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Are “Staycations” the Answer?

October 28, 2008 | Author: sysadmindgs

A press release from Futuresource , a British market research firm, makes some interesting observations about the state of the world economy and its impact on consumer electronics. Their numbers are based on United Kingdom measures, but I expect that for this purpose, they are similar enough to the situation in the USA for argument. The company went back to the “economic slump” of 2001 to see what happened in consumer electronics, and found that sales of digital cameras and DVD players rose quickly even though the rest of the economy was slowing down. They cite a similar situation in the early 1980s and sales of VCRs.

The release then states the following:

“New figures released by Futuresource last week show the markets for flat panel HDTVs and Blu-ray disc players will continue to expand in Europe and the USA this year, with the majority of consumers continuing to migrate up to more expensive, better specified products.”

The key to their analysis is what they call the “staycation” attitude on the part of consumers. People are anxious about money and their jobs, so they plan to stay home rather than spend a lot on a nice vacation. As a consolation, they will buy home electronics to compensate, and to give them something to do when they stay home.

This is the same behavior that we called “cocooning” during the last downturn, and it has some merit. However, I think that Futuresource has extrapolated the past too much into the current conditions. After the downturn following 9/11 in 2001, consumer confidence was certainly shaken, but they were not hit too badly economically. Not a lot of jobs were lost, and people still had ready access to credit — including home equity lines — with which to buy whatever they wanted.

Things are different now. Even before the stock market began to shrink like a wool sweater in hot water, consumers were worried about keeping not just their jobs but even their homes. Back-to-school spending was put off until the last possible moment, and even then was less than anticipated. If families are going short on their kids in September, you know that the Wall Street losses and huge lay-offs are not going to make them more likely to spend. And the credit industry meltdown means that more and more people will have to pay cash for any “staycation” purchases.

Futuresource does acknowledge that people are shopping for 32″ HDTVs instead of 42″ and larger models, which is an enormous difference in price and size, but they base their analysis on units without considering the size of the sets to be sold. If a 32″ model costs half as much as a 42″, and everyone were to switch from the larger to the smaller, then the retailers and manufactuters will only make half as much. Prices are already depressed from last year’s low levels, so this means that revenues for HDTV sales could be way down, even as the number of units sold grows.

The company paints a much rosier picture with their numbers than I think will be the case. And I’m not even certain that the sales they predict will materialize. Manufacturers and retailers have already slashed prices on their products, but I expect that they’ll find they need to cut them even more in order to get people to open their battered wallets between now and the holidays.