Tag Archives: Consumer Electronics

Counting the cost of Brexit

The ERT Turning point Summit held in February touched on the many opportunities that face independent retail.

Like it or not, I refer to these as opportunities, as challenges paints a negative picture rather than an optimistic future in the most dynamic of industries – technology.

One area that we must remain optimistic about, as it’s a certainty, is Brexit and the impact this is having on trading even before Brexit has happened. By the time you read this, the Government will have triggered Article 50, starting the process of extricating the UK from the EU.

When the vote happened, there was much debate regarding the immediate impact in trading. In August, I wrote: “Any price increases will certainly not be absorbed by resellers, and will instead be passed on to the end user”. With the significant fall in sterling against the dollar (10 per cent) and euro (seven per cent), many brands chose to use this as reason to make trading that little bit more difficult for retail, in particular technology.
First to raise the average price of every product by 10 per cent was Dell, later followed by Apple who chose to increase prices by around 25 per cent again across every product, with a MacBook Pro jumping from £999 to £1,249. It wasn’t just hardware, however, as apps all increased from 79p to 99p and £7.99 to £9.99, all on the back of the Brexit vote and currency fluctuations.

Microsoft followed with an 11 per cent increase, and more recently Sonos, with what are now ‘old’ products, increased their pricing by 25 per cent across the entire range which took effect on February 23, taking a Play:1 from £169 to £199 and Play:5 from £429 to £499.

In the MDA category, although not a blanket price increase, many European brands, including Siemens and Indesit, are demanding payment in euros from distributors, pushing up retail prices due to a ‘trickle-down’ effect resulting from the increasingly unpredictable and unfavourable exchange rate.
These brands have something in common: they are category leaders and, to a certain extent, dictate the development of their respective categories through a rigid pricing structure and go-to-market plan. What they perhaps do not appreciate is that consumers aren’t stupid and can choose to opt for other brands with more appealing price points – an opportunity for emerging and established brands and retailers to explore.

The challenge for retail is how to up-skill your work force to continue selling the same products they’ve always sold successfully, but now at a higher price point. Sales teams will have to work harder to close a sale, and perhaps longer, but for no incremental benefit to you. Retailers don’t benefit in the same manner from what some may consider an arbitrary price increase, with only a slight or no increase in margin.

While many who voted ‘out ‘may have never considered that the costs of goods we import would go up, the reality is that it becomes a convenient rationale for many brands to apply an increase, blaming Brexit, and passing the cost on to consumers rather than absorbing this themselves. This is likely to be applied across every category.

Away from tech, others brands, such as Tesla and Lego, have both applied a five per cent increase, stating that this action was taken as “direct result of the continuing devaluing of the UK pound”. We saw what happened when Unilever tried to increase the cost of products such as Marmite by 12.5 per cent – the public made it known that they have a choice and they would choose to abandon a brand for a similar product. You need to have rather good brand equity to successfully manage price increases that impact on your loyal customers’ pockets.

Call it a ‘Brexit levy’ if you like, but let’s be realistic: it’s not going away. With Article 50 triggered, currency fluctuations could prove to be more negative and incur further price hikes. On the other hand, they could become positive, but if so I suspect we won’t see brands roll back price increases, instead retaining their increased pricing model to establish range pricing.

Whatever the outcome, market economics means retailers of all types must remain optimistic and have a clear vision of hope as they navigate the future. This includes pushing back on brands that make it harder to sell. Perhaps by introducing into your categories new or up-and-coming brands that could offer you more margin and your customers a better product at a reasonable price they are happy to pay.

 

Read more at: http://ertonline.co.uk/opinion/counting-the-cost-of-brexit/

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A Major Opportunity

beko machine banner

Unlike the CE category, which for many independent retailers has seen a decline in market share of 10 per cent for the first time since measurements began, the market share in major domestic appliances is positively buoyant.

The MDA market has increased by seven per cent over the past year, boosting the independent retailer’s share to around 20 per cent. This is thought to be helped by the growing built-in market, with increasing amounts of new-builds. And let’s not forget home improvement projects, which are also fuelling sales in this category.

This growing demand is beginning to make an impact on independent retailers, with MDAs now making up around 62 per cent of sales in 2015, up from 57 per cent in 2014.

Yet, there are areas in major appliances where indies are struggling compared with the market as a whole. One of these areas is American-style fridge-freezers, where they have a share of only 12 per cent compared with their share of cooling as a whole (19 per cent). This is perhaps because of space limitations when displaying larger models, but it is not to be dismissed as a source of increased revenue and important margin. However, these appliances are not necessarily to everyone’s tastes and, with our ever-decreasing new-build house sizes, are a limited market.

Irrespective of the purchase reason, distress or upgrade, key to selling premium brands and models is the ability to sell both the benefits presented by unique features. But not every purchase need be premium. Consumers may be purchasing a range to furnish a new kitchen and mix and match from the same brand across appliances to increase average sale value. Demonstrate to your customers how you have enabled them to stick to their budget or, better still, achieved perceived savings by purchasing more products than intended with the inclusion of some premium models.

The difference between a retailer selling premium goods and one selling mid-range products is the staff – how they communicate with shoppers – and also how consumers view the retailer itself. Understand customers’ perceived needs irrespective of whether it’s a distress or a considered purchase and find the right product for them. Careful questioning should enable them to identify premium product features that will appeal, and help the customer decide what is right for them. More often than not, customers will go for a premium model if sold correctly.

Consider your sales environment and its suitability to display and promote premium models. Does your showroom allow these products displayed in a manner that does them justice and creates desire to buy? With analysts predicting the total UK market for major domestic appliances to be worth £4.4 billion for 2015/16 and estimated to grow by 1.5 per cent year-on-year through to 2020-21, there is still scope for growth and opportunity.

As a business that focuses exclusively on CE and tech brands, Gekko is able to review consumer spending habits. Those in their 30s and 40s are purchasing the bulk of MDA products, decreasing significantly among those in their 50s. The lowest demographic is those in their 20s, who account for six per cent of the market.

With the MDA market squeezed, especially in crowded categories, it’s interesting to note that the average MDA spend is £328, increasing to over £400 in cooling products. This is driven higher by closing the gap on the premium market, where a Good, Better, Best strategy is applied across a brand. In such instances, we recorded that 64 per cent of purchases were from females at the top end “Best”, 55 per cent in “Better” and 57 per cent in “Good”. Interestingly males were sitting on the fence, with a highest score of 45 per cent buying mid-range “Better” and were not necessarily the influencers when selling premium MDA products.

Mid-range appliances can be the norm, but upselling to premium products should be the aim. With the right store staff, trained to sell in the right way, and the correct environment that reflects a premium proposition, high-end products are within easy reach for many of your sales.

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