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Black Friday High Tech Inventory impact - US Electronics Retailers Navigated a Perfect Storm this Holiday SeasonThe Holiday Season is Critical to US Electronics Retailer PerformanceHistorically, about 20% to 24%1 of US electronics retailer2 total annual channel activity3 occurs during the holiday season (the period starting the week of Thanksgiving continuing to Christmas week). Good sales performance during the holiday season is therefore critical to a retailer's success.Early Warning SignsOn November 14th the Tech Channel Index predicted a "perfect storm" (see article, Reduce your Shipments into the US Retail Channel Now) condition for US electronics retailers, where sales would decline while inventory levels simultaneously rise as retailers prepare for the holiday season. As predicted, the perfect storm occurred, with cumulative channel activity for the holiday season down more than 25% over last year.
This chart compares channel activity level in the US Electronics Retail sector for the weeks in the 2008 holiday shopping season to the activity level in the matching weeks for 2007. All values shown are ratios between a given week and the average week during the baseline year of 2007 (where 1.0x = an average week)4.
There were early warning signs prior to the holiday season when sales volumes dropped starting early September and continued to decline up to Black Friday5 (considered the first official shopping day of the US holiday season). By Black Friday inventory levels had risen to greater than 16 weeks6 as retailers stocked up for the holiday season. 
This chart shows seasonally adjusted change in channel activity as well as inventory held by electronics retailers for 2008 as measured by the Tech Channel Index basket of consumer electronics, computer peripherals, and packaged software products.
Black Friday Delivers a Little Bounce, But Not EnoughThings get worse leading up to Thanksgiving as channel activity hit its lowest point at 42% below last year. Thanksgiving week always gets a boost from to Black Friday , typically the second highest sales volume day of the year. This year sales performance the week of Thanksgiving improved a little over the previous week, but was still down 31% over last year. Retailers responded quickly with heavy discounting (see article, Retailers slash prices, again, in bid to win shoppers) which slowed the sales decline, but the sales decline held steady at 30% below last year. Inventory levels continued to rise as sales declined.Retailers Aggressively Manage Orders to Reduce InventoryOn December 22nd Tech Channel Index feature article (see article, US Electronics Retailers Managing Inventory Despite Continued Sales Slowdown) noting that retailers had responded to the decline in channel activity by aggressively managing orders which in turn reduced inventory levels by more than 50% (see article, The Consumer Electronics Inventory Glut)The Week of Christmas is the Last Chance to RecoverThe final opportunity to boost sales and recover some of the lost volume was the week of Christmas. Traditionally, the week of Christmas has been the largest sales volume week for retailers, representing more than 6%7 of annual sales; again performance was disappointing, coming in at 31% below last year.
The Bottom LineAfter riding the wave of good sales growth up to September 2008, the US electronics retailers entered the holiday with optimism; building up inventory levels even though sales volumes were in decline leading up to the holiday shopping season. US electronics retailers responded to the decline with heavy discounting which slowed the sales decline to finish the year at 25% below last year. With only five shopping weeks in the 2008 holiday season, retailers had less time to work off holiday inventory pile ups. Aggressive management of replenishment orders reduced the inventory levels to finish the year at 7.5 weeks, 1.2 weeks more than last year. Retailers will likely work through the extra inventory in the first few weeks of 2009.Looking ForwardAs we enter a new 2009 year, what is the direction of retail for consumer IT and electronics product sales in the US? Which channels will perform the best? Will the electronics retailers recover or will traditional retailers like Wal-Mart or online retailers like Amazon.com take much needed sales and market share away for these product categories? Tech Channel Index will be running a six week Channel Tracker series, Technology product sales in the US: The Road to Recovery, starting January 12th. Please register as a user on www.techchannelindex.com to review this article series, download free articles and see how the story unfolds.Related NewsAbout the Tech Channel IndexThe Tech Channel Index creates a single uniform view into high tech channel health with timely and detailed measurement of sales and inventory performance for major and emerging markets across the globe. As of August 2008, Index metrics are derived by aggregating and normalizing over 5 million transactions collected from over 1500 distributors and retailers each week. Participating Index companies represent over $30 billion in annual channel sales in multiple high tech product categories. The basket of 35,000 products chosen for the Index have been tested and benchmarked against established economic standards and have been found to accurately represent spending on Enterprise IT, Consumer IT and Software categories. Products included in the index are tracked across all geographies and partner segments worldwide. This approach to construction yields an Index data set that is uniquely uniform from channel-to-channel and country-to-country. www.techchannelindex.com
Discussions so far:
This year, if it takes till March 09 for inventories to reach the "normal" end of year levels, does that mean retailers are going to stop/slow order to OEMs until then? Does anyone have a view of this? Ksam on 2008-12-02 13:01:37 |
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