Accessory sales lag, in handsets’ shadow: Long-term prospects strong, fed by netbook craze

Hold on to your seats for a wild ride this year.
That’s the prognosis from many who say that inventory buildups in handsets and accessories and weak consumer demand continue to limit visibility into the retail wireless market’s future.
Accessories may get a near-term boost from the current netbook phenomenon – and five-year revenue growth is projected at a healthy 8% CAGR (compound annual growth rate).
But this year accessories will likely follow handset sales down a rabbit hole, according to various sources.
How deep a hole? That’s TBD.
Morten Steen-Jorgensen, president and CEO of Brightstar Accessories, a distributorship and retail advisor, said that netbooks could deliver the near-term growth to bolster accessory sales.
“In Europe, netbooks will drive accessory sales this year,” Steen-Jorgensen said. “Convergence, finally, is happening. This is an opportunity for a whole new market segment.”
Uniformity among 10-inch netbooks means a limited accessory line that is less risky for operators and retailers to stock, Steen-Jorgensen said. Euro-operators are subsidizing netbooks in exchange for three-year, data-service contracts. Consumers are displaying “pretty sophisticated behavior” as they use netbooks to complement, rather than replace, smartphones and laptops, the executive said.
Nuances
For the consumer, of course, accessories keep road warriors on the warpath, deliver convenience and protect a handset investment. For operators, accessory profits come with strategic benefits.
“Accessories add value, differentiate an offering and support data-service sales by the operator,” said analyst Michael Morgan at ABI Research. “They also are used to help move phones at the end of their life cycle.”
Increasingly, OEMs and carriers will bundle accessories with a handset to deliver a complete out-of-box experience – corded earbuds with a music phone, for example. Phone buyers, to a degree, purchase accessories separately but simultaneously with their handset purchase.
Yet as much as three-quarters of accessory sales take place after the initial handset sale, often in a big-box retail outlet.
As handset sales dip, however, so shall accessory sales – whether they’re purchased with a phone or afterwards.
“The million-dollar question is, ‘What happens to after-market accessory sales?'” Morgan said. “That’s tricky to answer.”
ABI market data indicate that some consumers may buy accessories to protect or update their handsets, in lieu of a new handset purchase. This is particularly true in the Asia-Pacific region, where consumers routinely plan to sell their used handsets, according to Morgan.
In the United States, accessory sales are down more sharply than other global regions, according to Brightstar’s Steen-Jorgensen.
While “power users” continue to spend $50 on average for accessories such as travel chargers and batteries – items related to enterprise and personal productivity – “traditional consumers” are spending less and opting for generic products rather than once-favored brand names.
In rapidly growing categories such as Bluetooth headsets, U.S. prices remain high relative to falling prices elsewhere, Steen-Jorgensen said. The average MSRP (manufacturer’s suggested retail price) for Bluetooth in the U.S. is $80, while in the APAC region, for instance, the average MSRP is between $30 and $50.
Market snapshot
The total, annual global market for handset accessories was about $80 billion last year, according to ABI Research data. About $58 billion, or nearly three-quarters, was spent on after-market accessories. About one-third is sold through big-box retail outlets, one-third through carrier retail (30% brick-and-mortar, 3% online) and one-third through independent dealers and third-party resellers.
According to NPD Group data, about 40% of cellphone users have never purchased an accessory – so, there’s headroom for growth.
By revenue, the leading accessories are memory cards, batteries, carrying cases, chargers and data connection kits, according to ABI. By unit volume shipped, the ranking is chargers, batteries and carrying cases. Bluetooth headsets are the third-strongest growers, but currently only seventh in shipments.
Regional, cultural differences abound in the accessory world: Hip holsters are popular in the U.S., but many Asian peoples prefer wrist or neck straps, ABI found.
“In Australia, they say, ‘Bluetooth headsets are for wankers,'” Morgan said with a chuckle. “They’re not so popular there.”
U.S. online consumer interest in accessories has continued to rise about 5% year-on-year, according to Compete Inc. Between the third quarter and fourth quarter of last year, however, online consumer interest tanked by 5%, reflecting the soft holiday quarter.
Sprint draws online interest
During that soft holiday quarter, Sprint Nextel was the only top-tier carrier in U.S. to increase interest in accessories, increasing interest by 18% quarter-on-quarter and 33% year-on-year, according to Compete. (T-Mobile had the greatest drop in interest both sequentially (-13%) and year-on-year (-12%).)
Compete credited Sprint’s fourth-quarter message to consumers about getting good value in tough times for the increased traffic. The market research firm found that Sprint was very effective at driving traffic to its Web site – a 46% increase year-on-year – through online advertisements. The carrier then effectively converted those visitors to purchasers, both of service and accessories.
While that’s good news for the ailing carrier, ABI Research has found that carriers’ online accessory sales on average are only one-tenth that of their brick-and-mortar stores.