Consumer Electronics Market in Canada
Not A Bad Year for Consumer Electronics
Despite the
worsening economic conditions in Canada in 2008, consumer electronics sales
still posted a modest gain for the year. In fact, the sector has proven to be
somewhat resilient to economic downturns as consumer electronics have provided
Canadian households with a relatively inexpensive entertainment alternative.
Lower Prices Keep Drawing Customers
Even though
consumer confidence took a hit in 2008, particularly during the latter part of
the year, Canadians were still eager to stock their homes with the latest LCD
televisions and other in-home consumer electronics products. One key factor
drawing consumers into the stores was the aggressive pricing tactics of
consumer electronics retailers and manufacturers. Established brands like Sony
and Apple battled it out not only with each other but with South Korean,
Taiwanese and Chinese brands. Moreover, the continued roll out of private label
brands by leading retailers like Best Buy helped drive down prices.
Analogue Broadcasts Soon To Disappear
Solid demand for
LCD and plasma televisions, portable multimedia players, smartphones, personal
navigational devices and laptops helped bolster sales of consumer electronics
in 2008. Key to the growth of the digital television subsector was the decision
by the government to end analogue television broadcasting by August 2011. As
for portable consumer electronics subsectors, Canadians continue to be drawn to
all-in-one portable devices that keep them informed and entertained wherever
they go.
Competing in A Tough Market
Prices continued
to fall across many consumer electronics sectors, and manufacturers felt
renewed pressure to develop new technologies that might give them the
competitive edge in the Canadian market. Moreover, consumer electronics
companies have been forced to think of new ways to reinvent mature product
categories, such as DVD players and digital cameras, both of which have
household penetration rates reaching peak levels in Canada.
Better Times Ahead?
Many believe
that Canada’s economy will begin to rebound by 2010, and this is welcome news
for retailers and consumer electronics manufacturers who will likely experience
weaker than normal sales growth in 2009. A strong economy is critical in
strengthening consumer confidence, and consumers must have a positive outlook
if they are going to be persuaded to continue to spend thousands of dollars on
next-generation LCD televisions and other high-priced consumer electronics
products.
Key Trends and Developments
Trouble for Canada’s Economy?
Compared to
other developed economies such as the United States and Great Britain, Canada
largely escaped the full brunt of the global economic downturn in 2008. Buoyed
by a relatively strong commodities sector and a fairly solid housing market,
the Canadian economy is faring better than most.
However, the
economic slump in the US did have an impact on the export-driven Canadian
economy and on overall consumer expenditure in Canada, including spending on
consumer electronics.
Outlook
The
International Monetary Fund projects that Canada’s economy will grow by 1.2% in
2009. This is the highest rate of growth of any G7 country.
Even during the
best economic times, Canadians tend to be much more frugal than their
neighbours to the south, and as a result household penetration rates for
relatively common consumer electronics products in Canada are not as high as
rates in the United States. If Canada’s economy takes a much more serious
downturn in 2009 than anticipated, that could undermine spending on consumer
electronics even more.
Current Impact
According to the
Conference Board of Canada, the Canadian economy grew by 0.8% in 2008. Economic
growth was the highest in the resource-rich Western provinces of British
Columbia, Alberta and Saskatchewan. However, high oil prices helped to drag
down the economies of Ontario and Quebec, which represent the manufacturing
heartland of Canada. Given that Canada's export-driven economy is largely
dependent on the United States, any hiccup in the US economy is felt in Canada
and directly affects consumer confidence.
Nevertheless,
despite the decline in consumer confidence, sales of consumer electronics
products did grow in 2008, albeit modestly. Strong demand for LCD televisions
and laptops helped drive sales in the consumer electronics sector for the year.
Aggressive discounting was a key factor in attracting generally frugal Canadian
consumers into stores.
Future Impact
Canada’s economy
is expected to rebound in 2010, with long-term economic prospects remaining
favourable. Moreover, the risk of a US-style decline in the Canadian housing
market remains small as the market in Canada did not see the excesses that
afflicted the US housing sector. Solid macro-economic conditions and increasing
levels of after-tax income are expected to translate into solid consumer
spending on consumer electronics products over most of the forecast period.
However,
depending on the severity of the economic slowdown in the United States, the
Canadian consumer electronics market could be in for a rough ride over the next
year or two. On the other hand, even if the Canadian economy deteriorates
further, the consumer electronics market has shown its resilience in the past
to economic downturns. Instead of spending less on LCD televisions, laptops,
smartphones and other products, many consumers will instead cut back on other
“extras” such as travel. After all, buying some popcorn and getting a movie to
put into your new C$200 DVD player is far less expensive than taking the family
on vacation to Hawaii. Because of this and because of the growing cocooning
phenomenon, the consumer electronics sector can be considered, to some degree,
to be “recession-resistant.”
the Fluctuating Canadian Dollar
Canada's dollar
has been on a bit of a roller coaster ride during the last two years. In
September 2007, the Canadian dollar surpassed the value of the US dollar for
the first time in over thirty years. However, by October 2008, the Canadian
dollar fell to its lowest level against the US dollar in four years.
The emergence of
Canada as a natural resource power and the corresponding weakness of the US
economy helped to create the conditions leading to the rapid appreciation of
the Canadian dollar. In 2007, the Canadian dollar increased by 23% in value.
However, given the mounting global economic turmoil during the fourth quarter
of 2008 and the downward pressure on oil prices, the value of the Canadian
dollar started to fall sharply.
The fluctuation
of the dollar had and continues to have a profound impact on the Canadian
economy, in particular on the manufacturing sector that remains dependent on
the US export market. However, the rising Canadian dollar is also reshaping the
way Canadian retailers do business. The initial increase in the value of the
Canadian dollar highlighted for consumers the sharp differences between
Canadian and US retail pricing, particularly for consumer electronics products.
Outlook
After reaching
parity with the US dollar in September 2007, the Canadian dollar fluctuated
above and below par value. With the sharp rise in the Canadian dollar during
2007 and the first half of 2008, retailers such as Future Shop announced price
reductions on over 1,000 products, matching equivalent prices in the United
States.
However, as the
Canadian dollar slumped toward the end of 2008, Canadian retailers had to
rethink their parity pricing strategies. When the value of the Canadian dollar
was high, Canadian consumers flocked south of the border looking for deals.
With the Canadian dollar now having a much lower value, however, Canadian
consumer electronics retailers are not expected to raise their prices to match
current exchange rates until 2009 as pricing on these products was fixed months
before.
Current Impact
Consumer
resentment over the wide discrepancy between Canadian and US retail pricing
drove many Canadian consumers to internet retailers. Others jumped into their
cars and did their shopping across the border in the United States. Price
discrepancies were particularly evident for products in the consumer
electronics market.
Long lines at
the US/Canadian border and strong cross-border internet sales forced retailers
like Wal-Mart Canada, Sears Canada and Future Shop to roll back their prices in
order to keep Canadian consumers at home.
Manufacturers
like Nikon and Olympus were also quick in responding to growing consumer
resentment in Canada. Olympus lowered prices on its point-and-shoot digital
cameras sold in Canada to the same price levels as cameras sold in the United
States. Olympus went a step further by offering extended warranties for free as
an added incentive to get Canadian customers to shop at home. Many other
consumer electronics makers followed suit and adopted similar pricing
strategies.
However, as the
value of the Canadian dollar began to fall sharply during the last quarter of
2008, fewer Canadians bought consumer electronic products in the United States.
An added bonus for Canadian retailers was the fact that the falling Canadian
dollar brought more US consumers to Canada looking for good deals.
Future Impact
If the value of
the Canadian dollar again moves toward parity with the US dollar, Canadian
consumer electronics retailers will once again be faced with the prospect of
not only having to compete against one another for sales but also having to
compete with increased cross-border and internet shopping. Again, in response,
Canadian retailers will be forced to roll back prices. As long as the Canadian
dollar remains close to par with the US dollar, this comparable pricing
strategy will likely continue to be the norm in Canada.
While there may
be some fluctuations in the value of the Canadian dollar over the forecast
period, it is expected that the general trend will see the Canadian dollar once
again rising sharply in value as the global economy picks up and as demand for
Canada's natural resources increases, in turn ensuring a strong demand for
Canadian dollars.
the "greening" of Consumer Electronics
One of the most
notable trends noticed in 2007 that continued into 2008 was the
"greening" of the consumer electronics industry. With growing
concerns about pollution and the importance of conserving energy, socially
conscious consumers turned to more environmentally friendly consumer
electronics. “Green” consumer electronics can take many forms, ranging from
energy-efficient devices and established recycling programs to environmentally
friendly manufacturing processes.
Many of the
major consumer electronic manufacturers, including Apple, Dell,
Hewlett-Packard, Toshiba and Sony, have taken recent steps to “green” their
manufacturing process and products.
Outlook
Over the
forecast period, it’s expected that more consumer electronics manufacturers
will change their product marketing and design in order to be seen to embrace
green principles like energy efficiency, low-impact manufacturing, longer
product life cycles and recyclability.
Bio-plastics are
already being used in the production of consumer electronic devices. But
technological advances like these represent only one of way addressing the
green issue. In terms of product design, Sony is going one step further. The
company’s new flat-screen OLED (organic light emitting diode) TV not only
provides a new and exciting viewing experience, but it also comes with
considerable energy savings and greater efficiencies in the manufacturing
process. Currently, the technology is too expensive for the mass market, but
when OLED technology does take off in coming years it will be good news for
both consumers and the environment.
Current Impact
The new
"green" trend has manifested itself in several ways in the consumer
electronics sector. In terms of product design, recyclable and natural
materials are increasingly being used. For example, Fujitsu has introduced a
laptop with a hard cover made from corn resin instead of traditional plastics.
In addition, packaging is becoming more environmentally friendly. Some consumer
electronics companies are simply using less of it while others are using
earth-friendly inks and biodegradable boxes.
While the
“greening” of consumer electronics has spread across most product subsectors,
it is particularly apparent in the computer segment. In 2008, Hewlett-Packard
launched two new desktops in Canada, the HP Pavilion Verde and HP Phoenix
Special, both of which included much-improved power-saving features and 100%
recyclable packaging.
Many of
Toshiba’s current laptop offerings in Canada now comply with international
environmental standards that restrict the use of lead, mercury and certain
other hazardous chemicals. Toshiba also provides Canadian consumers with a
service that allows them to safely dispose of any PC hardware, regardless of
the manufacturer.
Future Impact
"Green"
is likely to become a more important selling feature for Canadian consumers.
This trend is expected to become more pronounced during the latter part of the
forecast period as technology improves and makes "green" consumer electronics
more accessible and affordable for consumers. However, price and product
quality will continue to be the most important product criteria for those
shopping for consumer electronics products. Canadian consumers may be willing
to pay more for environmentally friendly consumer electronics, but they will
only do so if the products perform as well as traditional models.
A major shift in
thinking by the major manufacturers is necessary for the industry to truly go
“green.” The reality is that most consumer electronics products contain dozens
of toxins, have short life spans and are not designed for recycling. Changing
this situation would involve huge investments by companies. As well, companies
would have to address the fact that increased product lifecycles would, on the
face of it, diminish sales.
Touch Screen Technology Comes Alive
For some time
now, touch screen technology has been largely relegated to niche subsectors of
the consumer electronics industry (example: touch screen devices used with
in-car personal navigation devices.) However, the launch of Apple’s popular
iPhone has changed both industry and consumer perceptions about touch screen
technology.
The easy-to-use
interface is attractive to many consumers, and many now prefer touch screen
technology over traditional keyboards and keypads. As for the industry, they
are eager to explore any new technology that will bring them more customers and
increase sales.
Outlook
By introducing
new and innovative products like the iPod, Apple is considered a pioneer in the
consumer electronics industry. It is expected that Apple’s rivals will follow
the company’s lead and start incorporating touch screen technology into their
products. Already, LG is selling an iPhone-like device called the Voyager,
while industry giant Nokia has filed for several touch screen patents.
In October 2008,
Canada’s Research in Motion (RIM) put the Apple iPhone directly in its sights
with its launch of the BlackBerry Storm, the company’s first touch screen
product. Other leading mobile phone players like Samsung, Motorola and Sony
Ericsson are also jumping on the touch screen bandwagon in order to avoid
falling behind in this emerging technological field.
Current Impact
In 2008, touch
screen technology was evident in several consumer electronics subsectors,
including mobile phones, personal navigation devices, televisions, digital
cameras and PCs.
Hewlett-Packard
was the first company to employ touch screen technology when, over 20 years
ago, it launched the HP 150. Today, Hewlett-Packard is at the forefront of
adapting touch screen technology to computers with its TouchSmart PC, which
incorporates a 22-inch multi-touch HD display. Rather than competing on price
in the very competitive PC market, Hewlett-Packard hopes that touch screen
technology will give it a crucial technological and competitive edge over its
rivals. The advantage may not last long, however, as it’s anticipated that
Apple will incorporate touch screen technology into its next-generation
computers.
Future Impact
Over the
forecast period, it’s likely that touch screen technology will see the highest
rate of adoption in the mobile phone subsector before it eventually spreads
into other consumer electronics product sectors. The biggest impediment to
growth over the forecast period is the cost of the technology, which will need
to fall significantly before there is widespread adoption. Key to this will be
the availability of applicable software for touch screen hardware devices,
which at present is limited. This could, however, change if Microsoft adopts
multi-touch technology in its next version of Windows (Windows 7), which is
expected in 2010. Once Microsoft becomes involved in touch screen applications,
other software developers are likely to join in and develop new and exciting
applications.
