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Retailers expect weak holiday for electronics sales

November 20, 2015

Add weak demand for electronics to the list of woes facing retailers like Best Buy Co. and HHGregg Inc. during the holidays.

Best Buy, the world’s largest electronics chain, said Thursday that the U.S. market for tech products worsened in the third quarter and that more declines are on the way for the holidays. The major drag was tablets, a category that’s peaked and is now losing out to larger phones.

Wal-Mart Stores Inc. and Target Corp. also said this week that electronics were a point of weakness.

Electronics had long been an engine of the holiday-shopping season, with new products driving people to the mall and online. And while nascent technologies like drones and smartwatches have potential this year, they are considered too niche to bring out the masses.

"Technology relies on a lot of innovation to kick-start sales," Wal-Mart Chief Financial Officer Charles Holley said this week. "There hasn’t been as much innovation in tech over the last year or two. There are different versions of tablets, but nothing like when the iPhone or iPad came out."

Ultra television

The dearth of new products makes the adoption of ultra-high-definition televisions more important. Prices for sets with the technology, also known as 4K, have fallen, making them more appealing, Best Buy said. The retailer has dedicated more space to them, with areas dedicated to the Sony and Samsung brands. Best Buy cited televisions as one of the categories that grew during the third quarter it reported on Thursday.

"There’s no doubt that 4K is a hit product," Best Buy CEO Hubert Joly said. "Demand is there."

Dennis May, CEO of Indianapolis-based HHGregg, also expects 4K to be a force during the holidays. The 227-store chain could use a lift after posting nine straight quarters of same-store sales declines. HHGregg shares fell 5 percent Thursday, to $3.74, their lowest closing price in more than three months.

“There wasn’t much innovation in the TV sector, but now we’re starting to see better products, and people are looking to replace that old flat-screen,” May said earlier this month. “We’re seeing the TV move back up the list of most sought-after item.”

Retail woes

The electronics slump comes as apparel sellers have largely posted weak third-quarter results and provided tepid projections for the holidays. The spate of downbeat reports has crushed shares of retailers and prompted concerns that Christmas sales may be disappointing despite the growing U.S. economy.

Chains tied to the housing market have been the lone bright spot because rising home values have encouraged Americans to spend on their properties. Home Depot Inc. and Lowe’s Cos. both topped sales and profit estimates in the third quarter and forecast robust growth for the holidays.

During Wal-Mart’s third quarter, the only category with a same-store decline in its U.S. business was entertainment, which includes televisions, tablets and video games. Similarly, Target saw a double-digit drop in electronics comparable sales.

“Consumer electronics trends got worse over the course of the quarter,” said Bradley Thomas, an analyst for Keybanc Capital Markets. “We would expect that to continue through the holidays.”

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