The UK CE Market Landscape, COVID-19 and Beyond

Futuresource Consulting has been researching and forecasting the global demand for entertainment hardware and content for over 30 years. In this time, we have witnessed global crises such as the recessions of 2001/2 and 2008/9. Now, with the global pandemic of COVID-19, we once again enter uncertain territory for almost everyone.

 

The UK is adjusting to this world of doubt and self-isolation in a similar way to many countries. The lockdown implies working from home, less travel, no nights out, no sport to watch or participate in. This dramatic shift in social behaviour is impacting the consumer devices we rely upon for entertainment, remote working, and education. Nights out are replaced with pub quizzes on Zoom, work meetings rely upon conference calls, gym workouts are transferred to ‘Instagram Live’ videos, even classroom teaching is conducted over IP platforms.

The UK CE Market Landscape Before COVID-19

 

The value of the basket of devices shown in the chart below reached a total of £19 billion in 2019, up 5% on 2018. Smartphones were the stand-out category, dictating half of total CE spend. Before the pandemic struck, Futuresource was anticipating certain categories would continue to grow in value, including wearable devices, activity trackers, headphones and gaming hardware. TV and Smartphones - whilst mature categories - still had the capacity to grow in terms of value. One thing that all of these categories have in common, is that they meet increasing user demand for connected services.

IP Demand and User Experience

Since the lockdown period started back in March, we’ve seen a surge in consumption of online content across households. As families seek more entertainment in their free time and people work from home more, there has been a reported 45% increase in broadband traffic and most importantly, IP has successfully coped with the sudden increase in demand.

The lockdown has reinforced the trend towards online entertainment, with subscriptions to SVoD booming. The launch of Disney+ fortunately coincided with the start of lockdown.

A Positive Spike for In-home Devices

Products that have seen a spike in demand during this period can be split into Home Office, Communication and Visual Entertainment:

Home Office: printers, monitors, laptops, webcams, PC headsets

The need to work from home resulted in a 200% increase in monitor purchases, with webcams achieving a 300% increase. Intel, on a worldwide basis, said its Notebook sales grew by 12% in Q1. PC headsets were in heavy demand as people prepared to work from home. There were shortages and in some cases people purchased gaming headsets as an alternative.

Communication: smartphones

Smartphones and tablets were in heavy demand as those who may have previously been slow to adopt digital devices realised these could serve as a communication lifeline with families and friends during isolation.

Visual Entertainment – secondary TV sets, Nintendo Switch, gaming headsets

TV sets sales also saw a 60% rise around the start of lockdown. A high proportion of these were smaller screens, as consumers sought additional sets for the household to reduce potential family disputes over what to watch. Meanwhile, the Nintendo Switch was in short supply, not least fuelled by demand for the pure escapism of the “Animal Crossing”.

Other devices which retailers should promote to help us through lockdown include:

Large Screen Smart TVs - we’re spending longer in front of our TV; why not buy a bigger, UHD, Smart or even OLED TV?

Soundbars - offer richer audio which would nicely complement that new SVoD subscription. They also increasingly act as a latter-day hi-fi. Futuresource consumer research revealed last year that 69% of UK soundbar owners listen to music or other audio on this when the TV is turned off.

Media Streamers - a cheap way to make a TV ‘smart’ and access the iPlayer, Netflix, YouTube etc

Headphones - stellar performers in 2019, and great for self-isolation within a family home.

Wireless and Smart Speakers - buy 1st time or upgrade to improve the sound that is sourced from your mobile phone; perhaps choose a model with a screen for video calling

VR Headsets – the ultimate device for lockdown escapism

Desire for Products vs Supply Issues

Whilst homeowners may desire these products, the perennial issues of supply and demand will come sharply into focus in the coming months. Supply of devices – especially new releases – could be an ongoing issue through the year, although factories in China were quick to re-open after the 6-8 weeks of closure in Q1.

Demand, though, will be heavily influenced by the economy. This period of doubt and potential job losses and recession, with no certainty on how soon shops will re-open, means that CE will face strong headwinds.

Expected Changes Post-COVID

While we’re unsure of how long lockdown will last and how social distancing measures will ease, we know that the emphasis on demand for consumer devices will move from in-home to mobile/in-car when outdoor activities and travel restrictions are lifted. Moreover, people will start to divert what discretionary spend they have to other areas, such as clothes and travel.

Futuresource now estimates that UK CE spend will fall by 8-12% this year; a stark contrast to the 5% uplift that we had predicted before COVID-19 struck. We believe there will be severe pressure on average prices as people face financial uncertainty. In terms of volume, headphones should retain some of their momentum whilst media streamers will likely grow modestly due to being an affordable means of connecting the big screen to online content, whilst soundbars, TV sets and wireless speakers will experience single-digit declines.

With smartphones forming such a large share of consumer spend, much will depend on how this category fares. There is a high risk that the uplift in sales value that was anticipated as a result of 5G launches will be postponed, as consumers reign in their spending and product/service launches are delayed.

The Trend for Online Retail Accelerates

While multi-channel reach has long been essential for any business, lockdown has emphasised the need for all retail brands to have a strong online presence. Dixons announced last Wednesday that its UK and Ireland electricals sales were down by 16% year-on-year in the 5 weeks to 25 April, but that its online sales had surged 166% in that same period. In the wider economy, online retail jumped by 3 percentage points in March to claim 22.3% of all consumer spend and this will no doubt have jumped again in April. When shops re-open this will recede a little, but it is likely that COVID-19 will be seen as an inflection point in the continued growth of online retail and the enjoyment of streamed content and communication.

We can but hope that in future we look back upon this crisis as the time that a broader share of the population harnessed digital and connected technologies for education, communication and entertainment, rather than remembering it as the start of a long term recession that negatively impacted CE sales in the long term.

In the meantime, my next electrical purchase will be hair clippers – surely a category that will enjoy a rising tide of sales as the length of our hair increasingly reflects the extended duration of the lockdown!

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