Following on from a tremendous year for the UK electricals market in 2006, the outlook for the sector for the next five years looks positive. The challenge will be to drive sufficient volumes to offset intense price deflation.
Verdict forecasts strong outlook for UK electricals retailing
Over the next five years Verdict expects the electricals sector to grow faster than any other major UK retail sector. Growth of 24.1% by 2011 is almost 10 percentage points faster than total retail.
A solid technology pipeline is forecast to underpin the growth. As in 2006, flat-panel TVs will be a major source of growth over the next five years. With household penetration of flat screen TVs as low as 20% there remains scope for many more units to be sold. Also, some first-movers to the market, who have already upgraded their main sets, will start to purchase replacement second and third TVs for their homes.
The forthcoming Playstation 3 will also contribute. With the console not likely to fall into free supply until 2008, strong sales of the console and associated peripherals are well placed to boost the market throughout the forecast. Also, the XBOX 360 continues to prove popular, while Nintendo’s Wii has struck a chord with shoppers from a wide variety of demographic groups. Elsewhere, next generation DVD is set to be a growth driver towards the end of 2007 and beyond, particularly due to the large number of HD ready TVs bought over the past year which are currently not realizing their full potential.
Not all is rosy however. Despite improvement in white goods, Verdict expects the category to drag on overall market performance, particularly as strains on consumer’s finances encourage people to defer the big-ticket purchases. Moreover deflation will be a serious issue, as major technologies such as flat-panel TV fall in price and non-specialist competition intensifies, particularly from supermarkets, and increasingly discounters.
While Verdict’s market outlook is upbeat, the onus will be on the retailers, especially specialists, to drive volumes and encourage customers to trade up. Otherwise they may well see their already thin margins come under further pressure.
Source: Verdict Research