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The importance of ‘visible innovation’ at a time of low consumer confidence

by Anna Parkinson , 23.07.2012

The British nation is feeling a bit sorry for itself, At the end of April 2012, it was declared to be in a double-dip recession and the unemployment rate over Q4FY11 was at its highest since 1995. Pretty grim, and this is for a nation which doesn’t always see the glass half full at the best of times.

All this has had a substantial impact on UK retail; a -2.3% slump was reported at the end of Q1FY12. The Technical Consumer Goods (TCG) market in particular was extremely disappointing (according to the latest TEMAX report (1) ). Market volume fell by -7.2% year-on-year which was the lowest Q1 turnover in the past four years. The only growth was in the IT industry, which is largely attributable to innovation.

Other TCG sectors are failing to provide budget-conscious consumers with compelling reasons to upgrade their technology, especially when products fail to show visible innovation. At the end of Q1FY12, consumer confidence was extremely low(2). Indeed, consumers were not only pessimistic about their own personal economic circumstances over the following 12 months, but so too on the general economic situation. Such negativity restricts the ‘nice to have’ mentality. As such, it is important to consider how technical retailers can inspire consumers to part with their precious earnings in light of these trends.


In light of the economic climate, it’s perhaps unsurprising that the telecommunications market has suffered, although with the high levels of mobile phone ownership, the whopping -42% year-on-year drop might sound extreme. The pre-pay market in the UK has shrunk dramatically over the past year with 1.5 million fewer units sold in Q1 2012 compared to Q1 2011, along with traditional mobile-phone sales. However, the contract market has continued to grow (+6.6% year-on-year) and now makes up 55% of the total market, which is an increase of 10%; 93% of these sales are smartphones.

There are two things to note here. Firstly, smartphone trends come piece by piece. Last year, it was the touch-screen which led smartphone sales, but this year, an equally compelling feature has failed to materialise in the market. Secondly, as people move onto contracts, we begin to see seasonality trends dependent on contract renewals; this is probably likely to be soon after Christmas or potentially in Autumn, around the time of new Apple is due to release a new iPhone. Indeed, despite Samsung taking over in terms of market share, according to a recent GfK survey, it’s still only Apple that’s seen by the majority as ‘representing cutting edge’ and providing the ‘newest features and capabilities’(3).

In the UK, we’re reaching smartphone saturation, with sales down for the first time in Q1FY12(4). And whilst sales level off and fall into contract lengths, the smartphone price points in the pre-pay market (smartphones make up 30% pre-pay market share – which is the same as Q4 2011) are declining. There was a +17% year-on-year in volume share in the £50-99 category.

Consumer Electronics

Consumer Electronics (CE) show a significant lack of ‘visible’ innovation too. Whilst HD, 3D and Smart TV are all still relatively new to the market, they remain largely marginalised to the ‘nice to have’ category. So much so that the sector fell by -20% year-on-year, with value falling by -19% (a drop of £1.2 billion in retail market value on a year basis).

Along with price erosion (exacerbated by the pressure of recession), there is the problem of cannibalization in this sector. Portable media players and camcorders have both dropped by over -30% because of competition from devices offering the same functionality. This is noticeable amongst a number of my friends who have decided to forego purchasing TVs for the moment as their laptops or tablets satisfy their ability to watch programmes and films. Will TVs suffer from the same mobile phone vs. landline debate amongst the younger generations? Possibly so.

The lack of consumer confidence has clearly had some impact in this market, in particular because this is a classic ‘replacement’ market. Whilst we’re tightening our belts, we have probably decided that we can do without the Smart TV in the living room.

There has been some growth, but this is likely a hangover from last year’s sales (headphones and soundbars to go along with the fancier TVs bought last year – you’ve got the massive TV, might as well have the sound system to create that cinema experience) and the switchover process still.

Information Technology

At the other end of the innovation spectrum is the IT market, the only sector to grow in Q1 2012 (+8%). Actually, I should caveat that; growth was negative for almost all IT categories in terms of volume, apart from the new and innovative categories (media gateways, streaming devices, and web-books, e-readers, and tablet-based Internet-browsing devices). Web-books and e-readers grew by over 100% in volume year-on-year and media gateways by +23%. And this is likely to last for a while as innovation and consumer demand for these products continue. The importance of innovation is clearly demonstrated here, since the other categories fell in volume and value over the last quarter. Desktop PCs fell by -13% (now that laptops and tablets have the functionality capable of replacing desktops(5)), notebooks by -12% and netbooks by a hefty -72%. The lack of PC sales affected the software sector (-25%), notably security software. And storage (-36%) was affected too by the influx of streaming devices and also by advancements in cloud software.


The Photo sector also fails to escape cannibalization, dropping -5% year-on-year. Ownership of cameras grew until 2009 and then levelled off, unable to compete against the growth in smartphones; another ‘replacement category’. In light of this, a product that did see growth was the superzoom camera (optical zoom of 10x or more) which continued to grow throughout the last quarter. By providing both greater functionality than previously-owned cameras and a superzoom that smartphones cannot (currently) match, the compact system camera visibly brings something new to the market, thereby capturing the attention of consumers.

The photo sector fell last quarter, but has a less dreary outlook, what with March being a strong month for the changeable lens segment (SLRs grew by +4% and compact system cameras by +64%). With football and tennis sporting events capturing our attention and bank holidays giving us a well-deserved break, the simultaneous launch of high-end models over March may just allow the Photo sector to see growth in the second quarter.

Online shopping

Whilst negative growth was seen in both the major and small domestic appliance sectors (-4% and -2%, respectively), the outlook could’ve been far more dismal were it not for the role of online retail. Small domestic appliance (SDA) online sales grew by 7% (vacuum cleaners and small kitchen appliances by +11%) and major domestic appliance (MDA) online purchases did similarly well. However, despite the positive influence from online retail, the SDA and MDA sectors could not escape the impact of consumer uncertainty, increased prices from the previous year, and the absence of the VAT freeze (which boosted sales last year). Nevertheless, the boost that online retail can provide the TCG industry should not be ignored; consumers will continue to research and compare appliances on the Internet, so websites should be informative and provide transparent pricing. And of course, with websites that are optimised to tablet and smartphone screens.

Finally, financial cuts in businesses resulting from the recession have led to the year-on-year decline of Office Equipment (-7%).

Rounding up

The UK saw an overall decline in sales volume of -7% as opposed to -5% in all markets covered by GfK R&T. And despite seeing further decline in Consumer Electronic, Major Domestic Appliance, Technical Consumer goods (sales in TC in the UK fell by -42% vs. growth overall by 8%) and Office Equipment sectors, other sectors rode the first quarter more successfully in the UK, and especially in the case of the IT sector, which grew in the UK by 9% vs. the decline overall of -2%. And the wet, cold weather did have some positivity to it: digital thermometers, electric heating and electric blankets saw strong double-digit growth year-on-year in Q1 2012.

To conclude, there are a number of factors involved in determining why some sectors grow and others decline over time. The beginning of 2012 saw the UK technical goods market decline year-on-year, and there have been instances of lack of innovation (but, in reverse, new products and consumer demand for products in some sectors does drive growth), value vs. volume (value for money), price erosion, lack of consumer confidence and cannibalisation all contributing to this quarter’s trends.


1) GfK TEMAX® is an index developed by GfK Retail and Technology to track the technical consumer goods markets. The findings are based on surveys carried out on a regular basis by the retail panel of GfK Retail and Technology. The retail panel comprises data from over 370,000 retail outlets worldwide. For more information about GfK TEMAX data, click here http://www.gfkrt.com/gfktemax.

2) http://www.gfknop.com/pressinfo/releases/singlearticles/009636/index.en.html

3) GfK omnibus survey carried out in May 2012 amongst 1258 respondents aged 18+

4) http://www.zdnet.co.uk/news/mobile-devices/2012/05/16/mobile-phone-sales-are-falling-says-gartner-40155235/

5) http://articles.latimes.com/2012/apr/24/business/la-fi-tablets-pc-20120424