Electronics retailers unhappy as shoppers cautious

LAS VEGAS Wed Jan 9, 2008 9:22am EST

1 of 6. Show attendee Michael Melnik looks over a display of HD television monitors at the dish Network booth during the Consumer Electronics Show (CES) in Las Vegas, January 8, 2008.

Credit: Reuters/Steve Marcus

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LAS VEGAS (Reuters) - The toll that economic uncertainty has taken on U.S. consumer electronics retailers was made very clear on Tuesday by Circuit City CEO Phil Schoonover.

"I am not smiling," Schoonover said, when asked to reflect on his 2007 sales.

He and other executives were speaking on a panel at the Consumer Electronics Show in Las Vegas, where the world's major technology companies display their newest shiny gadgets in hopes retailers will stock their products in 2008 and beyond.

But retailers at the show said they are worried about the state of the U.S. economy, and they expect U.S. shoppers will think twice before making discretionary purchases in 2008.

"The big items, the items that people want, they're still buying in droves," said Steve Eastman, vice president of consumer electronics at Target Corp.

But he added: "They're going to be more selective."

MORE DIFFICULT THAN EXPECTED

With a rapid deterioration in the subprime mortgage market, rising food and gasoline prices, and a credit crunch, 2007 threw many retailers for a loop.

"It turned out to be a very good year for us, with substantial growth, but one that was, I think, more challenging than some people thought at the beginning of the year," Best Buy Co Inc CEO Brad Anderson told the panel.

"We saw a lot of growth in the year, but it was not easy."

Just eight days into the new year, 2008 is not proving to be easy either.

The Standard and Poor's Retail Index is down 7 percent this year and on Monday, Bear Stearns downgraded Best Buy to "underperform" from "outperform."

"Given recent macro data, including worrisome trends in payroll reports, this sector is positioned poorly in such an environment," wrote Bear Stearns analyst Christopher Horvers in the note.

Also on Monday, Circuit City said December sales at stores open at least a year fell more than 11 percent, and it expects to post a fourth-quarter loss.

The retailer blamed part of the fall on changes at U.S. stores that disrupted business. It said sales of flat-panel televisions, notebook computers, video games and navigation products rose in December, but sales of projection and tube TVs and desk top computers declined.

"It's tough out there," Costco Wholesale Corp Chief Financial Officer Richard Galanti told Reuters.

Circuit City's Schoonover said he was also concerned.

"I think people that are getting their first oil bills at $3 a gallon ...are just realizing the implications of the energy costs," Circuit City's Schoonover said.

"...the subprime issues (that) have haunted us for some number of months now, and just the, I call it, share of mind that the 'R' word is getting on the media today has us concerned," he added, referring to reports that the U.S. is facing a recession.

Best Buy's Anderson told Reuters that he sees "indicators that it's a tougher climate, but we don't see indicators to say that it's likely to be a really difficult one."

TOUTING GROWTH

But electronics makers and those that sell its products continue to tout the industry's growth potential.

The Consumer Electronics Association forecast U.S. consumer electronics sales this year will rise to $171 billion, up from an estimated $161 billion in 2007, which was an 8.2 percent rise from 2006.

"This growth rate is actually terrific compared to the forecast of any other industry," said Gary Shapiro, chief executive of the Consumer Electronics Association, told CES.

Retailers said consumers are still clamoring for hot products, like flat panel televisions, video games, digital picture frames and global positioning systems.

Target's Eastman said consumers continue to snap up flat-panel TVs, at all prices.

"We are seeing no resistance to larger panel sizes, better brands, higher price points," he said.

But he said consumers are showing constraint when it comes to buying a second, third or even fourth tech gadget that they may be craving.

(Additional reporting by Franklin Paul in Las Vegas)

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