Consumer Electronics in Australia

Consumer Electronics in Australia

EXECUTIVE SUMMARY

Mobile phones overshadows other categories

The mobile phone has been progressing towards becoming the ultimate converged device for several years, enabling consumers to take photos and listen to music as well as make phone calls. These abilities were intensified in 2009 by the popularity of iphone and the applications or “apps” that have developed around it. This strategy has been imitated by other traditional mobile phone brands such as Nokia (Nokia Australia & New Zealand) and Samsung (Samsung Electronics Australia Pty Ltd). As a result, consumers are increasingly choosing to purchase a mobile phone instead of a camera, and increasingly, instead of an in-car navigation system.

Australia still in broadband limbo

Three years after being elected on a promise to revolutionise Australia’s notoriously slow broadband speeds, Australia’s Labour government has failed to make significant progress, partly due to the size of the task, and partly due to confrontation with Australia’s largest telecommunications provider, Telstra, which has the resources to make this achievable. In the meantime, whilst Australian consumers desire to expand their entertainment offerings by streaming online video on their televisions or mobile phones, this remains either difficult or impractical, and until broadband speeds improve significantly, Australian will remain behind in terms of these developments.

All about Apple

Apple Computer Australia Pty Ltd remained the leading player in consumer electronics in Australia in 2009, not only in portable media players, where the iPod has no real competition, but with a fast growing presence in mobile phones where its business model is fast being imitated by competitors. The success of its brands in Australia has helped Apple to expand its following in its original category of computers, where it is gaining ground in laptops.

Specialist retailers dominate but internet retailing starts to move

Electronics and appliance specialist retailers – commonly known as “category killers” due to their ability often to monopolise or duopolise an entire category of retailers – has been the dominant type of consumer electronic retailer throughout the 2000s. Australian retailers have either found it difficult, or been unwilling, to make the transition to internet retailing, a factor that has held back the online format in Australia. However, this has meant that those operators that have taken the plunge into online retailing have been able to expand their presence in a vacuum.

Digital convergence’s time may finally be coming

Having been discussed for several years, the ability to connect computers and therefore online content with televisions is fast approaching. However, the slow speed of Australia’s broadband network remains an impediment, as does a similar lack of spectrum in relation to mobile internet. So far, progress in relation to “digital convergence” has been piecemeal, with consumers often having to improvise themselves. Once these obstructions are overcome, however, and the best way to facilitate this convergence is determined, then consumer electronics is likely to enter a new period of growth.

KEY TRENDS AND DEVELOPMENTS

Australians think smaller during economic slowdown

Compared to other economies around the world, Australia suffered relatively little impact as a result of the global financial crisis and the accompanying economic slowdown. Australia’s GDP for example, only went into decline for a single quarter, not the two consecutive quarters necessary for it to be classed as a technical recession. Although the Australian dollar dropped from US$0.95 to US$0.65 in early 2009, it recovered to US$0.90 by the end of the year, due to strong exports from China for Australia’s mineral resources. Meanwhile Australia’s unemployment rate only edged up towards 6% (from slightly more than 4% before the global financial crisis), far below the double-digit unemployment rates that tend to characterise recessions.

One reason for the relatively small impact on Australia’s economy is the stimulus package that was launched in response by the Australian government, of which an important part was “stimulus payments” of A$900 to every worker. Whilst these payments were used by different consumers in different ways, such as paying off credit card bills, or going on an overseas holiday, one of the more popular uses was to purchase consumer electronics.

Another stimulus measure was the boost to the First Home Owners Grant, whereby consumers buying their first home received A$14,000-A$21,000 from the Australian Government. As consumers moved into their new homes, they needed to think about their home entertainment system, providing a boost to in-home consumer electronics. For most consumers, however, putting together their home entertainment system, which increasingly incorporates computers and in-home consumer electronics, is a work in progress and continues regardless of whether the consumer is moving into a new home or not.

Car sales also fell from slightly more than one million units in 2007-2008 to just over 900,000 in 2008-2009, and although sales levels had recovered significantly by the beginning of 2010, they had certainly not reached pre-global financial crisis levels. This performance has, furthermore, impacted in-car media players, although the relationship between automobile sales and media players is not direct with a large proportion of the consumers upgrading their sound system on older model cars.

Current Impact

Consumer electronics in Australia performed surprisingly well over 2009, despite the global financial crisis. This is partially because of the stimulus package, particularly the “stimulus payments” of A$900 to every Australian worker. Although spent on a variety of purposes, this sum was popularly spent on consumer electronics, particularly on products priced under A$900. This benefited such products as in-car navigation, mobile phones – iphone, for example, was a popular purchase – cameras and camcorders, although the impact of the stimulus package did not last the entire year and as a result not all of these categories experienced strong or even positive growth over the year as a whole. The competition for “stimulus dollars” was especially fierce among retailers. The release of the Kevin 37, a 37-in LCD TV from Kogan Technologies Pty Ltd for exactly A$900.00 was one of the more imaginative strategies used.

Whilst consumers were wary of making large purchases such as homes and cars during the economic slowdown, smaller purchases such as consumer electronics were another matter. A small impetus was provided by the tendency of Australians to justify their purchases of LCD TVs and plasma TVs by saying that this would save money in the long run by encouraging them to stay home rather than, for example, go to the cinema. However, this trend, usually referred to as “cocooning”, has probably been overstated. Consumers were, however, intent on ensuring that what they did purchase represented true value for money, and they increasingly researched their purchases online. This created rapid growth in the number of specialist electronics websites (such as Smarthouse, cnet and Gizmodo) and price comparison websites, whilst the growing number of consumers attempting to save money by streaming video content online can be seen as another way that this trend has materialised.

Most Australians were not impacted by the economic slowdown and in fact many benefited from it. As the Australian dollar appreciated against the US dollar, consumers found that they could obtain bargains, particularly if they shopped online. The appreciation of the Australian dollar has also enabled manufacturers and retailers to lower their prices to a greater extent than in other markets. This was another reason for the price erosion that occurred in 2009.

Although the number of houses in Australia continued to expand despite the global financial crisis, the size of these houses began to contract, as consumers could no longer afford to invest in a “McMansion,” – large but still relatively affordable homes in the outer suburbs. More consumers started to be concerned about the environmental impact of such houses and they showed a preference for medium density housing. The trend towards smaller living spaces is not only due to the economic slowdown, however. It is also due to a shift from living in the outer suburbs, to living in the inner suburbs, especially amongst young and affluent people who are the main “early adopters” of consumer electronics, and are important therefore in creating momentum for building trends.

Although not entirely the result of unfavourable economic conditions – the growing consolidation of consumer electronics, and particularly HD Television, where demands for excellence and economies of scale favour the already dominant players – led four manufacturers to exit the industry in Australia 2008 and 2009. The global economic crisis therefore proved the last straw for companies like NEC Australia Pty Ltd and Philips Australia Pty Ltd.

Outlook

The various means that the Australian government used to stimulate the economy, through “stimulus payments” and the Reserve Bank of Australia reducing interest rates, have largely run their course, and future policies are likely to constrict instead of stimulate the economy. Interest rates, for example, are rising again, to over 4% in April 2010, in order to ensure that the economy does not overheat and become inflationary. Like much of the rest of the world, the economic future of Australia is far from certain. Much is dependent upon China and its demand for Australia’s mineral resources, but as escalating interest rates suggest, the expectation is that the Australian economy has largely recovered and that economic growth will return soon.

The Australian dollar is expected to reach parity, partially due to the decline of the US dollar, partially because of the demand for Australia’s mineral resources, and partially because of the strength of the economy in the face of the economic slowdown. This would help to put a welcome dampener on inflation, since imported products, including the vast majority of consumer electronics, should be cheaper.

Future Impact

Since the global financial crisis did not greatly impact upon consumer electronics in Australia, neither is it likely to be hugely impacted by the forthcoming recovery. Some more subtle changes shall continue however. Now that consumers have discovered the ability to save money and ensure that they are getting good value by researching, and even making purchases online during the economic downturn, they are unlikely to return to previous consumption habits. The eagerness of consumers to purchase consumer electronics, however, is likely to intensify, as long as consumers feel they are receiving good value. Consumers are expected to be thrifty but not frugal.

As the Australian dollar reaches parity and possibly even exceeds US$1.00, the ability of manufacturers and retailers to lower prices will be enhanced. Price erosion is therefore expected to occur, particularly as consumers realise the extent of the bargains that are available online, but also as a result of currency appreciation. Internet retailing is therefore predicted to grow in popularity.

Energy efficiency

Australia has the unfortunate reputation of having the highest carbon emissions per capita of any country in the world. This is due in part to the large size of the average home – itself, at least partially, due to the low population density of the country – which requires more energy for heating and cooling and encourages larger appliances such as refrigerators or digital televisions. Low population density also encourages automobile travel over public transport therefore not only encouraging high petrol utilisation but also the need for in-car entertainment.

Regardless, the “highest carbon emissions per capita” reputation is one that the Australian government is attempting to resolve. One means of achieving this is to develop a system of energy ratings, with attaining a minimum of energy efficiency that models are required to deliver (known as MEPS or Minimum Energy Performance Standards), and a star-ratings system to educate consumers on how different models compare. This strategy is being promoted by the Environment Minister, Peter Garrett. Televisions was the first category of consumer electronics to be added to the system, although refrigerators, washing machines and other domestic electrical appliances have been subject to these ratings from 2001 onwards.

Much of the time, however, energy efficiency has little or nothing to do with wider concerns about global warming, or even concerns about reducing electricity bills. For many portable devices, the major concern continues to be battery life, which limits the ability of devices to be truly portable and not to be tied down by the need to recharge regularly. Wide screen televisions have been particularly focused upon, being blamed for much of Australia’s high carbon emissions per capita. Australians are big television watchers, and they have the appliance on for several hours a day, which has made it a popular target for efforts to reduce Australia’s carbon emissions.

Current Impact

A voluntary programme for television sets was introduced in 2008, to ease manufacturers into the energy ratings system. Most of the major manufacturers are cooperating with the programme. This was followed by the implementation of official regulations from October 2009. Similar regulations for set top boxes had been introduced in December 2008.

The focus of energy efficiency, and the ability of consumers to easily determine which models are superior, has opened-up a new front on which manufacturers can compete, with both Samsung and Sony (Sony Australia Ltd) attempting to develop the “greenest” wide-screen TV. Given Samsung’s focus upon the emerging LED technology, they are perceived to be winning this competition, since one of the major selling points for LED televisions, in addition to their superior picture quality, is that they offer improved energy efficiency. Since LED televisions also do not cost significantly more than other LCD televisions in terms of comparable size, they have been embraced by consumers of HD televisions for their ability to save electricity, whilst not requiring a sacrifice in terms of having to spend more.

Meanwhile, plasma televisions have long been perceived as “power hungry”, a perception that Panasonic (Panasonic Australia Pty Ltd), the leader in plasma television in Australia, is acutely aware of. As a result, the company is pushing its more energy efficient models. Perceptions are difficult to change however, so it is likely that plasma televisions shall be perceived as being “power hungry” for some time into the future.

Outlook

With energy efficiency becoming an increasingly important consideration for consumers, and manufacturers developing their models accordingly, a 10-star rating system is being developed for extra-efficient models, thus giving manufacturers something to aim for.

Computers and monitors are likely to be the next consumer electronic devices to be introduced to the ratings system in Australia, as both are “energy guzzlers” and due to the growing use of computers in Australian households. Usage of computers is only likely to grow, particularly once the integration of televisions with online content becomes commonplace. Such regulations should not be difficult for manufacturers to comply with however, since the EU already has similar regulations. This means that few computer models will actually be banned, although the use of energy labels shall lead to a new front of competition. One suggestion on how this should evolve is that instead of computers being chosen for their power, enabling them to do anything, they should become more specialised, offering one or a select number of functions.

The enthusiasm for reducing carbon emissions via an energy ratings system is not only because of its likely effectiveness. There is also a perception that consumers are making a difference, while manufacturers have the ability to capitalise on these developments. Moreover, there is a lack of significant political opposition to the scheme. However, the addition of consumer electronic devices to the ratings system is likely to only occur slowly, if at all, because most other devices do not consume great amounts of energy, since they are either not used as often as televisions and computers, or they are considerably smaller. The specifications required in order to earn each star rating are likely to become more stringent, in order to encourage manufacturers to continually aim higher.

Environmental awareness and concerns were high in the lead-up to the Copenhagen Conference in November 2009. However, since the failure of the conference, environmental pressure, at least to the extent that it extends to political will, faded in 2010. This is not necessarily the case in relation to consumption habits, however, as consumers are still interested in ways of cutting down on their energy expenditure.

Future Impact

The energy efficiency of LED – as well as improved picture quality – is likely to embraced by consumers over the forecast period, and not only by consumers of large HD televisions. Samsung is intent on migrating all of its screens to LED, both in relation to televisions and computer monitors; a migration that will occur rapidly, with all computer monitors being LED by the end of 2010. This should give Samsung a large competitive advantage in both computer monitors and televisions, and its rivals will be forced to play catch-up.

One area which is becoming a growing concern among environmentalists is “standby power”. This concerns the power consumed by electrical devices when they are switched on but not being used This accounts for a large proportion of household energy consumption. This should therefore open-up another front in which manufacturers can compete and for consumers to be made aware of the “standby power” issue. Thus, Victoria’s government has initiated a campaign to encourage consumers to switch their appliances off at the power point when they are not being used.

National Broadband Network

The National Broadband Network (NBN) was among the key and most popular promises that brought the Labour Party under Kevin Rudd to power in November 2007. In addition to positioning Kevin Rudd as being more in touch with the future than the conservative then-Prime Minister John Howard, the policy was popular since it was well known that Australia had – and still has – among the slowest broadband speeds in the developed world.

Since gaining power, the Australian government has spent much energy on attempting to make the NBN a reality, although enthusiasm for the scheme among voters and experts has faded. The enthusiasm for super-fast broadband connection, which is still widely considered crucial remains, although the technology has changed. Telstra, for example, is rapidly achieving what the NBN was hoping to. Some areas of Australia, for example, are receiving super-fast broadband connections without the National Broadband Network, such as in new residential sites in “greenfields” on the far edges of Australia’s outer suburbs.

This is causing the Australian government some problems – although not necessarily in the polls.

A controversy known as the “home installation scheme” has raised questions over the government’s ability to control large projects. Given that the “home installation scheme” was a relatively small project, concerns about the government’s capacity to control a project as big as the National Broadband Network have surfaced.

The government has set up a corporation, NBN Co, which has been “at war” with the Australian telecommunications giant, Telstra. It has attempted to force Telstra to combine its own network and customers with those of NBN Co. The government owns 10.9% of Telstra, though the company’s prime objective is profit, something that NBN does not necessarily promise. As a result, the Australian government has threatened to split Telstra into two businesses: one for “wholesale” and one for “retail,” or Telstra would be denied access to the wireless spectrum.

Current Impact

Australia’s lack of super-fast broadband has been an issue that has impacted on the ability of Australian consumers to use all the functions that broadband can make possible. This has therefore had a negative impact upon the growth of devices which would be boosted by super-fast broadband. For some devices, such as laptops, Australian consumers are willing to struggle on with the limitations, and accept the frustrations, particularly in the metropolitan areas where broadband speed is relatively high. Outside of the metropolitan areas, however, the speed of broadband drops considerably and as a result the market for laptops is limited.

The lack of super-fast broadband has equally impeded the growth of BD players (to play Blu-Ray and other formats), particularly ones with BD Live function, which are capable of streaming online video. The streaming of videos online, whilst possible, is not as practical in Australia as it is in other developed markets. It has therefore been a struggle in Australia to encourage consumers to watch online videos on their televisions. Success would drive significant growth in the market, once consumers realise how much this would open-up their world of entertainment.

These trends are developing in a haphazard manner, dominated by “early adopters”, since online video streaming is not sufficiently developed to attract mainstream consumers. Australia does, however, have the highest per capita rates of illegal downloading, which consumers feel justified about, given that there is often a considerable – sometimes months – lag between the broadcast of popular television programmes overseas, and their screening in Australia. This activity has also been impeded, since Australian broadband tend to be characterised by low download limits, creating an extra challenge for Australian tech-geeks to deal with.

Outlook

It will take until 2014, at the earliest, for the National Broadband Network to be completed, an extraordinarily long time in terms of internet technology. There will, however, be significant benefits to those consumers who are gradually incorporated into the network as it is rolled-out. Even the consumers that the National Broadband Network has not reached should receive benefits since the competition between ISP (Internet Service Providers) will grow, forcing down prices and accelerating connection speeds. Moreover, the availability of uncapped plans allowing consumers to download and stream as much content, video or otherwise, as they wish will grow. Once this is possible consumers will increasingly investigate their ability to incorporate online content into their television viewing.

It is possible, however, that the National Broadband Network, whilst undoubtedly necessary in order that Australia keeps up with the rest of the world in relation to not only broadband speeds but also their home entertainment options, will be a case of too little too late. By the time the network is rolled-out the rest of the world is likely to have moved on to something new, such as satellite broadband, which would provide faster speeds still. Although Australia’s slow broadband speed compared to the rest of the developed world has been a source of embarrassment and a competitive disadvantage for the country, it is possible that instead of struggling to catch-up with the world, Australia could skip ahead to the new emerging technology of satellite technology.

Whilst the Australian government has spent much effort in upgrading Australia’s broadband performance through the NBN, it is also attempting to introduce an “internet filter” in order to block objectionable material. However, this is likely to slow down internet speeds. In 2009, Enex tests showed drops in speed of 17%. The impact of the “internet filter” is unlikely to completely counteract the improvements made to broadband speeds by the National Broadband Network, but is likely to significantly hold back the progression of digital convergence in Australia.

Future Impact

As much as television manufacturers are attempting to convince consumers that 3D television will be the “next big thing”, the most important driver of growth over the forecast period is expected to be the ability to stream online content and incorporate it with television viewing. This would stimulate significant growth across in-home consumer electronics.

The forecast period performance of video players will largely be based on the ability to stream online content, to be watched on television. Therefore it will depend on which device is chosen to facilitate this move, set top box or BD Player, or possibly even the television itself. It is yet to be determined which device will be chosen as the primary means of being the gateway between online content and television viewing, and until this occurs it is likely that many consumers will hold back from embracing the opportunity, just as they tend to do with regard to format wars. The winner is likely to be either the most affordable option (which would suggest set top boxes, categorised under converters, decoders and receivers in Euromonitor International’s definitions) or the best marketed (which would point towards Blu-Ray players where global behemoths such as Sony and Panasonic are the leaders). Once consumer confusion is resolved, and once the NBN makes internet integration of television practical instead of just possible, consumer electronics will receive a big boost.

As of April 2010, there is not one obvious frontrunner in relation to video streaming – of videos longer than 10mins. It is assumed that until a frontrunner appears Australian consumers will not embrace video streaming due to the lack of buzz. There does not necessarily need to be a frontrunner, although it would doubtlessly help in accelerating development.

The end of analogue and the “digital dividend”

One of the primary drivers of consumer electronics in Australia in 2009 was the threat of the upcoming switch-off of analogue television, and the consequent switch to digital television. This will begin in some remote regional areas such as Mildura and Broken Hill in June 2010, gradually progressing region by region until major metropolitan areas have their analogue signals switched-off in 2013.

Concerned about a repeat the situation in the US where analogue television was turned-off whilst there were still a significant number of consumers without access to digital television, the Australian government has launched the “Getting Ready for Digital” marketing campaign, which encouraged consumers to upgrade their televisions. Although, technically, consumers need only an inexpensive set top box, a fact that is made clear in the marketing campaign, many consumers are using this opportunity to upgrade their whole television devices and experience.

There is, however, opposition to the switching-off of the analogue signal, particularly from poorer consumers, who do not wish to spend money on upgrading their television or even buying a set top box. With many consumers, even in regions where the analogue signal will be switched-off in June 2010, not having made the switch – about 21% of households in these regions – it is unlikely that the switch-off will occur entirely smoothly. Nationwide, only one half of Australian households have made the transition to digital, a disappointingly low result given that the switch-off is close at hand.

Current Impact

Although there is a long way to go before all Australian households have made the switch to digital television, the transition is occurring quite quickly, benefiting a number of product categories. Many consumers have decided to take this opportunity to upgrade their televisions, which has provided a big boost to sales of digital TVs. In 2009, retail volume sales of digital TVs grew by 14%. These consumers are not particularly concerned about the switchover, but they are interested in improvements to their home entertainment experience. They have also been attracted by the additional content that digital television provides, particularly since the three major commercial TV stations in Australia have all released their own digital stations, which offer additional content.

For consumers who are less interested in improved audio and video quality, and more concerned about the switch-off of the analogue signal, as well as those who wish to gain access to the additional content, set top boxes (or converters, decoders and receivers) have become the preferred choice. In 2009, retail volume sales of converters, decoders and receivers increased by 35% in 2009.

Due to concerns about losing advertising revenue from the ability of personal video recorders (PVRs) to skip advertisements, commercial television has backed the promotion of Freeview. This includes the provision of Freeview stickers on PVRs which cannot skip advertisements and are therefore considerably less useful to consumers than ones that can. The advertising of the Freeview brand has been a success however, with many consumers buying PVRs that are specifically Freeview, thereby confusing consumers more in what is already a confusing transition.

It is not all about digital television, however. Having been available in other markets such as the UK for a decade, Digital radio finally came to Australia in August 2009. Despite failing to excite consumers in other markets, Australia has witnessed, if not a major success, at least some enthusiasm for the new technology with almost 500,000 listeners, accounting for 1% of all radio listening. Given that digital radio is not yet available in cars – although some aftermarket devices are reported to be in development - or in some regional areas, this is considered to a positive sign. However, the number of digital radios sold in 2009 was only 100,000.

Outlook

The switch from analogue to digital television also has a significant effect on other consumer electronics categories. This is because the switching-off of the analogue television signal will “free up” a significant proportion of the spectrum which can be allocated to other uses. As a result, the Australian government is being lobbied by industry groups, organisations and corporations, from mobile phones and digital radio to digital television, in an attempt to convince the government that they represent the best use of the “freed up” spectrum.

The telecommunications companies need the spectrum due to the growing number of data hungry applications that Australians are embracing, not only on their mobile phones, but also netbooks and laptops. These applications, from GPS-Navigation to mobile internet, are growing at a much faster rate than the spectrum can handle. This is likely to create bottlenecks in the future, and probably before 2013, when the spectrum is freed-up. Despite this, the freed-up spectrum should certainly help to cater to the ever growing demand.

Digital radio needs a share of the spectrum so that it can be expanded into regional areas, which would boost sales of digital radio, and lead to digital radio being included in new car models, and provide a fillip to aftermarket in-car entertainment. Digital television stations desire the spectrum to allow them the opportunity to deliver 3D television, which the current spectrum does not allow.

Future Impact

Depending on which area receives the “digital dividend” the consumer electronics industry could potentially receive a significant shake-up. The “digital dividend” will almost certainly be given to the telecommunications industry, since the ability for netbooks and laptops to benefit from such a move is considerable. Therefore it is likely to benefit small- and medium-sized enterprises, making the move both politically attractive and economically sound.

The ability of laptops and netbooks to benefit from any improvement to the mobile internet would provide an extra driver of growth, thereby assisting the development of these product categories. In 2010, the easiest means of acquiring mobile internet was to obtain a netbook plan with any of the three big telecommunications companies, Telstra, Optus or Vodaphone. This development has produced much of the growth in netbooks. With the same plan for laptops, with the bonus of much more capacity, much of this growth would shift to laptops.

The main beneficiary, however, should be mobile phones as the “digital dividend” would ensure that consumers can continue to adopt data hungry applications such as GPSs, and Facebook updates, and video streaming. This was the primary reason for growth in mobile phones in 2009 and, as applications become more and more data hungry, is likely to continue to fuel growth in the forecast period.

Specialist Retailers

Chained specialist retailers have become increasingly important in Australia during the 2000s, not only in consumer electronics, but in a wide range of categories, as consumers value the wider range and specialist advice that they can provide. Although the dominance of specialist retailers has lessened slightly due to increasing internet retailing sales, electronics and appliance specialist retailers accounted for an 84% share of retail volume sales in 2009.

This distribution channel has also thrived due to a strategy of constant expansion in store numbers, something which it is able to do much faster than most mixed retailers, which tend to have larger stores requiring significantly greater investment. Specialist retailers are more flexible in terms of locations, and although metropolitan areas are fast approaching saturation, there are still significant opportunities for growth in rural areas.

The three giants of consumer electronics retailing in 2009 were Harvey Norman, The Good Guys and JB Hi-Fi, but this situation may change during the forecast period. Only as decade ago, for example, Retravision was the leading retailer, and whilst it still has a significant presence it has fallen significantly down the list of major retailers.

With consumer electronics performing strongly – and with a variety of categories having passed their peak, with consumers confident enough to be prepared to forego credible advice - mass merchandisers such as K-Mart and Target are penetrating further into the industry, as is Australia’s largest department store chain, Myer.

Current Impact

In order to encourage Australian consumers to embrace consumer electronics even more than they already have, most specialist retailers are attempting to position themselves as discount retailers, or use other means of making it easier for consumers to facilitate what would otherwise be an expensive transaction.

Harvey Norman offers its own finance plans, promising “no deposits, no interest” in order to encourage sales, whilst also creating a sense of urgency by telling consumers to act “NOW!”, through well funded and continuous advertising campaigns.

Each retail chain targets different demographics as seen through their store locations. Harvey Norman and The Good Guys – both of which also sell domestic electrical appliances – position themselves mostly in the outer suburbs in order to target new home owners. JB Hi-Fi, on the other hand, focuses more on entertainment-related devices, as demonstrated by its non-consumer electronics stock consisting of CDs and DVDs instead of domestic electrical appliances. This brand has stores located in shopping malls, making shopping at JB Hi-Fi a more “fun” and leisure-oriented activity.

In addition to these major retailers, some categories have their own specialist retail chains. In-car entertainment products, for example, are sold mostly through specialist car audio retailers such as Autobarn, which is necessary since these stores also offer installation. The only major non-auto specialist retailer that deals in in-car entertainment is JB Hi-Fi. In-car navigation devices, on the other hand, are available through all electronics and appliance specialist retailers and some mixed retailers, since they do not need professional installation. In-car navigation was a vibrant category during the review period.

Although available via all electronics and appliance specialist retailers and some mixed retailers, cameras and camcorders also have specialist retailers, such as Ted’s Cameras and Camera House. In-car media players also have their own chained specialist retailers, including Autobarn and Super Cheap Auto.

Outlook

The importance of specialist retailers in consumer electronics market is rapidly reaching a plateau, although there are still significant opportunities for growth, at least in regional areas. JB Hi-Fi plans to open between 10-15 stores each year over the forecast period. JB Hi-Fi is able to do this since its stores tend to be small, but other specialist retailers such as Harvey Norman and The Good Guys require a larger potential target audience to succeed. For these retailers the opportunities for growth are significantly fewer, and they face growing competition from online retailers.

Whilst other markets have experienced large shifts to internet retailing, Australia is lagging behind. One reason for this is that many large retailers have resisted making their stock available online. Most criticised for this strategy is Australia’s largest consumer electronics retailer, Harvey Norman. Instead, internet retailing is increasingly led by eBay and Amazon. With the strength of the Australian dollar gradually improving, internet retailing has become particularly popular when purchasing products from the US, where they are significantly cheaper even after taking shipment into account. Another player taking advantage of this trend is the upstart Australian company, Kogan Technologies, which only sells products through its website.

The shift to internet retailing is increasing the power of manufacturers, with many consumers making purchases directly from the manufacturer. So far few manufacturers specialise in dealing directly with consumers, but it is a strategy that is likely to become more popular over the forecast period. As a result, competition between manufacturers and retailers is likely to emerge.

Future Impact

A shift to online retailing is likely to intensify, as manufacturers make moves to cut out the middle man and deal directly with the public. Bose Pty Ltd, for example, sells Bose Wave radios directly online. This may represent the first shots across the bow as manufacturers shift their emphasis to online sales, leading to tensions between manufacturers and retailers. At the same time, however, Dell Computer Pty Ltd is moving in the opposite direction, going from a direct order model to making products available through electronics and appliance specialist retailers such as Officeworks, Dick Smith Electronics and The Good Guys.

In addition to lower prices, online purchases offer other benefits. Although, consumers are unable to see and hold the device – and for many categories such as mobile phones and in-car navigation it is typically only fake copies that are displayed – they can read reviews by other consumers and better evaluate the risks involved in the purchase. Online retailers themselves also benefit in terms of better information, since they can compile data on which products are most sought after, which helps them to perfect their online portfolios.