Due to consumer demand for wireless products and services, as well as rapid consumer acceptance of new digital technology products, the consumer electronics retail business continues to be highly competitive.
It is driven primarily by technology and short product cycles. How does the shrinking price for consumer electronics and the rising demand for gadgets, such as smartphones and tablets, influence gross profit margins of retailers?
One way to answer this question is to analyze the gross profit margins of publicly trading electronics retailers.
The rise of smartphones and tablets
The analysis will be based on US market realities and the electronics retail store chain RadioShack. The company was founded in the early 1920-s and has become one of the biggest electronics retailers in the US with over 4000 stores. Since 2009 the company has been increasing the share of mobile devices sold through its stores.
Mobile device sales and revenue
As the above chart shows, this share has been increasing from the 29% in to over 51% in 2013.
The influence it had on the retailer?
It’s gross profit margins have decreased by 25% over the same period of time (see the chart below), RadioShack has been losing money for the past 9 quarters and the company’s stock is down about 90% for the same period.
RadioShack gross profit margins comparison with BestBuy
True, the above example is related to the US market realities, however I would guess the situation is not much different in Estonia as well.
While the global sales of mobile devices and smaller gadgets are expected to continue to rise in the next 5-7 years, entering the retail business is a risky idea, because of diminishing margins.