The Surefire Holiday Hit: Gadgets

Consumers may be planning to spend less on gifts overall this holiday season, but that frugality seemingly won’t apply when it comes to consumer electronics.

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Fueled by demand forApple’s iPad and Amazon’s Kindle eReader, gadgets are expected to be the top category in retail during the fourth quarter. A survey from the Consumer Electronics Associationfinds that consumers will spend an average of $232 on gadgets and gizmos this year.

That’s a five percent improvement over 2009—and the highest amount the organization has seen in its 17 years of tracking spending habits. It comes as overall consumer spending is expected to drop 2 percent.

Three in four adults plan to give consumer electronics as a gift this year, according to the study—with nearly half of those planning to buy a gadget for their children.

“Many innovative products new to the market are high on the gift list this year,” said Steve Koenig, director of industry analysis for the CEA. “Consumers want the newest technologies, and stores that stock these products on their shelves will fare well this holiday season.”

Many retailers are already taking advantage of that demand. Sears and Amazon launched their holiday shopping season specials last month. And Wal-Mart Stores will begin offering seasonally focused specials Nov. 6— including a 26-inch HDTV for $198 and a Compaq laptop for $288.

"Consumers want the newest technologies, and stores that stock these products on their shelves will fare well this holiday season." -Consumer Electronics Association, Steve Koening

Target, meanwhile, is one of many stores that hopes to capitalize on Apple’s growing popularity and will begin offering the iPhone. AndStaplesis letting its shoppers buy a Kindle in-store.

The message consumers are sending to retailers is clear: “We want gadgets, but we want bargains.” That’s part of what’s driving the early holiday-themed sales and could lead to a repeat of last year’s price wars—particularly the slugfest between Wal-Mart and Amazon.

While much of the buzz is about the iPad and Kindle, neither tops people’s consumer electronics wish list. Laptops and notebook computers are expected to once again be the most popular electronic gift. That’s likely to be enhanced by the rapidly decreasing prices for the systems, as companies attempt to avoid losing market share to tablets and netbooks.

Manufacturers of 3D TVs will likely give the new systems a major push at stores, but most consumers are still not ready to buy one—given their high cost and the lack of 3D programming on the air at present.

Visitors try out various ebook readers on display.
Daniel Roland | AFP | Getty Images
Visitors try out various ebook readers on display.

Instead, big-screen LCDs will be the top sellers—with plenty of Black Friday and late holiday, whose Black Friday predictions had an 84 percent accuracy rating last year, expects to see 46” and 47” 1080p LCDs for as little as $499—a 20 percent discount from last year.

And while the video game industry might be in a slump, the holidays are generally banner times for console manufacturers. Sony and Microsoft both have new motion control devices on the market this year and are hoping they’ll prove to be catalysts in attracting new buyers.

Sony’s PlayStation Move got the head start at retail, hitting shelves in September. Kinect for the Xbox 360 went on sale Nov. 4, but it is being backed by an extensive marketing campaign, and the device has already received the endorsement of Oprah Winfrey, which usually means a rush at retail.

Analysts say they’re expecting both companies to see strong demand for the products, but that’s not what they initially expected.

“We are somewhat surprised by the positive reaction given the relatively high price points ($149 for Kinect and $99 or more for Move) and the lack of many compatible games for the devices,” says Colin Sebastian of Lazard Capital Markets.

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