Gadgets still a centerpiece of holiday shopping

NEW YORK/ATLANTA Fri Oct 31, 2008 3:27pm EDT

A Best Buy store employee speaks to a customer in a file photo . REUTERS/Aly Song

A Best Buy store employee speaks to a customer in a file photo .

Credit: Reuters/Aly Song

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NEW YORK/ATLANTA (Reuters) - Shoppers who crave electronics goodies, but are increasingly short on cash, may sacrifice a gym membership or movie popcorn just to get a new gadget like the "Google phone" this holiday season.

Tightened U.S. household budgets in the face of a recession means holiday spending plans for electronics are at their lowest level since the industry's Consumer Electronics Association began its annual shopper survey 15 years ago.

But when they do choose to spend on gifts, consumers have such a soft spot for electronics they will give up items like sporting goods and trips to pay for gadgets, said Tim Herbert, senior director of market research for the CEA, which represents the $160 billion industry.

"These are no longer just luxury items or products that are fun to own. They really are used in a variety of ways to enhance communications, increase productivity, or for education," Herbert said. "Also, from a gift-giving standpoint, there is still a tremendous 'wow' factor with electronics."

Consumers plan to cut overall holiday spending by about 14 percent this year, but their budget allocation for electronics has increased, according to CEA.

That should help keep the momentum behind hot-ticket items like the "Google phone" distributed by T-Mobile USA, Apple Inc's iconic iPod and newer iPhone, or even a sleek 2-pound Dell mini-computer

Advanced video game consoles, 40-inch flat-panel televisions, and smartphones are also expected to move off retail shelves, as well as humbler technology products that simply improve communications and organization.

They include SanDisk's $80, postage-stamp-sized 16-gigabyte memory card, DVD box sets, compact external hard drives that can hold entire music and video collections, and webcams by the likes of Microsoft Corp and Logitech International SA.

But in hard times, traditional electronics retailers like Best Buy Co and Circuit City Stores will be pressed to offer bigger deals on these items to consumers to stand out against the discounts at Wal-Mart Stores Inc.

"The product cycle is commoditizing, so as price points become cheaper you get into the sweet spot of the Wal-Mart customer," said JP Morgan analyst Christopher Horvers.

"Circuit City right now is in a capital-constrained situation and really fighting for their life," Horvers said. "You're likely to see them be more aggressive this year to try to drive traffic."

NO NEW "MUST-HAVES"

So far, no new "must-have" gadget has appeared, unlike previous years when devices like Sony Corp's PlayStation 3, Nintendo's Wii, or Sirius satellite radios and myriad digital cameras were launched shortly before the season to woo shoppers.

Mukul Krishna, global director of digital media for Frost & Sullivan, is betting that advanced high-definition TVs, video game software and smartphones will be consumers' top picks in electronics.

But he agreed that consumers who have scaled back their lifestyles "are going to be looking for some aggressive discounting and couponing by the major electronics leaders," potentially pressuring profit margins of major manufacturers.

Any shopping, even on Black Friday immediately after U.S. Thanksgiving, may be bittersweet as fallout from the global financial crisis hobbles the U.S. economy.

NPD Group found 26 percent of its survey participants planned to spend less this year, versus 18 percent last year.

Consumer electronics sales are expected to rise 3.5 percent in the fourth quarter, down from 7 percent a year ago, according to an industry study.

But even as shoppers sweat over the shrinking value of their retirement accounts, they may snap up deals for devices they have been eyeing all year.

Some of the most desired items are also pretty pricey. At, say, $750, a semi-professional digital camera, portable computer or flat panel TV costs as much as rent for some, or two car payments for others.

"You will see more bargain hunting and lower pricing, and more advertising for Black Friday. However ... pricing probably won't be what drives people into the stores," said analyst Stephen Baker of research firm NPD.

"If people still feel the way that they do now, (stores are) going to have to keep reminding them that these things have never been more affordable," he added.

TVs POTENTIAL BRIGHT SPOT

Next year's shift to digital broadcast signals is also expected to spur sales of better TVs.

Television broadcasters must begin airing only in digital starting February 17, 2009, ceasing their analog signals. That requires customers with "rabbit-ear" antennas who don't subscribe to cable, phone or satellite television services to replace their TV or get an analog-to-digital converter.

Lower-priced TV brands such as the Vizio sold at Wal-Mart Stores may have an advantage as consumers look for values. "Consumers might be going for some of the cheaper alternatives out there," Frost & Sullivan's Krishna said.

Regardless of the gloomy outlook, CEA's Herbert said emotions may drive shoppers to the store as the holidays draw closer.

"Historically, for a lot of Americans, shopping is therapy. People want to give gifts to their loved ones," he said. "If these products can enhance family time or serve as a substitute for that trip to Disney World for a vacation ... consumers view that as a way to keep their spirits up."

"I don't think anyone wants to outright cancel Christmas," Herbert added.

(Reporting by Franklin Paul and Karen Jacobs, editing by Richard Chang)

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