2017 holiday outlook: innovation and change create ... · the npd group, inc. | proprietary and...

The NPD Group, Inc. | Proprietary and confidential

Copyright 2016. The NPD Group, Inc. All Rights Reserved. This presentation is proprietary and confidential and may not be disclosed in any manner, in whole or in part, to any third party without the express written consent of NPD.

2017 Holiday Outlook: Innovation and Change Create

Positive Momentum

Stephen Baker

Vice President, Industry Analysis

NPD Group

ECRM

July 23rd 2017


Consumer Technology Industry Outlook 1. Premium focus growing with retailers and OEMs and among products

1. More and more interest on revenue and higher ASPs

2. Mature markets with heavy installed bases must look to ASP improvement to deliver growth

2. Innovation returning to the tech cycle 1. NPD forecasts better results in 2017/2018 as new category opportunity begins to offset continue challenges driven by the first

point

2. But even in mature categories new technology/new opportunity (Mesh, 4k, 2inOne, Wireless Headphones) is available to offset the strain of a mature market place

3. Early stage innovation can be bumpy for consumers, OEM and channels 1. More complicated, unfamiliar technology opens doors for more high touch, more solution oriented sellers and brands

2. Rapid change in product sales type and mix can be especially difficult for retail

4. Future growth in tech categories seems more poised for personal tech vs shared 1. Growth in tech more likely to be around individual products owned and used by one person vs shared household tech

2. One exception is Smart Home, which crosses the line between tech and home, making it more accessible to traditional home demographics as opposed to tech ones

2


$84

$86

$88

$90

$92

$94

Billi

ons

Total US CE Industry Sales

12me Q2 2014 12me Q2 2015 12me Q2 2016 12me Q2 2017

3

Improvement over 2016 continues as market adjusts to new opportunities

Source: The NPD Group, Inc./Retail Tracking Service, Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, VR HW

The NPD Group, Inc. | Proprietary and confidential 4

Forecast for holiday 2017 remains positive with 2018 forecasts struggling against tougher comparisions

-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

ActualForecast

Total Consumer Electronics Industry


$593 $572

$458 $404

$227 $135 $126

$96 $77 $74

-$111 -$151 -$158 -$165 -$174

-$222 -$233 -$240

-$873 -$1,071

-$1,500 -$1,000 -$500 $0 $500 $1,000

NotebooksHeadphonesSmart HomeAR/VRDronesInstant PhotogVideo CardsStreaming SpkrsMonitorsScreen ProtectorsHard DrivesPhones CasesDigital Point and ShootTablet AccessoriesMP3 PlayersInkjet CartridgesFitness TrackersDesktop PCsTVsTablets

Millions

Core Category Revenue Change 12me Q2 2017 vs 12me Q2 2016

5

Innovation leads market up, older categories in decline hold business back

Source: The NPD Group, Inc./Retail Tracking Service, Positive = $50m+ and negative = -$100m+


Techies drive a huge percentage of CE value Our tech consumer segments (and their potential industry value through 2018):

Tech Super Consumers Up and Comers Forward-Facing Fashionistas

Modest Mainstreamers Budget Buyers Classic Curmudgeons

� Significant tech opinion leaders and influencers.

� Very fashion and image conscious.

� Evolved shoppers.

� Premium buyers—of just about everything.

� Above-average tech opinion leaders and digital shoppers.

� Concerned with fashion image.

� Above-avg. premium tech + fashion buyers.

� Below-average concern for health/eating.

� Above-average tech opinion leaders, particularly influencing through device usage.

� Love shopping/fashion; want to stand out.

� Premium shoppers in general; less so in tech than fashion + general.

� Below-average opinion leaders and influencers, particularly in tech.

� Very practical shoppers.

� Average use of digital shopping.

� Focused on healthy eating/living.

� Well-below-average tech opinion influence.

� Not concerned with image.

� Budget conscious.

� Not a premium shopper.

� No tech opinion influence.

� Not image conscious in any way.

� Not focused on health/cooking.

of U.S. population 8%

anticipated tech industry spending power through 2018

43%

of population 17%

of tech spending 21%

of population 19%

of tech spending 20%

of population 19%

of tech spending 6%

of population 30%

of tech spending 9%

of population 7%

of tech spending 0.4%

% % % % % %

MOST TECH ALIGNED LEAST TECH ALIGNED


Demographic Fast Facts

Tech super consumers deep dive Whether it’s tech or fashion, I’m the first in the door for the hot new products. Others know this and look to me for product guidance. I like to stand out and I believe that you get what you pay for, so I’m willing to pay more for premium products boasting higher quality and high-end features. Though I buy plenty with my smartphone and use social media as part of the shopping experience, I also love the in-person experience of shopping in high-end stores.

8% of population

Total Sample

Tech Super Consumers

48% 78% Male

34% 79% 25-44 years old

35% 77% Kids <18 in HH

53% 68% Married

46% 66% HH income $75K+

33% 58% College Grad+

12% 31% Post-Grad

25% 30% Minority

28% 52% Market size 5MM+

$49B Est. Value 2017-2018 Intended Purchases (Next 12 Months)

56

47

41

60

58

49

10

9

8

14

11

8

60"+ TVs

40"-59" TVs

<40" TVs

Windows Laptop

Apple Laptops

Chromebooks

Tech Super Consumers Gen Pop

77 75

73 68 69 68

66 62

59 58 57

55 48

23 17 16

14 13 13 14

10 9 10 9 8 8

Mobile Acc. (any)Home Automation (any)Wireless speakers (any)

Wireless HeadphonesPrinters

Digital Cameras (any)Tablets

SmartwatchesDrones

SoundbarsWearable Fitness Trackers

AR/VRNetworking Devices



2016 Holiday Overview and 2017 Outlook

8


� Better results on stronger selling prices, despite weaker unit trends overall – But downside is substantial as largest categories continue to carry significant risk

– Weaker entry level pricepoint TV sales could be a anchor to Thanksgiving week sales

� New innovation categories see strong growth rates as markets rapidly develop during 2017

� eCommerce volume continues to grow, likely topping 1/3 of revenue in Q4 2017

� Market still overly focused on early sales trends and not end of season – Thanksgiving week will continue to grow at the expense of early November volumes

9

2017 Holiday Outlook


Stronger results on a richer product mix

$14,500

$15,000

$15,500

$16,000

$16,500

$17,000

$17,500

Holiday CE Sales

Mill

ions

5 Week Holiday Sales Results

2013 End Dec 28 2014 End Dec 27 2015 End Dec 26 2016 End Dec 25

10

Source: The NPD Group, Inc./Weekly Retail Tracking Service, 5 week holiday period Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, Drones


22.1% 22.7% 22.0% 22.8% 22.8% 23.2% 22.3%

21.0% 20.5% 21.2% 23.1% 22.6% 22.0% 22.6%

12.3% 13.0% 13.5% 13.8% 14.0% 15.1% 14.9% 12.0% 11.5% 11.5% 11.8% 11.5% 11.1% 10.7%

32.7% 32.2% 31.7% 28.4% 29.1% 28.6% 29.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016

Period Revenue Share for 8 Week Holiday Period

November Pre-Sales Thanksgiving Cyber Week Holiday Week 3 Last 2 Weeks

11

While Cyber week gains (and Thanksgiving remains steady) biggest share shifts driven by calendar

Source: The NPD Group, Inc./Weekly Retail Tracking Service, Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, Drones


18.9% 20.9% 21.7% 21.1%

13.4% 13.3% 13.5% 16.2%

17.0% 12.6% 10.7% 8.2%

0%5%

10%15%20%25%30%35%40%45%50%55%

2013 2014 2015 2016

Revenue Share for Top 3 Categories 2013 -2016 8 week holiday period

TV Notebooks Tablets

12

Hard for Tech Hardware to Divorce Itself from the Largest Revenue Generators



$61.50$62.00$62.50$63.00$63.50$64.00$64.50$65.00$65.50

250260270280290300310320330340350

2013 2014 2015 2016

Mill

ions

Items Sold and ASP 8 Week Holiday 2012-2016

13

Declining volumes point to the core of the CE market sales challenges



-0.8% -1.7%

-20.2%

-7.0%

4.1%

-9.0%

100.3%

-3.1%

60.1%

-6.3%

16.6%

-22.6%

13.0% 10.2%

-5.4% -6.0% -5.4%

84.8%

-30%-20%-10%

0%10%20%30%40%50%60%70%80%90%

100%110%

TV Notebooks Tablets HeadphonesStreamingSpeakers Desktops

Health & FitnessTrackers Home Theater Smart Home

Holiday Revenue Growth Trends by Largest Segments

2015 2016

14

2016 Holiday Growth propelled by a narrow range of large categories




Category Industry Outlook

15


1. Industry broken into 4 segments 1. Big volume, high profile categories. PCs, TVs Tablets and Phones.

1. While there are some segmented opportunities in general ASP increases are the only route to growth as these categories approach mass penetration

2. Stable, mostly low ASP categories, lower profile, lower customer interest level. PC Accessories, Home Theater, Mobile Accessories, Cabling.

1. Intriguing growth opportunities available within the stagnation

3. Old high profile categories in secular decline. Cameras, printers 1. Not much value here, aging technology delivery platforms while the tech remains core

4. Innovative, interesting and high profile. Drones, Smart Home, VR/AR, Headphones

1. Future of tech. Personal and compelling. Changes consumer interaction of tech. Harder to sell but likely higher long term rewards

Overview of Category Trends


$0$5

$10$15$20$25$30$35$40$45$50

High Profile Low Profile, Stable Decliners Innovators

Billi

ons

CE Revenue by Category Segment

12me Q1 2014 12me Q1 2015 12me Q1 2016 12me Q1 2017

17

Revenue and mix issues challenge the industry’s growth hopes

-13%

-9% -15%

105%

Source: The NPD Group, Inc./Retail Tracking Service, Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch,



High Profile

18


� These categories are traditionally high profile holiday traffic drivers, but weaker results and potentially higher prices putting some of that in jeopardy

• PCs have become much less of a high profile holiday category, although this years pricing activity may leave room for some holiday deals

• TVs remain the premier holiday traffic product but slowing volumes and rising costs threaten holiday promotions, especially in high volume entry-level pricepoints and sizes

• Tablets face an uncertain future outside iPads (which are transforming radically to less of a consumer product ) but there is inventory for 2017 holiday promotion available. Amazon’s pricing impossible to compete with. Non-Amazon Android will be a non-starter in 2017.

19

High Profile Holiday Outlook Overview


-20.0%-17.5%-15.0%-12.5%-10.0%

-7.5%-5.0%-2.5%0.0%2.5%5.0%7.5%

10.0%12.5%

Jul-1

4Au

g-14

Sep-

14O

ct-1

4No

v-14

Dec-

14Ja

n-15

Feb-

15M

ar-1

5Ap

r-15

May

-15

Jun-

15Ju

l-15

Aug-

15Se

p-15

Oct

-15

Nov-

15De

c-15

Jan-

16Fe

b-16

Mar

-16

Apr-

16M

ay-1

6Ju

n-16

Jul-1

6Au

g-16

Sep-

16O

ct-1

6No

v-16

Dec-

16Ja

n-17

Feb-

17M

ar-1

7Ap

r-17

May

-17

Jun-

17

Unit, ASP Change for Windows Notebooks

Unit Growth ASP Change

20

Stable volumes and significant ASP increases point to a healthier holiday

Source: The NPD Group, Inc./Retail Tracking Service, Notebooks does not include SP4


0

100

200

300

400

500

600

700

Thou

sand

s

Unit Sales

May'14 - Apr'15 May'15 - Apr'16 May'16 - Apr'17

21

Gaming Notebook Growth Provides a Holiday Opportunity?

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900$MM

Dollar Sales

May'14 - Apr'15 May'15 - Apr'16 May'16 - Apr'17

ASP +47%

+50%

May'14 - Apr'15 $1,316 May'15 - Apr'16 $1,175 May'16 - Apr'17 $1,157


-25%-20%-15%-10%

-5%0%5%

10%15%20%

Jan-

15

Feb-

15

Mar

-15

Apr-

15

May

-15

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct

-15

Nov-

15

Dec-

15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov-

16

Dec-

16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Unit ,Dollar and ASP Change in TV

Unit Growth $ Growth ASP Change

22

Prices beginning to strengthen but with an accompanying decline in volume

Source: The NPD Group/Retail Tracking Service,


Big screens drive unit gains but without much related revenue growth

-40.0%-30.0%-20.0%-10.0%

0.0%10.0%20.0%30.0%40.0%

Under30"

32" 40"Class

50"Class

55"Class

Above60"

Units Dollars

Flat-Panel TV Screen Size Unit/Dollar Year-over-Year Growth

Source: The NPD Group/Retail Tracking Service

Q1 2017 vs Q1 2016

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Under30"

32" 40"Class

50"Class

55"Class

Above60"

Units Dollars

April/May 2017 vs April/May 2016


More than 33% of TVs are 4k

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

2,500,000

2,750,000

Jan-

15Fe

b-15

Mar

-15

Apr-

15M

ay-1

5Ju

n-15

Jul-1

5Au

g-15

Sep-

15O

ct-1

5No

v-15

Dec-

15Ja

n-16

Feb-

16M

ar-1

6Ap

r-16

May

-16

Jun-

16Ju

l-16

Aug-

16Se

p-16

Oct

-16

Nov-

16De

c-16

Jan-

17Fe

b-17

Mar

-17

Apr-

17M

ay-1

7Ju

n-17

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%Unit Share of 4K TVs

4k Total Units 4k Total Units Share

24

Source: The NPD Group/ Retail Tracking Service


Squeezed from both sides, tablets down $3.4B

Faced with multiple challenges, tablets will account for 36% of the total CE industry’s losses over the next two years. Stephen Baker

Vice President, Technology

Pricing is decimating the smaller screen tablet segments. Specifically, Amazon’s lower-priced Kindle Fire offerings are killing the budget end of the Android market.

$0.7 $0.6 $0.5 $0.4

$4.2 $3.9

$3.2 $2.9

$1.6 $1.2 $0.9 $0.8

2016 2017 2018

Annual Revenue (Billions)

Apple

Android Microsoft



Stable

26


1. While volume is stable it is declining. Good opportunities masked by some of the market changes in the larger segment or larger marketplace

• This dynamic makes it difficult to deliver real value and traffic in these categories

2. Innovation in subsegments, as in high profile segments, provides some offsetting revenue growth (and holiday demand)against segment declines

• Some opportunities would be Mesh and AC networking, USB-C cabling and Mobile Power, Turntables and Video Streaming, Gaming Accessories and PC components for gaming

3. Performing segments in stable categories fit in one of 3 segments

• a strong attachment to a segment with high, consistent installed bases

• dedicated consumers

• Demonstrable technology advantage relating to a growing device use case

Stable Category Overview


$0$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000$5,500$6,000$6,500$7,000

Networking Mobile Accessories Home Theater PC Components/Accessories

Mill

ions

Stable Category Revenue Trends

12me Q2 2014 12me Q2 2015 12me Q2 2016 12me Q2 2017

28

Stable categories generate large revenue numbers

Source: The NPD Group, Inc./ Retail Tracking Service


$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

Cases Mobile Power Screen Protection Other Tablet Acc Tablet KB andStylus

All Others

Billi

ons

Revenue for key mobile related accessory categories

12me Q2 2015 12me Q2 2016 12me Q2 2017

29

Mobile accessories struggle to grow in a stagnant phone market

Source: The NPD Group, Inc./ Retail Tracking Service


$0$100$200$300$400$500$600$700$800$900

$1,000$1,100$1,200$1,300

Portable Battery Power Charging Equipment Cables

Mill

ions

Power Category Revenue

12me Q1 2015 12me Q1 2016 12me Q1 2017

30

Cables are leading revenue for power related mobile accessories

Source: The NPD Group, Inc./Retail Tracking Service,Battery Pack Revenue includes Charging Cases


Core gaming accessories* performing very strongly suggesting demand has picked up

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Q1 - 2015 Q2 - 2015 Q3 - 2015 Q4 - 2015 Q1 - 2016 Q2 - 2016 Q3 - 2016 Q4 - 2016 Q1 - 2017

Mill

ions

Gaming Category Revenue

Gaming Revenue

*Gaming Accessories : Keyboard, Mice, PC Headset/PC Microphone


Climbing connectivity drives network needs; network devices growing $417MM

Connectivity is the watchword in CE.

Our phones, tablets, computers, streaming boxes, gaming consoles, and a growing host of home automation devices and digital assistants all rely on bandwidth, and are taxing home networks more than ever before.

Consumers are answering the call with more robust Wi-Fi; routers alone will likely add an incremental $240MM through 2018, with nearly one in 10 adults planning a purchase within the next year, according to our survey data.

Phones & Tablets

Gaming Consoles

Smart TVs and Streaming Boxes

Personal Computers

Connected Home Solutions

Increasing Strain on Wi-Fi Driving Upgrades

Whole-home mesh Wi-Fi and more powerful Wi-Fi routers are driving these dollars. Consumers recognize that doing all this on their current network is putting a lot of pressure on the current networks. People want to stream, etc., and they are willing to pay to stream and connect, both by spending more on broadband and getting better equipment that can support the strains on the network in the home.

Stephen Baker Vice President, Technology


Premium solution in a premium marketplace

0%

5%

10%

15%

20%

25%

$0$2,000,000$4,000,000$6,000,000$8,000,000

$10,000,000$12,000,000$14,000,000$16,000,000$18,000,000$20,000,000

Apr2016

May2016

Jun2016

Jul2016

Aug2016

Sep2016

Oct2016

Nov2016

Dec2016

Jan2017

Feb2017

Mar2017

Apr2017

May2017

Mesh Sales Dollars and Share

Mesh Dollar Volume Mesh Dollar ShareSource: The NPD Group / Retail Tracking Service


Attaching to the TV, as the TV business changes can prove to be valuable

$0$100,000,000$200,000,000$300,000,000$400,000,000$500,000,000$600,000,000$700,000,000$800,000,000$900,000,000

$1,000,000,000$1,100,000,000$1,200,000,000

TV Mounts Sound Bars Streaming Video Turntables

Key Home Theater Growth Segments

12me Q1 2014 12me Q1 2015 12me Q1 2016 12me Q1 2017

Source: The NPD Group / Retail Tracking Service, does not include Amazon Fire TV Products



Innovations

35


1. Most innovation is creating brand new experiences, or extending traditional CE concepts and technologies into adjacent categories

• Wireless headphones create brand new experiences

• Voice controlled speakers and Smart Home are extending CE concepts and products into new areas in the home

• VR enables new experiences

• Wearables enable new experiences and extend traditional CE concepts

2. Innovation building new segments is fundamentally different than extending opportunities (such as large screen TVs)

3. Innovation is making tech more personal and more one to one versus a more hybrid group interaction with technology

Innovation Segments


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Drones Smart Home Wearables Headphones Wireless Speakers

Mill

ions

Innovation Category Volumes

12me Q1 2014 12me Q1 2015 12me Q1 2016 12me Q1 2017

37

Innovation growth can be bumpy

Source: The NPD Group, Inc./Retail Tracking Service, Amazon branded products not included, Apple Watch not included


Wireless has now passed wired in revenue

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Mill

ions

Headphone Revenue Trends

Wireless Not WirelessSource: The NPD Group / Retail Tracking Service


1. Fastest growing large category in 2016 and likely to be the stellar segment for 2017

2. Top 1 or 2 brands dominate their categories (ex. Nest in smart thermostats, Philips in lighting)

• Price disruption will challenge the brand landscape across all smart home categories in 2017 and 2018

3. Millennials are driving interest but broader consumer interaction needed to make growth continue to accelerate

• Voice is key in driving adoption outside of tech enthusiasts

4. Retail still struggles with displays and merchandising while consumers struggle about where and how to buy

Smart Home Review


Smart home ownership growth is beginning to accelerate

Source: Connected Intelligence, Connected Home Automation Report, Q2 ‘17

10% 10% 12%

15%

Nov '15 April '16 October '16 June '17

% of Internet HHs that own a smart home device


Smart Home continues to post strong revenue growth despite tough comps

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

$0

$50

$100

$150

$200

$250

Apr2015

May2015

Jun2015

Jul2015

Aug2015

Sep2015

Oct2015

Nov2015

Dec2015

Jan2016

Feb2016

Mar2016

Apr2016

May2016

Jun2016

Jul2016

Aug2016

Sep2016

Oct2016

Nov2016

Dec2016

Jan2017

Feb2017

Mar2017

Apr2017

May2017

June2017

Mill

ions

Dollars and Dollar Growth

Dollars Dollar Growth

Source: The NPD Group / Retail Tracking Service


While security dominates sales $ other segments are beginning to be more relevant

$0$25$50$75

$100$125$150$175$200$225$250$275

Security & Monitoring Power & Sensors Smart Entry Smart Lighting System Controllers

Mill

ions

Quarterly Smart Home Revenue by Segments

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

Source: The NPD Group / Retail Tracking Service


Smart home owners are more likely to own an Echo product

Source: Connected Intelligence, Connected Home Automation Report, Q2 ‘17

Echo ownership within smart homes

Own an Echo, 36%


Voice activated speaker ownership stands at 10%

Source: Connected Intelligence, Connected Home Automation Report, Q2 ’17 *Q2 2017 wave includes Google Home

Total Age 18-34 Age 35-54 Age 55+0%2%4%6%8%

10%12%14%16%18%20%

Q2 2016 Q2 2017

Voice Activated Speaker Ownership*


� CE industry continues to see improving revenues as ASPs in largest categories rise

– Falling units however point to industry challenges

– Channel competition the biggest pricing wildcard in holiday 2017

� Channel challenges will remain as timing and promotion continues to play an important part in demand even as the device demand changes

– eCommerce and omnichannel will be more pronounced in retail than ever before

� Holiday 2017 will remain dependent on traditional promotional categories but new and innovation segments (and some traditional opportunities) will need to outperform to deliver on forecast

� Positives of the Tech mass market are always challenged by the shifting of technology towards early adopters, no where is this more apparent than holiday

45

Holiday Final Thoughts


Thank you Thank you

47

2017 holiday outlook: innovation and change create ... · the npd group, inc. | proprietary and...

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