Consumer Electronics Market in Italy

Consumer Electronics in Ireland

Consumer Electronics Market in Italy-Dissertation Writing Help

Executive Summary

Innovation Continued Creating Demand for Consumer Electronics

Consumer electronics reinforced its growth in line with previous years' performances. This was mostly supported by the strong development of portable consumer electronics in Italy, by the latest generation of smart phones, and by in-car navigators. The demand for portability and more technologically developed products (i.e. products equipped with Bluetooth, blu-ray, full HD and wi-fi) is behind the success of consumer electronics in Italy.

Dinks/sinks Drove Consumer Electronic Sales in Italy

The Italian lifestyle has been changing gradually over the review period, with Italian consumers nowadays more demanding and rational, but also more inconsistent and often oriented towards the best price option. Traditional families have been replaced in part by DINKs/SINKs (Dual Income with No Kids/Single Income with No Kids) and nowadays this target group represents almost 21% of all households in Italy. Younger couples, in their twenties or thirties, are often both working and saving money; they have high disposable incomes and therefore represent an important group for the consumer electronics market.

With Car Navigators the In-car Market Found the Way To Profits

During 2006–2007, car navigators have boomed in Italy thanks to their practicality and the reduction of their prices. Ease of use and the quality of the maps are the most important features required by consumers, although car navigators have also become a trendy and fashionable item for the car. The huge offer of brands and prices matches the preferences of a wide public.

A Growing Market Led by Asian Companies

Korean and Japanese manufacturers have been gaining market share every year at the expense of long-established Italian and other European players. Italian firms are particularly susceptible to Asian competition as they are generally small and have difficulties in investing in research and development. As a consequence, some Italian manufacturers disappeared from the consumer electronics market and the fast-growing Italian market is in the hands of leading global manufacturers. The high technological quality of their products and their lower prices are due to production based in East Asian countries like China, which has made it difficult for local Italian companies to remain competitive.

Convergence, Portability and Multitasking: the Key Words for the Future

In the forecast period, people's faster lifestyles, combined with improvements in technology, will lead to growth in media multitasking, which will become possible through the development of applications such as instant messaging (IM), PDA/email devices, VoIP and voicemail. Convergence will be also a theme common to many new devices, including games consoles, TVs and mobile phones. For example, games devices will incorporate DVD players and Internet access, while mobile phones will be used as Internet browsers and digital cameras will increasingly include wireless connectivity. Moreover, consumers will continue to prefer portable products, being attracted by their compact size and light weight.

Key Trends and Developments

Disposable Income Increased in Italy But Consumers Confidence Is Still Weak

Italy's average economic growth over the past 15 years has been the slowest in the European Union. During the review period, the Italian economy tipped into recession, and this dramatically reduced Italians' disposable income levels, forcing them to save money on purchases and to be careful in their spending.

Italian consumers progressively lost their purchasing power, and had their budgets reduced by a continual worsening of the national economy. Consumer confidence remained weak, which had a negative impact on the performance of the consumer electronics market.

Current impact

Despite the increase in the index of prices of resident households' expenditure and the growth of 2.2% in consumer expenditure on "audio-visual, photographic and information processing equipment", the consumer confidence index stood at -20 in August 2007, compared with an EU average of -3. As shown by ISAE (the Institute for Studies and Economic Analyses – Istituto di Studi e Analisi Economica), Italy has had a negative, double-digit consumer confidence index since June 2002.

Expensive products – such as in-home audio/video products related to entertainment – are the ones most negatively influenced by the trend. In periods of uncertainty, consumers start to limit their spending on non-essential items, as shown by the fall in expenditure on semi-durable goods, from €94.2 billion in 2004 to €92.4 billion in 2006.

Although benefiting from higher disposable incomes and the launches of new, innovative products in the market, sales of consumer electronics did not boom in 2007; Italians remember the recession of 2005 and have an unclear picture of the future, so they are now more careful in spending their money.

Outlook

The higher tax burden for top income earners and the unpopularity of the 2007 Budget will continue to hurt consumer confidence well into 2008. It is likely that some cautious consumers will choose to save rather than spend their additional disposable income as they expect the economy to stumble again and believe that further fiscal tightening measures are inevitable.

During the forecast period, however, there should be a mild improvement in confidence which should be enough to trigger a slight increase in households' willingness to buy. This improved confidence should partly mitigate the impact of tighter fiscal policy on disposable income levels.

Household consumption fundamentals are gradually improving, which is mostly due to signs of a recovering labour market, dynamic wage growth, increased consumer confidence and slowing inflation.

During the forecast period, growth in disposable income is expected to remain at relatively high levels of around 1.5% in real terms, which will contribute to the increase in real per capita consumer expenditure.

Future impact

In the forecast period, disposable incomes will remain at high levels and consumer confidence will improve –although at a slow pace. As a consequence, retail confidence will pick up.

As it seems that Italians are ready to increase their exposure to personal debt to gain access to new products, retailers will offer credit deals in order to sustain volume sales, especially to encourage purchases of new technologies.

In the in-home consumer electronics sector, digital TV sets will drive sales; within portable consumer electronics, digital cameras, camcorders, mp3 players and laptops will be the products in the greatest demand; within in-car consumer electronics, sales of navigation systems will continue to rise.

Changes in Italian Lifestyles Brought Higher Sales of Consumer Electronics

In the review period, Italian lifestyles changed quickly, as the pace of life increased and traditional families have gradually become less common.

While traditional families represented nearly half of all Italian households in 1990, this proportion had fallen to less than 40% in 2007. Also in 1990, single-person households represented just 20% of the total, while the percentage had risen to 27% in 2007. The number of married couples without children increased from approximately 4 million in 1997 to over 4.8 million in 2007, when it represented almost 21% of all households.

Moreover, because of the high cost of housing in city centres, the number people living in the suburbs increased enormously. As a consequence, during the review period there was an increase in commuting from rural areas surrounding cities.

Consumers of electronic products increasingly emphasise the need for practicality, portability and ease of use, while in-car consumer electronics and portable devices are the products whose sales have increased the most as a result of the changes in Italian lifestyles.

Current impact

The consumer electronics market has been affected by all the changes in Italian lifestyles.

As families now have fewer children and it is less common for extended families to live in the same house, many of them have more money available to spend on consumer goods in general and consumer electronics in particular, especially in-home products.

Many younger couples in their twenties or thirties are both working and saving money; they have high disposable incomes and therefore represent an important group for the consumer electronics market.

Moreover, as house prices are lower in suburban and rural areas, people need to travel long distances every day to go to work. Because of this increase in the number of commuters, roads are more crowded and people spend more time in cars, buses and trains. Portability of music and videos is now increasingly important among commuters who want to spend their time travelling to and from work in a pleasant way.

Outlook

In the forecast period Italian lifestyles will continue to change in the same direction: traditional families will account for only 35% of households by 2017 and single-person households are expected to account for more than 30% of the total by 2017.

Moreover, the number of couples without children is expected to increase by 8.7% in the next 10 years.

During the forecast period, while the overall population is expected to fall, the number of those aged over 65 (11.6 million in 2007) is expected to grow by 10.4% in the next 10 years.

Consumer needs change as people become older; the demographic profile of the population can therefore dramatically influence consumption patterns.

Future impact

As a consequence of changing lifestyles and the reduction in the size of the average family, the consumer electronics market will be affected in several different ways.

As women work away from home more than in the past and there will be fewer children, many families will have more money available during the forecast period.

DINKs are often younger couples that have high disposable incomes and therefore represent an important group for manufacturers and retailers. Young adults are in fact the ones that typically spend significant amounts of money on consumer electronics products. These consumers tend to be sophisticated and generally prefer high-quality, innovative and stylish products.

A substantial proportion of the growth in expenditure on consumer electronics will obviously also be linked to the increasing standard of living, as consumer electronics products (especially computers and mobile phones) and more advanced technologies (for example, with wireless or high-definition standards) become more affordable for a broader range of households.

in 2007 Italian Companies Abandoned the Impossible Battle of Price Against Asian Manufacturers

Since the introduction of the euro, retail prices have increased dramatically in Italy, pushing the inflation rate above the European average and causing a loss in purchasing power among Italians. As a consequence, in the review period, Italians started to limit their spending on consumer electronics products, by increasing the length of the replacement cycle and looking for cheaper, unbranded products.

China and other Asian countries took advantage of the poor shape of the Italian economy, and started to push down the prices of their products by introducing a myriad of low-cost, unbranded goods onto the market. Made-in-China mp3 players were sold in many specialist chains for as little as €30. With such a low price, consumers were ready to buy them despite the lack of brand recognition.

As the index of prices of resident households' expenditure increased to 125.8 in 2005 and 127.65 in 2006 (1995=100), falling unit prices within electronic products helped to keep customer demand at relatively high levels. This was beneficial for those retailers that were able to sustain sales and also for consumers who perceived that such goods offered better value for money.

The risk of competing solely on price, with a market characterised by low-quality products, was avoided in 2007, when Italian disposable incomes grew by 1.5% and households started to spend more on consumer electronics.

Current impact

Portable consumer electronics is one of the sectors most strongly affected by the competition from Chinese and other Asian brands, as for these products price is one of the main determinants in the purchasing decision.

On the other hand, the invasion of minor brands and unbranded products from Asia – usually characterised by low quality – has gradually led Italian consumers to identify Western brands with excellence. If on the one hand this has produced benefits for Western manufacturers, on the other hand it has forced them to increase their spending on research and development and marketing in order to fulfil consumers' demand for and expectations of higher quality, and to promote the launch of new models.

Initially, Italian companies tried to curb their production expenditure both by restructuring their operations and by reducing their profit margins, but labour costs in Italy prevented them from making their final prices lower than those of their Chinese or other Asian competitors. Later, many Italian companies understood that it would be more profitable to focus on what they could do better: producing good-quality products that could be sustained by marketing and information campaigns and after-sales service. Italian manufacturers are now keen to ensure that their brands are seen as quality products, thereby differentiating them from low-end Chinese products.

Given the improvement in the condition of the Italian economy in 2007, Italian manufacturers started to focus increasingly on promoting their own brands, often leaving the manufacture of retail chains' private label products to Chinese manufacturers.

Outlook

As the Italian economy appears to be more stable and disposable incomes have increased, Italian consumers are paying more attention to the quality and safety of the products they buy. After-sales service is one of the features most frequently requested by consumers and they will be willing to pay a higher price for these services.

The change in consumer preferences is being driven by the lack of attention of many Asian manufacturers to after-sales service. If a product breaks down more than two years after its purchase, international warranty no longer applies and the consumer is often unable to find a competent technician to fix it, with the result that the product must be thrown away.

Product safety is another issue that has recently assumed greater importance in Italy, and this is mainly linked to the multitude of cheap, low-quality items sold in the consumer electronics market.

According to a survey conducted at the beginning of 2007 by the Consumer Union (Unione Nazionale Consumatori), 8 out of 10 low-cost electric products were regarded as dangerous because they failed to meet the specifications required by law or even put their users at risk of fire or electrocution.

The authorities are expected to impose stricter regulations during the forecast period to prevent the sale of dangerous products.

Future impact

In the forecast period, Chinese and Asian manufacturers are expected to continue launching cheap products in the Italian consumer electronics market, as average unit prices continue to fall, although at a slower rate. On the other hand, leading Italian and European manufacturers will increasingly focus on design, quality and after-sales service.

According to a 2007 survey by CERMES (Centro di Ricerche sui Mercati e sui Settori Industriali – the Research Centre on Markets and Industrial Sectors), at Bocconi University, the future prospects are encouraging for branded and more expensive products within the consumer electronics sector. In the case of LCD TVs, price ranked only seventh in the list of criteria that determine purchasing decisions, far below other considerations related to their functions or the quality of their images and sound. In the case of laptops, price was even less important and ranked ninth. The only product for which price was still an important feature was the mobile phone, because the market for "normal" mobile phones (excluding iPhones and smart phones) is now a mature one.

Retailers are expected to change their strategies and come back to selling branded products. In particular, durable goods retailers have realised that selling unbranded products does not increase their overall margins; moreover, in case of a fault, consumers come back to the retailer to ask for assistance or to demand a replacement. It is expected that both consumers and retailers will increasingly choose products from the leading groups, since a well-known brand usually stands for quality, assistance and safety.

Leading companies will need to be efficient in their production processes and continually innovate in new products. The forecast recovery of the national economy will allow manufacturers to invest more in research and development to meet demand for better designed and higher-quality products. As a result, prices will probably continue to fall but at a slower rate than in recent years.

In this scenario, Chinese manufacturers will lead the lower end of the market, while producers of branded products are expected to focus on the medium/high end of the market; the latter are forecast to recover their previous losses between 2007 and 2012, thanks to the high quality and innovative features of their products and the comprehensive after-sales service they offer to their customers.

the Access To Consumer Credit and the Use of Credit Cards Helped Growth of Consumer Electronics

During the review period, consumer credit in Italy enjoyed some of the highest growth rates in Europe, as the Italians' attitude to consumer credit underwent significant change.

Italians have traditionally been reluctant to incur debt, but recently they have quickly discovered consumer credit and credit cards, thanks to the high number of proposals/deals made by retailers to encourage the purchase of consumer electronics products.

In the past, asking for a loan or using consumer credit facilities was considered shameful in Italy, but this is no longer the case. While previously only people in financial distress would ask for a loan, during 2005–2007 people with greater financial security have also begun using consumer credit as a form of investment.

ADICONSUM, the association of Italian consumers, estimates that total outstanding consumer credit in Italy stood at €85.6 billion in 2006, up from €46.1 billion in 2002, thus showing growth of 186% in four years.

Some 7 million consumer credit agreements were made in 2006, accounting for 6.1% of GDP.

As a consequence of these developments, a large number of consumer credit institutions – of which the best known are Findomestic and Agos – have been making agreements with retailers – such as Media World, Trony and Expert – in order to finance purchases of consumer electronics products.

Current impact

Interest-free loans are increasingly being offered to consumers of electronic products. Large retailers are taking advantage of the greater availability of consumer credit to make agreements with credit institutions and offering interest-free loan plans with 12 or more instalments to consumers for the purchase of electronic products.

Products such as digital TVs, hi-fi systems and computers are the ones that have been most strongly affected by the introduction of consumer credit schemes, as they are the most expensive products in the consumer electronics sector. For example, as the prices of digital TV remain high – although they are decreasing rapidly – Italians may hesitate over the decision to purchase these products. Consumer credit represents a means of spreading the cost across several months and this may support sales.

These initiatives seem to be widely accepted by Italians, and this new facility is enabling consumers to continue purchasing the goods they desire, which has sustained the sales of consumer electronics products despite the sluggish national economy, especially in the review period.

Outlook

Forecasts point to a growth in the propensity of Italian households to borrow, which reflects the increasing maturity of its consumer credit market, as the gap between the financial cultures of Italy and other major European countries is expected to reduce.

According to Assofin/CRIF/Prometeia Observatory, the total outstanding debt in the consumer credit market was equal to €85.4 billion in June 2006. This figure was expected to reach €100 billion in 2007 and €120 billion in 2008.

It is expected that more than 20% of Italian households will face difficulties in paying their debts in the forecast period.

If on the one hand the growth of consumer credit will help to stimulate sales of consumer electronics products – as a marketing device to attract consumers and encourage them to purchase new goods – on the other hand ADICONSUM warns that it is a dangerous financial instrument that may easily get people into financial difficulties.

Considering the range of consumer credit products available in the large, non-specialised retail environment, credit cards display higher potential for growth than loans arranged for specific purchases, thanks to their greater flexibility. This will permit the use of consumer credit to be extended to cover all types of purchases, and also avoid increasing the complexity and length of the purchasing process.

As the effective price of a product purchased with a loan can be up to 15–20% lower than that of the same product without financing, many consumers will be tempted to use this "pay later instrument". According to ADICONSUM, shopping centres and retailers should not offer these deals, which enable consumer credit institutions to gain new customers, who may then fall into the "vicious circle" of financing even though they would have been able to pay the full price for the original purchase.

Future impact

As reported by ADICONSUM, during the forecast period more shopping centres will seek to attract consumers by offering consumer electronics products linked to a particular form of loan, which consists in an agreement to pay for the product at a specified date – usually some months after the purchase – at a lower price.

Moreover, the large consumer electronics chains (such as Expert, Media World and Echos) will increasingly issue their own credit cards. From the perspective of specialised financial institutions, these cards represent a very useful means of strengthening their direct relationships with their customers, and they reduce their operating costs and margins relative to other credit products.

Alongside such factors as retailers' increasing recourse to marketing strategies that use credit to stimulate consumption, and a more positive trend in household spending, the increased visibility of consumer credit will play a fundamental role in driving the growth in sales of consumer electronics products. The sectors that will be most heavily impacted by these developments are digital TVs, computers, hi-fi systems and cameras.

and the Winners Are ... Multiple Specialist Retailers and Hypermarkets

Since the beginning of the review period, international retailers of consumer electronics products have entered the Italian market, meeting the needs of consumers at the expense of independent specialists.

There was a widespread consolidation of the Italian market during the review period, as local independent retailers were forced to join together in purchasing groups or increasingly replaced by multiples located in regional retail hubs.

Current impact

According to AIRES (the Italian Trade Association of Specialised Consumer Electronic Retailers – Associazione Italiana Retailer Elettrodomestici Specializzati), the growth in the revenues of its partners (Elite, Euronics, Expert, Gre/Trony, Mediamarket and UniEuro) exceeded that of the consumer electronics market as a whole in its first year of activity. Their total sales amounted to €9.5 billion in 2006, growing in value terms by 15% against a market average of 5.4%.

In a relatively short period, the total number of local outlets operated by AIRES's partners in Italy reached 2,200.

Media World – owned by the retail conglomerate Mediamarket – became the leader among specialist multiple retailers and opened 69 outlets across Italy in less than 10 years, of which 11 opened in 2006. Most of its stores are located out of town; they are frequently close to shopping centres and offer the widest available choice of products at competitive prices, which only the hypermarkets can consistently hope to match.

Specialist independents held a strong position in the consumer electronics market until 2004, and they have recently struggled to match the multiples on both price and choice.

Outlook

The further expansion of AIRES's partners and of other top multinational consumer electronics companies (such as fnac and Dixons) will certainly bring drastic changes to the overall structure of the retail sector in consumer electronics, especially with respect to market shares and pricing.

Moreover, the forecast period will also see the hypermarkets playing an increasing role in the consumer electronics sector, and especially in small/portable consumer electronics products and TV sets.

The role of independent specialists will increasingly be restricted to the sale of certain top-end products, such as hi-fi systems, in-car consumer electronics and projectors, for which they often require a more personal service. In these niche sectors, customers still trust their local suppliers to sort out any problems they may have and therefore value their advice and after-sales service.

Future impact

Foreign retailers have greater expertise in hi-tech segments of the market, such as computers, media players, mobile telephony and digital imaging, and their expansion in Italy is therefore expected to boost sales of these products. This impact is expected to continue throughout the forecast period as Italian consumers become better acquainted with new technologies and gadgets such as palmtops, navigation systems and mp3 and multimedia players.

The active involvement of multiple specialist players in the Italian consumer electronics market is expected to trigger fierce competition, especially on price. On the other hand, hypermarkets will also become more competitive and expand their product portfolios, especially in small consumer electronics products.

As Italian consumers prefer to see products and even test them prior to purchase, large grocery outlets will increase the amount of shelf space dedicated to consumer electronics.

The increased visibility of such products will attract more customers, many of whom will shift their purchasing from large specialist outlets to large grocery stores.