STATE OF THE CE INDUSTRY Steve Koenig Director, Industry Analysis Consumer Electronics Association @KoenigSteve [email protected] …and the potential impact.

STATE OF THE CE INDUSTRY

Steve KoenigDirector, Industry AnalysisConsumer Electronics Association@[email protected]

…and the potential impact on product returns.

With SpecialFocus On:

Today’s Trends …

• Macro overview• Channel trends• Shopping Behavior• Purchase Drivers

Tomorrow’s Opportunities

What does all this mean for product returns?

MACRO OVERVIEW

Industry Megatrends

• Mobility and connectivity

• Consumer Empowerment

• Engagement

DEVICES

CONSUMERS

RETAILING

Mobile Connected Devices

M-commerceShowroomingSocial

More $ from fewer customersRelationships, communityPartnerships

2009 2010 2011 2012 2013e 2014p

$169,793 $180,983$195,008 $202,311 $202,629 $211,730

Total U.S. CE Shipment Revenue(in millions)

Source: CEA, U.S. CE Sales and Forecasts, July 2013

6.6% 7.7% 3.7% 0.2% 4.5%%

Growth:

CE Big Five

Smartphones Tablets Mobile PCs LCD TVs Digital Cameras

37.9

27.3

17.2 16.8

4.6

Source: CEA

58% 41% 65% 62% 73%% HHOwning

2013 Shipment Dollars (Billions)

CE Lifecycles

9 Years

4 Years

3 Years

2 Years

CE Devices Likely to Never Be Purchased

Cell phone that is not a smartphone

Dedicated e-reader

Portable game device

Camcorder

Portable digital audio/MP3 player

GPS or navigation device

Video game console

Desktop computer

Digital camera

Tablet computer

DVD or Blu-ray Disc player

Laptop/netbook computer

Smartphone

HDTV 5%

7%

9%

18%

19%

26%

34%

40%

48%

51%

59%

60%

61%

79%At immediate

risk of becoming obsolete

Most at risk in the near future

Source: CEA, 15th Annual CE Ownership Study, April 2013

Trending in Technology

• Ultra HDTV

• Wireless Speakers • Soundbars• Headphones

• Xbox ONE, PS4

• Wearable Tech

VIDEO

AUDIO

GAMING

MOBILE

CE returns watchlist?

CES Tech Zone

CHANNEL TRENDS

% of CE Dollar Sales by Macro Channel

64.2

31.5

4.3

Physical StoreOnlineOther Channel

4Q End Sept 2013

Source: TraQline US Consumer Survey – Total CE

Internet Retailers Continue to Gain $ Share

11-12 Change %

12-13 Change %

% 4Q End Sept 2013

Discount Store 0.4 0.1 23.5

Elec/majap Store -0.2 -1.0 30.1

Direct / Internet 1.0 1.7 15.9

Office Supply -0.3 -0.2 3.4

Computer Spec -1.0 -0.7 16.8

Other 0.1 0.0 10.3

$ Market Share

Source: TraQline US Consumer Survey – Total CE

CE Dollar Market Share: 4Q End Sept 2013

All Others

31%

Best Buy26%

Walmart12%

Apple9%

Dell5%

Amazon.Com8%

Costco4%

Target3% Sam’s Club

2%

Source: TraQline Dollars R4Q Q2’13

Retailing Trends

Big Box RetailCompeting on PriceCustomer=Commodity

Store within a StoreBrand StoresSpecialty StoresPop-Up Stores

SUNRISE SUNSET

CE Superstores Redefined

• Smaller Footprints• Store within a Store• Solution Selling

• Relationships• Destination, Demos• Service

Impact to Returns

• Brand and specialty stores potentially better at solution selling.

• Retailers emphasize service; offer set-up

• Online: more purchases ‘in absentia’?• Value mix moving up (higher

expectations?)

GOOD

BAD

(MORE MOBILE)SHOPPING BEHAVIOR

Spending on Consumer Electronics

$5,000 +

$2,001-$5,000

$1,001-$2,000

$1,000 or less

Nothing/Don't know

4%

10%

13%

53%

20%

7%

16%

13%

49%

16%

Average Annual Household Spend:

2012: $961 2013: $1,312

Annual Household Spend

Source: CEA CE Ownership and Market Potential Study (2013)Base: U.S. adults (n=2,000)

2012

2013

Late Adopters

Mid Adopters

Early Adopters

55+

45-54

35-44

25-34

18-24

Female

Male

All Adults

$402

$784

$914

$351

$613

$765

$722

$513

$410

$693

$552

$468

$815

$1,397

$493

$686

$931

$1,171

$706

$544

$961

$74620132012

Average Annual Consumer Spend

Where Consumers Browse and Research CE

Mobile App

Optimized Mobile Site

Standard Website

Physical Store

18%

23%

67%

72%

Source: CEA Multi-Channel Alignment in CE Retail (2013)Base: Online U.S. Adults (n=1,027)Question 4: “How often do you use each of the following retail channels when browsing for and researching electronics products?”

Omnichannel Marketing

50% of consumers will use a mobile device to help them shop for CE.

15%2013 Holiday Mobile Channel Sales

Of Online Holiday Sales

8.4 Billion Dollars

CEA Holiday Research:

Pre-Purchase Research Activities

Visit Brand's Social Networking Page

Look for Product in Magazines

Look for Product in Newspaper Ads

Find Someone Who Owns Product

Ask Someone You Know About Product

Go To Store Which Sells the Product

Compare Retailer Prices

Look Up Information About Product on Internet

6%

6%

11%

11%

21%

33%

45%

48%

Source: CEA, Millennials: The New Face of Retail (2013)Base: Online U.S. U.S. Consumers ages 13+Q: Which of the following activities, if any, did you do before purchasing the electronics product you purchased most recently?

General In-Store Pre-Purchase Activities

Search for more information on product using mobile device

Compare prices for product using mobile device

Read customer ratings / reviews for product using a mobile device

Get recommendation from salesperson brand/model to buy

Get demonstration of product

Look at the product packaging

Play with or use the product

Talk to salesperson about product

See or touch the product

10%

15%

18%

25%

29%

32%

33%

47%

51%

Source: CEA, Millennials: The New Face of Retail (2013)Base: Online U.S. U.S. Consumers ages 13+Q: Which of the following activities do you usually do at a BRICK AND MORTAR STORE before purchasing an electronics product?

Mobile Device Used for Shopping at Physical Store

15%2% 7% 13% 26% 37%

Source: CEA Multi-Channel Alignment in CE Retail (2013)Base: Online U.S. Adults (n=1,027)Question 20, “How often do you use a mobile device, such as a smartphone or tablet, when shopping for electronics products in a retailer’s physical store?”

Every time (100%)

Usually (75-99%)

Often (50-74%)

Sometimes (25-49%)

Rarely (1-24%)

Never (0%)

22%

Impact on Returns

• More than 1-800 number and web-page.• Consumers help themselves

– Set-up, troubleshooting, repair

• Compulsive Buying?• Gluttony of online purchasing

GOOD

BAD

Site-to-Store Shipping is growing

Walmart Best Buy Sears Staples Apple Target Costco0

5

10

15

20

25

30

35

40

45

50

2012 Q2 2013 Q2Source: TraQline Units R4Q Q2’13

-5%4%

% Online Customers who choose “ship to store”

7% 7%4%

5%

-10%

WHAT’S DRIVINGTHE PURCHASE?

CE Product Purchase Drivers

Friends have it

Family members have it

Salesperson recommendations

Environmental friendliness

Family/friend/coworker recommendations

Brand

Style or design

Previous experience with brand

Product reviews

Warranty

Ease of use

Product features

Quality

Price

27%

30%

33%

38%

53%

67%

68%

72%

74%

76%

84%

86%

87%

88%

Source: CEA, Millennials: The New Face of Retail (2013)Base: Online U.S. Consumers ages 13+Q: When you are deciding which electronics products to buy, how important are each of the following in your decision process?

Experience & Assortment Increasingly Important in Store Selection

4Q End Jun 2009

4Q End Jun 2010

4Q End Jun 2011

4Q End Jun 2012

4Q End Jun 2013

20

20.5

21

21.5

22

22.5

23

23.5

24

Experience and Selection

Previous experience with store Good selection of products

4Q End Jun 2009

4Q End Jun 2010

4Q End Jun 2011

4Q End Jun 2012

4Q End Jun 2013

60

61

62

63

64

65

66

67

68

69Competitive price

Source: TraQline Units R4Q Q2’13

%%

Impact to Returns

• More to the buy than just price. • Trusted brands• Shoppers seeking experience and

know-how.

• Bargain hunters will persist• Lower consumer tolerance for

product/set-up issues?

GOOD

BAD

2014 International CES:Hot Products To Watch

Theme for 2014 CES

DEVICES

CONNECTIVITY

CONTEXT

Smartphones

• Trends for 2014– Curved, semi-flexible screens

• Samsung and LG• Will trickle down to other OEMs later

– Pushing the limits of pixel density (PPI)– Much larger batteries– 4K video capture– More size experimentation

Smartphones• Samsung Galaxy Round

– Curved 1080p AMOLED display– MSRP ~$1300 (import)– US release early 2014– Same specs as Note 3

• LG G Flex– Curved, flexible 6-inch 720p

screen– MSRP ~$1000 (import)– Screen can flex up to 88 lbs

force

Smartphones

• Huawei Ascend Mate II– Follow-up to 2013 CES debut– 2GB RAM, octa-core

processor– Likely 6-inch 720p screen

• Sony Xperia Z2– Follow up to 2013 CES launch– Sony’s 2014 flagship– 20MP camera, 4K video

capture– Water and dust resistant

Tablets

• Trends for 2014– Size experimentation above 10.1 inches– Dual operating systems– X86 based designs might get some attention

Tablets

• Panasonic ToughPad 4K– 20-inch Windows 8.1 tablet– 2840x2560 IPS screen– Designed for “creatives” with

stylus and Intel Core processor

• Huawei PhoPad– Rumored CES release– Competitor to Asus PadFone– Smartphone docks into tablet– Asus TODAY announced

PadFone v2 coming to US in 2014…

• Samsung Galaxy Note 12.2– Rumored to be in production– Possible CES debut?

TVs: UHD 4K and Beyond

• Trends for 2014– Ultra HD everything, everywhere– Curved (and possibly flexible) displays– More OLED promises?– What about Ultra HD content

• 2013 Netflix announcement

TVs: UHD 4K and Beyond

• LG Curved OLED TV– 77” curved OLED– 3D and SmartTV capable

• Flexible TVs– Korean sources report that

Samsung and LG may demo flexible TVs

– Manipulate viewing angles for best possible picture

– What about 3D?

• Samsung 111” Ultra HD– Claim: World’s largest

240 Hz Ultra HD TV• Dish Network Virtual Joey

app– Allows Dish customers access

to content on other devices (consoles, SmartTVs)

– Allows access without STB

Health & Fitness

• Trends for 2014– Product mix is all over the map– Lots of traditional products with smartphone

integration– CE bridges gap between electronics and other

industries.

Health & Fitness

• Sleep Number x12 Bed– Allows for voice-

controlled adjustments– Sleep tracking tech

integrated with sleep patterns and quality data

• Reebok Checklight– Checklight detects

concussive impacts to athletes

– Concussions in youth sports are a major concern

3D Printing• Trends for 2014

– A media darling, 3D printing is maturing– Format wars?

• Extrusion vs. stereolithography

– Price vs. output quality

3D Printing• WobbleWorks 3Doodler

– World’s first 3D printing pen– Heats and cools plastic as it

passes through the pen– $100, available Feb.

• Pirate 3D “Buccaneer”– Began as a Kickstarter project– High-res 3D printer for

consumer use– Has its own “app store” to

download design files– $500, available April

Wearables

• Trends for 2014– Wearables will be everywhere

• Smartwatches will be the main focus

– Most wearables will be focused on the sensors embedded in them

– Innovation for wearables will be in software and how much like a “regular accessory” they look

• Geek chic is not going to work for everyone

Wearables

• Neptune Pine Smartwatch– Takes a SIM card, requires no

additional phone– Runs full Android OS– 2.4” screen, dual 5MP cameras– Started in 2013 as a Kickstarter

project

• Qualcomm Toq– Works with Android

smartphones– Uses an always-on Mirasol e-

paper display– Charges wirelessly and lasts

for several days between charges

Parting Thoughts

• Mobile technology: the epicenter for returns?• The channel continues to innovate.

– Engagement: SwS, apps, social, service, stores– Omnichannel Marketing

• Price still important, but other factors rising.– Changing the narrative

• CES 2014: Devices, Connectivity, Context

Steve KoenigDirector, Industry AnalysisConsumer Electronics Association@KoenigSteve [email protected]