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Deep Discounts Should Make It a Very Tech-y Holiday

Chris Morris, Special to CNBC.com|CNBC.com
Friday, 20 Nov 2009 | 2:06 PM ET

Unemployment is up and consumer spending is down, but analysts still think the electronics category will be one of the strongest areas of the holiday season. With deep pricing discounts on many products, retailers are hoping to lure in consumers who are guarding their wallets more carefully.

Man watches home theater televisions at the Best Buy
AP
Man watches home theater televisions at the Best Buy

American Express predicts the strategy will work. The credit card company, in its annual pre-holiday spending and saving tracker, says consumers will spend the largest part of their holiday budget on tech gifts this year — with the average gift costing $450. (Affluent shoppers will spend a bit more — on average $590 — for tech items.)

The Consumer Electronics Association puts the dollar amount a fair bit lower — $222 for the average consumer — but notes that shoppers will spend a larger percentage of their holiday dollars on tech items than they have in the past three years.

Flat screen TVs are likely to be particularly popular due to aggressive price cuts. Retailers aren’t waiting for Black Friday, either. Both Wal-Mart and Best Buy began rolling out deals in early November.

Many sets at or below 47 inches are going for less than $1,000. Wal-Mart offered a 42-inch Sharp HDTV for under $500 earlier this month. If the deals continue at that pace, the HDTV may be the hot gift of the season, regardless of the economy.

“You will see big demand for HDTVs solely because big screen TV prices are down so significantly year over year,” says Michael Pachter, an analyst with Wedbush Securities. “The question is does it spur demand 40 percent to 50 percent higher — or just 10 percent to 20 percent higher.”

Price cuts on big ticket items like big screen TVs will bring in shoppers, but could affect margins of both retailers and electronics manufacturers.

“Margins are certainly under pressure,” says Steve Koenig, director of industry analysis for the Consumer Electronics Association. “Even as we may see more boxes moving out of the door this holiday, the revenue is going to be a little bit harder to come by.”

Netbooks will be another hot seller. These portable, durable, lightweight PCs with reasonably strong processing power sell for nearly 20 percent of what a laptop did 10 years ago. In many ways, they’re almost in the field of impulse purchases now.

The netbook has wide appeal. Business travelers have come to appreciate them due to the long battery life and low weight. For students, they’re an excellent and inexpensive tool for taking and organizing classroom notes. And many companies are marketing them as ‘first’ computers for children. Both Disney and Viacom-owned Nickelodeon have low-cost netbooks targeted at young children and tweens.

Look for retailers to exploit that mentality, with dozens of doorbuster deals on both netbooks and inexpensive notebooks on Black Friday and throughout the season.

Portability will be this year’s watchword among consumer electronics shoppers. Analysts say Apple iPods will continue to be big, especially the iPod Touch, as will portable media systems from other manufacturers.

The iPod has been a perennial best seller, but Apple’s constant tweaks to the brand allow it to remain a constant presence on shoppers’ lists. This year’s changes include the addition of a camera to the iPod Nano and a $30 price cut on the 8 GB iPod Touch.

Handheld gaming systems from Nintendo and Sony will continue to be big sellers as well. Like the iPod, refinements to both the Nintendo DS and Sony PSP are the reason. The DS line added a new model called the DSi in April, which includes a camera and revamped operating system. It has been the game industry’s top-selling system this year, beating the Xbox 360, PS3 and Wii.

Sony also introduced a new portable system, the PSP Go, which is Sony’s first big push into digitally downloaded content.

GPS systems will be solid sellers, though not the market leader they once were. The CEA, in fact, predicts sales will be 20 percent behind last year’s pace.

Retailers will once again aggressively price the systems during the holidays, but the market for GPS systems is fairly saturated. And as smartphones are able to download turn-by-turn GPS apps or come equipped with them, the market for standalone units that attach to the windshield is beginning to suffer.

“Two years ago, they were the hot product,” says Mike Baker, an analyst with Deutsche Bank. “Then last year was ok. This year, they’re not gong to be a needle mover.”

EReaders could fill the void, though. Baker says devices like the Amazon's Kindle and Barnes & Noble's Nook are at about the same level of demand as GPS systems were three years ago — though they’ll really explode in 2010.

Sony is already warning that some customers may not get its eReader in time for Christmas, due to strong demand.

To little surprise, the iPhone will be red hot — as will other smartphones such as Motorola’s Droid and Research in Motion’s line of Blackberrys. While these carry two-year service plans with them, consumers tend to view the phones as bargain items because the upfront cost is typically low, and cellular bills are already factored into their monthly expenses.

Part of the appeal of smartphones is their multi-functionality. The downside of that is the digital camera industry isn’t likely to see a banner holiday season, says Pachter.

“Cameras? No, they’re dead,” he says. “Everyone has a camera on their cellphone now.”

More from Consumer Nation:

Questions? Comments? Email us at consumernation@cnbc.com

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