What to Watch in 2004: NPD's Industry Experts Weigh In

Early Signs of U.S. Economic Recovery Bode Well for Retail in 2004
After several seasons of unsteady performance for many of the industries NPD monitors an economic rebound in 2004 could boost sales across industries, and particularly in the consumer electronics (CE), information technology (IT), foodservice and automotive products businesses.

NPD Techworld reports consumer electronics and information technology sales are trending up.

"In the 12 months ending in April 2001, consumers reported they had purchased $96 billion in televisions, audio products, telephones, cameras and personal computer products. In the last quarter of 2002, the U.S. was entering a recession. For the 12 months ending in December 2002, consumer spending in those CE and IT categories had dropped to $93.2 billion. Then, as we entered the wartime period in spring 2003, consumers reported their purchases of CE and IT products had slumped to $92.4 billion. But in May 2003, we saw signs of a rebound: reported purchases started climbing upward and by October and our consumer data showed purchases had reached the $97 billion mark. I expect this good news for CE and IT manufacturers and retailers will continue into 2004," NPD Techworld Senior Industry Analyst Tom Edwards explained.

Signs of economic recovery are welcomed by the restaurant industry, too. Harry Balzer, NPD Foodworld vice president, reports 2004 should be a good year for restaurants – at least through the first half of the year. "Restaurants endured a full year of declines, and then six months of steady increases at the end of 2003. Clearly, they're starting off 2004 in a strong position. This could be the best year the restaurant industry has seen in about four years. In general, Americans want someone else to prepare their meals. And when they're feeling better about what's in their wallets – as we suspect they will be throughout this year – they're likely to spend at restaurants. Economic recovery could mean big business for U.S. restaurants in 2004. Fast food will be an important part of the industry's improvement, as long as chains continue to address changing consumer tastes and health concerns," Harry said.

Across the board in the automotive products industry, business was down in 2003. While foul weather in 2003 put a damper on consumers' car care activity, NPD Automotive Senior Account Executive David Portalatin says it is possible that economic conditions also played a role. "In the do-it-yourself segment of the automotive products market, all the key categories – motor oil, performance and appearance chemicals – were off compared to 2002 in both dollars and units," David said. "But in October 2003, that began to change. In October of 2003, we saw numbers that were much stronger than the previous year; perhaps this improvement corresponded with the recent spike in economic activity. We're also seeing a turnaround in the convenience store business. Convenience channel penetration increased significantly in 2003, and at the same time, gas prices increased. Usually, when gas prices go up, consumer traffic in convenience stores goes down. But that's not happening – they're both on the upswing. That's good news for automotive aftermarket manufacturers and retailers and all involved in the convenience store channel."

Consumers Rethinking Their Shopping Patterns
In 2003, many of NPD's Industry Experts observed the beginnings of shifts in consumers' shopping behavior that may strengthen as 2004 progresses. In fashion, NPD's Chief Industry Analyst Marshal Cohen is watching consumers "demonstrate their fashion savvy by mixing high-end product with value-priced product. For example, they're complementing less expensive outfits with pricey accessories. This is a marked change from the ‘all value, all the time' attitude we saw in much of 2003."

Similarly, in the fragrance industry, NPD Beauty President Timra Carlson reports consumers are looking for a new way to shop. "In 2004, I expect we'll see a pronounced change in the way fragrances are organized and chosen by consumers. We will see more marketing by fragrance family, driven by consumers' desire for more logically sorted and grouped fragrances. Consumers want to see fragrance counters sorted by brand or scent. Retailers such as Sephora began to respond in 2003 by helping consumers find their ideal scents based on the types of fragrances they typically gravitate toward," Timra said.

In the food and foodservice industries, consumers' focus is shifting from convenience to health, and health will become even more important as 2004 progresses. Harry Balzer explained: "Consumers are increasingly looking for ‘low carb' options without sacrificing taste. In 2004, more manufacturers and restaurants will introduce low-carb options, and consumers will go from category to category in search of what tastes good. The bottom line is that consumers want to eat the same way they've always eaten, but today, they want to be healthier. They don't want to give up their favorite foods, but they want to lose weight. In 2003, we saw the beginnings of a shift from convenience – fast casual restaurants, prepared food products for at-home meals – toward a greater interest in health. Trans fatty acids will be an important issue, obesity will still be a concern, healthier food options in restaurants and supermarkets will be much sought-after by consumers. But they still want taste!"

Industry Trends

• NPD Fashionworld – Marshal Cohen anticipates the continuation of consumers mixing casual and active apparel and footwear: multi-use products such as athletic/leisure footwear using sport technology in casual shoes, track suits transitioning from active apparel to casual. Also expect apparel and footwear retailers to try to differentiate themselves from one another by introducing new brands and new lines that distinguish them from the competition.
• NPD Funworld – Michael Redmond expects interactive learning and exploration toys, up 26% in the first ten months of 2003 compared to the same period in 2002, will continue to grow in 2004. Dolls will remain big sellers, with retro brands such as Strawberry Shortcake faring well and popularity of mini/pocket dolls continuing after the Holiday 2003 season. Watch for spring and summer 2004 anticipated movie blockbusters like "Harry Potter and the Prisoner of Azkaban," "A Cinderella Story," "Shrek 2" and "Yu-Gi-Oh!" to create a strong push for licensed products such as action figures and role-play lines.
• NPD Techworld – Tom Edwards will have an eye on new and improved display devices, such as bigger and better front/rear projection, flat panel and CRT displays. He expects to see expanded use of integrated HD tuners in 2004, and increased support from terrestrial broadcasters and program networks that broadcast via direct-broadcast satellite and cable. Home networking will pick up speed in 2004, with consumers' increased focus on the distribution of data, music and video throughout the home.
• NPD Foodworld – Fresh is what Harry Balzer will be watching for in 2004. He says the paradigm is moving from "who can provide food for the family?" to "who can provide fresh food for the family?" Fresh foods may not be as convenient as prepared and packaged options, but consumers want fresh and healthy this year. How will food manufacturers, retailers and restaurant operators provide consumers with "fresh" in 2004? And can they provide "fresh" that's also convenient?
• NPD Automotive – America's vehicle fleet is aging quickly, David Portalatin reports, and that means older cars with higher miles. Look for consumers to continue their shift to high-mileage motor oils in 2004. These high-mileage oils generate a moderate upsell versus conventional oils. Consumer efforts to prolong the lives of their cars are resulting in a higher ticket in the motor oil category. It is also interesting to note that dollars are growing in the wiper blades category as well, but for a different reason: the convenience of easy installation is driving a shift from wiper refills to replacement blades, which sell at a significant premium.
• NPD Beauty – In prestige beauty, Timra Carlson says skincare will be the category to watch in 2004. Skincare products led all other prestige beauty categories year-to-date through October 2003, and skincare is poised for 2004 to be one of its best years ever. Hot trends include new anti-aging technologies, luxury products and niche brands that began heating up in 2002. The men's skincare market is also trending upward, a positive spark after two years of relatively flat performance.