vice president of NPD Group’s Intellect sales tracking service, a major source of retail market data for industry analysts and other observers.
James Staten, a PC industry analyst with San Jose, Calif.-based market research group Dataquest Inc., blamed the lackluster performance on the lack of “really glitzy items like Windows 95 and the debut of Pentiums,” which made the two preceding holiday seasons huge successes.
“Lacking some really exciting products,” Staten said, “they got some pretty unexciting results.”
Industry executives tended to agree.
“It was a flat season, and we’re not used to flat seasons in this business,” said Mal Ransom, chief of marketing for Packard Bell Electronics Inc., a leading maker of IBM-compatible personal computers.
Ransom added, however, that one bad holiday does not necessarily spell the end of a boom that has been around for nearly half a decade. The industry already is gearing up with new rounds of offerings and strategies to win back sales.
One of the biggest campaigns that customers will encounter in weeks and months to come will be an effort to sell the so-called MMX Pentium computers introduced last week, which include chips capable of delivering spectacularly more vivid multimedia displays than ever before.
Another major marketing move likely will be one to sell PCs to the huge potential marketplace of less-affluent Americans who weren’t buying the machines when the last banner sales season was recorded.
Packard Bell, for example, reacted to the holiday slump with a major initiative to sell a new line of $999 Pentiums that have a full array of multimedia features, including a 33.6 kps modem, a monitor and a CD-ROM sound system in the deal.
“With 35 percent of all American households now owning personal computers, we need to remember that that means that 65 percent of American homes don’t have them and thus offer us some wonderful potential customers,” Ransom said.
Other companies targeting the less-affluent market recently include Compaq Computer Corp. It has been offering cut-rate prices on lines of reconditioned multimedia Pentiums at or below the $1,000 mark set by Packard Bell, Compaq’s archfoe in the consumer marketplace.
A hint of the potential power of this less-affluent market may have surfaced when Sears, Roebuck and Co. chief executive Arthur Martinez told a Chicagoland Chamber of Commerce conference Thursday that while many competitors were suffering computer and electronics sales slumps, Sears recorded double-digit gains in this area.
Explaining the improved sales picture, Martinez cited low prices and consumers’ faith that the Hoffman Estates-based retailer still will be in business next year, while some of the “category-killer” chains may be pulling back, like Tandy Corp. has done recently.
Meanwhile, even though manufacturers and retailers are licking wounds over the disappointing holiday season, they are doing so at the end of what was otherwise a very good year.
Robert Lanctot of Computer Retail Week, an industry trade journal, noted after a survey of industry analysts, vendors and earnings reports last week that the computer industry’s revenue overall rose a respectable 20 percent over 1995.
Even though some players reported severe problems, the trade journal’s annual survey of the industry’s 100 top performers reported that U.S. sales of computer merchandise through retailers grew to a record $28.2 billion from $23.4 billion in 1995.
Lanctot noted, however, “that success didn’t come without a price, as several chains failed and a handful dropped computers altogether.”
The latest earnings reports and other indicators from the industry have been decidedly downbeat.
The last two weeks have seen these negative events:
– Circuit City Stores Inc. surprised analysts by announcing a 13 percent drop in December same-store sales. The company’s chief executive, Richard Sharp, noted that the drop was related directly to sluggishness throughout the computer retail industry.
– Best Buy Co. posted an identical 13 percent drop in sales at stores open at least a year–same-store sales. Moreover, the chain’s executives, blaming laggard computer sales, said its cash flow was so poor that the company failed to meet requirements for some of its bank loans.
– Tandy Corp. said it will dispose of its entire chain of 17 Incredible Universe electronics superstore outlets and also will shut 19 of its 108 Computer City stores. Tandy posted a companywide 5 percent decline in same-store sales for December.
– Late last week, the closely watched Goldman, Sachs & Co. composite index of December retail sales showed that computer sellers dragged the entire index down with losses of 4.8 percent in same-store sales, while apparel merchants reported a 3.3 percent increase.
A complex skein of factors made the so-called Christmas quarter difficult for computer retailers.
As Dataquest’s Staten noted, sellers found themselves without the sort of exciting new products such as Windows 95 or brand new Pentiums that have been standouts in previous holiday sales seasons.
They also were trying to sell to consumers who largely had purchased computers recently, making them less likely than before to buy out of fear of being left behind by the information revolution.
Dataquest found in a recent survey that 65 percent of all American households with annual incomes of $60,000 and above already have PCs, thus making it harder than ever to find affluent first-time buyers.
Ransom and others in the industry noted that sellers of IBM-compatible PCs entered this year overstocked with 166 MHz Pentiums that were only slightly more glitzy than the ones they had sold out in 1995 when these machines were red-hot items.
Sellers of competing Macintosh machines found themselves in an identical spot, with shelves full of Performa models very much like the ones that had been on the market the year before.
The season was particularly grim for Apple sellers, a point driven home with force when Apple Computer Inc. stunned analysts by announcing that the company expected a fiscal first quarter operating loss of between $100 million and $150 million, largely as a result of poor sales Performas.
Meanwhile, in the PC marketplace, shoppers who did their homework quickly found that chipmaker Intel Corp. planned to introduce early in 1997 a whole new line of microprocessors called MMX (multimedia extension) Pentiums that would make the Pentiums on sale over the holidays obsolete soon after they were taken out of the boxes.
Intel, as promised, released the MMX Pentiums on Wednesday, and sellers were quick to offer products using them even though the first quarter is traditionally the slowest of the annual cycle in the computer industry.
With the holiday season behind them, sellers usually focus on institutional customers for the first two quarters of the year, and the first push will be to sell the new MMX machines to schools and offices.
Scott Mercer, Dell Computer Corp.’s vice president for PC products, sounded a typically enthusiastic note, saying, “These new PCs will provide Dell’s business, government and education customers an early opportunity to immediately experience the benefits of Intel’s Pentium processor with MMX technology.”
Also putting a happy face on high-technology market dynamics was Gary Shapiro, president of a huge trade group, the Consumer Electronics Manufacturing Association, who touted 1997 as a year that will sweep away 1996’s crepe.
While opening the annual Winter Consumer Electronics Show in Las Vegas on Thursday, Shapiro said industry economists believe that sales of consumer electronics equipment–including television sets, videocassette recorders and stereos–should reach $69.5 billion this year, a 6 percent increase over 1996’s $65.7 billion.
This year “will be a solid year for the consumer electronics industry,” Shapiro said. It “will set the stage for two or more years of exceptional growth as more and more digital products enter the marketplace.”
