Jan 31 2018
Domestic appliance retailers are facing strong pricing pressures and intensifying competition from online-only consumer electronics retailers. However, it is not just bricks-and-mortar retailers that are facing rising competition. With back to school advertising hitting our screens to mark the start of a new school year, consumers will be looking to benefit from the ensuing price wars, but both online-only and bricks-and-mortar players will be facing profitability pressures.
Online-only retailers have been able to attract customers by undercutting traditional retail prices, while also maintaining higher profit margins through their lower
overhead costs and private-label goods. For example, Kogan.com, the largest player in the Online Consumer Electronics industry, designs and sources its own line of consumer electronic products directly from cheap overseas suppliers. This has allowed the company to increase its market share considerably over the past five years. Similarly, Amazon offers private-branded products for lower prices. The growing popularity of online shopping and auction websites, particularly among older demographics, is putting increasing pressure on the Domestic Appliance Retailing industry’s sales and profitability.
Bricks-and-mortar stores that sell consumer electronics have tried to fight back, offering price matching or price beating deals on non-private-label products. For example, Officeworks offers to beat prices by 5% for an identical product. Revenue for the Domestic Appliance Retailing industry is expected to decline in 2017-18, to $14.0 billion, while price-beating strategies have increased pressure on profit and caused average margins to fall. In comparison, the Online Consumer Electronics Sales industry’s revenue is expected to increase strongly in 2017-18, and reach $2.7 billion, with the industry’s average profit margins also projected to grow. Online shopping is expected to account for an increasing proportion of domestic appliance sales over the next five years, at the expense of traditional bricks-and-mortar stores.
Despite these favourable demand conditions, the average profit margin of online consumer electronics retailers is only anticipated to increase slightly over the next five years, due to intensifying internal competition in the online consumer electronics retailing space. Because the industry is made up of numerous players that provide similar products, competition is expected to take the form of ongoing price wars and competitive shipping terms. Shipping expenses are also expected to weaken profit margin growth over the next five years, as online consumer electronics retailers aim to absorb these expenses to increase their competitiveness.