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Slowing PC Sales Drive Computer Firms' Push To Consumer Gadgets
Oct 13, 2003
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Dell Computer's entry into the consumer gadget market, starting this fall with portable music players and flat panel TVs, is the most dramatic sign that the PC and consumer electronics worlds are colliding.

Dell and fellow PC makers Gateway Inc. and Hewlett-Packard Co. are counting on the PC's role in managing digital content such as photos, music, and video to give them the upper hand vs. consumer electronics companies.

With total revenue from personal computer sales on the decline, PC companies are turning to consumer electronics for a boost.

U.S. consumer electronics sales in dollars are predicted to rise 1.2 percent this year, says the Consumer Electronics Association. By contrast, U.S. PC sales in dollars are expected to fall 5.2 percent this year. Spending on overall information technology hardware in the U.S. is forecast to dip 4.7 percent this year after falling 15.1 percent in 2002, says International Data Corp.

Michael Dell says people increasingly will buy consumer electronics online rather than in stores, just as what happened with PCs. "How many computer stores have you (seen lately) - the Computerlands, Businesslands, Compushops? I haven't seen any of those in a while," he said. "They're not there anymore."

Dell and Gateway plan to cut out the retail middlemen and sell their wares directly to buyers. Other companies, such as Apple Computer Inc. and Sony Corp are playing in both camps - opening their own stores and boosting online sales while continuing to sell through retailers.

Many analysts contend that consumer electronics differs from PCs. Buyers, they say, feel a need to see devices like TVs and camcorders in person to get a sense of how they look and feel. That's a problem for Dell, which sells its products directly through its Web site and by phone.

Even Dell rivals Gateway and HP think retail is important. Gateway sells its products online, over the phone and in 190 Gateway stores. It's been seeing a lot of cross-channel shopping lately. People visit the Gateway stores to check out products firsthand and then go online or phone Gateway to place their order, says Rod Sherwood, the company's chief financial officer.

People would rather do that than buy "more blindly over the Web or phone," he said. "I think our retail presence is a real competitive advantage relative to some."

Gateway has been the most aggressive of all the PC vendors in moving into consumer electronics. The struggling PC maker is using its consumer electronics focus as a differentiator and to help return it to profitability. Gateway expects to be back in the black in 2005, but has set an internal target to be profitable in 2004, Mr. Sherwood says. The company is remodeling its retail stores to better demonstrate how all of its new products work together. Gateway sells everything from flat-panel TVs and home theater systems to digital camcorders and pocket music players.

Gateway already has made a major impact with plasma TVs. Less than a year after it started selling thin TVs, Gateway has become the nation's top seller of plasma screen TVs to consumers across all product sizes, surpassing Sony, Panasonic, Samsung and other traditional industry leaders, the company reported last month. Gateway now sells six models, starting at U.S. $2,900 for its low-end, 42-inch set.

HP sells its products through a host of consumer electronics retailers, including Best Buy and Circuit City. It's boosting its retail efforts this holiday season with special in-store showcases for digital photography and other technologies. "We value our retail presence," said Chris Morgan, vice president of worldwide sales and marketing for HP's imaging and printing group. "As we move into living rooms and kitchens and mobile devices, consumers are going to want to touch and feel that stuff before they buy."

That's because lifestyle technology such as entertainment gear and portable devices are more personal than PCs are for a home office, Morgan says. They're more like a piece of furniture or clothing, where style and design count, he says.

But consumers are getting more comfortable shopping online, even for big-ticket items like cars, says Scott Edwards, executive vice president of Gateway's consumer business. "This holiday season, you'll see a lot more CE bought through direct channels and from direct manufacturers," Mr. Edwards said. "That represents an opportunity for us and a threat to the traditional CE manufacturers and the CE big-box retailers."

Online sales of consumer electronics won't take off until people are buying their second or third purchase in a category, such as digital TVs, says Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray. He considers Dell's initial consumer electronics products to be a longer-term business opportunity. "It's more of a placeholder than a tier-one opportunity for the company," he said.

E-commerce accounted for 2.5 percent of U.S. TV sales for the 12 months ended Aug. 12, according to retail tracker NPD Group. That compares with 8.5 percent for home audio sales and 32 percent for computers, NPD says.

Online makes up 10 percent of the consumer electronics industry's sales, says Sean Wargo, an analyst with the Consumer Electronics Association. Consumer electronics sales are expected to reach $95 billion this year in the U.S. That compares with computer hardware sales of $123 billion, according to IDC. (Reuters)

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