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Plentiful Electronic Deals Are a Win for Consumers

After years of strong demand, the 2011 holiday season could go down as the year the Grinch stole HDTV sales, and much more in the way of consumer electronics.

A customer purchases the Amazon.com Inc. Kindle Fire tablet computer at a Best Buy Co. store in New York, U.S., on Tuesday, Nov. 15, 2011. Amazon.com Inc.
Scott Eells | Bloomberg via Getty Images
A customer purchases the Amazon.com Inc. Kindle Fire tablet computer at a Best Buy Co. store in New York, U.S., on Tuesday, Nov. 15, 2011. Amazon.com Inc.

With declining categories such as GPS devices and computers, no new must-have videogame console, and little buzz beyond tablets as the next big must-have gadget, consumer electronics is poised to have a blue holiday.

“I don’t think the outlook is good on an overall basis,” says Stephen Baker, vice president of industry analysis at the NPD Group. “We’re seeing some slowdown on volume, but more to the point, where we are seeing volume, we are seeing a lot of price competition.”

The winner in all this could be the consumer, says Baker, as the hallmark for the holidays will be price competition, with retailers piling on the sales to get consumers to buy.

“Consumers pretty much win every year around the holidays,” says Baker. “They get great products at great prices, and this year could mean a more aggressive one for consumers.”

Much of this comes because of a slowdown in the flat-panel and HDTV market, which after years of strong holiday seasons has run its course. According to DisplaySearch/NPD Group, TV sales have seen a decline in North America, Japan, and Western Europe, with total TV unit demand for 2011 expected to be flat, and with growth coming mainly from emerging markets. Globally, LED and 3D TV sales are also helping keep the market prices stable, while LED will likely become the dominant LCD format in 2012. But so far, consumers aren’t buying like they once did.

“There really isn’t a compelling reason to upgrade for most people that already own an HDTV,” Jordan Selburn, principal analyst, consumer platforms, atiSuppli tells CNBC. This means consumers are sticking to a traditional replacement cycle rather than upgrading to something new, he said.

The 3D displays still lack content, and for what content there is, viewers must wear cumbersome glasses, Selburn says.

“3D lacks a mode that’s conducive to use it,” says Selburn. “With the glasses, you can’t do anything but watch the TV. And many people do more than just stare at the screen.”

At last year’s Consumer Electronics Show, the push was with connectivity, notably Internet-connected TVs, but Selburn says these still are only on the cusp of catching on, and that won’t likely help move sales this holiday.

Even the Consumer Electronics Association, the industry’s trade group, isn’t surprised that the once hot HDTV market has gone cold.

“We predicted a decline of HDTV before anybody in the U.S. domestic market,” says Shawn DuBravac, CEA’s chief economist and director of research. “Since 2009 we were predicting a TV decline, and moreover we see the TV market to continue to decline until about 2014 or 2015.”

DuBravac says the category is declining, but with 98 percent of households owning a TV, and many owning three; there is little room for growth right now.

Consumers also expect their sets to last 10 years, and after the rush to adoption, many consumers are now in that replacement cycle. Despite this fact, DuBravac says the sub-categories of HDTV, including LED and 3D are actually up significantly, but still far from enough to drive the category’s sales.

The lack of a new videogame system also is a blow for TV sales. Typically, in the normal videogame cycle, there is a new generation of videogame consoles every five years, but that cycle has been broken this time around. Microsoft is now on its sixth year with its Xbox 360 system, which arrived in November 2005, while Sony’s PlayStation 3 and Nintendo’s Wii are both in their fifth years. To date, only Nintendo has publicly announced a new system, the Wii U, but that won’t arrive until next holiday season.

A salesman passes In front televisions displayed for sale at a Best Buy store in New York.
Chris Goodney | Bloomberg via Getty Images
A salesman passes In front televisions displayed for sale at a Best Buy store in New York.

“What has typically driven these sales for the last 35 years has been better graphics, and both the Xbox 360 and PlayStation 3 already support excellent graphics,” says DuBravac, who also adds that both systems saw an upgrade last year. “The PlayStation Move and Xbox Kinect arrived last year, at the right time to give renewed life to these systems.”

Gamers may have to wait at least a year for their next big fix, but it seems that movie buffs aren’t waiting.

According to the Digital Entertainment Group, home entertainment spending actually rose five percent in the third quarter, the first increase since 2008’s first-quarter recession . Sales of the high-definition Blu-ray movie format jumped 52 percent from last year, thanks to the release of popular titles such as “Star Wars” and “Citizen Kane.”

Big box retailer Best Buymay be hoping that if big TVs aren’t drawing in consumers, maybe those Blu-rays will. The retailer has already started to nudge shoppers early this year with sales, and it is offering free shipping with no minimum on its websites. Best Buy also plans to follow other retail outlets by opening at midnight on Black Friday.

The National Retail Federationhas forecast holiday spending to increase 2.8 percent to $465.6 billion, which is being considered average, and far lower than the 5.2 percent increase retailers experienced last year.

Despite this fact, DuBravac says, the focus this year should be on the winners, namely the consumers, and for this reason he predicts a good year for consumer electronics, even if some product categories are slowing down.

“Tech will still be the runaway success story this holiday season," he says. "If you look at forecasts of what consumers want, tech is first and foremost this holiday season.”

Leading the pack of what consumers want are tablet computers, includingApple’siPad, according to a new survey from the CEA, which predicts that electronics will account for one-third of all holiday gift spending.

“Once you get by Apple by the winner, it is hard to pick too many other brands that are winning,” says NPD's Baker, noting that even beyond tablets and smartphones it is hard to find big broad categories that have true winners.

One other winner could be Amazon.com, not just as people make their purchases from the online retailer. Amazon’s Kindle Fire tablet could be another winner. JPMorgan analyst Douglas Anmuth has predicted that Amazon could sell as many as five million of the new tablets for the holidays.

If this proves not to be true, the next Consumer Electronics Show is less than two months away, it is hoped there will be some “must-have” item for next year unveiled.