Prices are down and sales are up on electronic gadgets that once were the domain of the wealthy and the geeky.
Retailer Best Buy Co. this week credited digital televisions, MP3 players, video games, digital cameras and notebook computers for a 49 percent jump in earnings during the fiscal first quarter, compared with a year ago. Were it not for an accounting change, the increase would have shown on the books as 85 percent.
Industry-wide, traditional consumer technologies are giving way to spicier updates at an increasing clip. Sales of desktop computers are falling, for instance, but sales of relatively more profitable laptops are picking up. While sales of analog television sets are off, sales of more expensive digital sets are growing rapidly.
"We are safely and securely in the midst of a TV upgrade cycle," said Sean Wargo, director of industry analysis at the Consumer Electronics Association, a trade group based in Arlington.
Even though prices for digital televisions are steadily sinking -- some sets cost 20 or 30 percent less this year compared with last year -- buyers are choosing to pay more, not less, for new sets, according to the CEA. Last year, the average wholesale price of a set was $500, Wargo said. This year it's $550.
"Consumers are opting up" to fancier models, he said.
As digital gadgets take root in the lifestyles of consumers, first-time buyers are hitting stores to buy the latest gadgets -- while early adopters are upgrading to get the latest new thing, analysts said.
Best Buy, in particular, is "at a point where there's a bunch of categories that are doing very well," said Stephen Baker, an analyst at NPD Group. "It's hard to know whether this is a one-quarter opportunity or whether this is some sort of inflection point."
In addition to falling prices and heavy marketing efforts bringing customers into the stores, analysts are also crediting Best Buy for redesigning its stores in ways that keep customers reaching for their wallets once they get there.
For example, the retailer has lately been talking about a new strategy for customizing Best Buy stores to better fit the neighborhoods where they are located, Harris Nesbitt analyst Rick Weinhart said.
In a program the chain calls "Customer Centricity," the retailer has broken down its customers into five classes, from young, gadget-loving video game players to soccer moms to deep-pocketed consumers who want the slickest electronics appliances available. It's a change from the one-size-fits-all approach typically found in such big-box stores, and the company stores that have made the switch are seeing twice the sales gains of other stores in the chain.
"It's a departure for them," said retail expert Steve Smith, who edits a consumer tech magazine called TWICE: This Week in Consumer Electronics. Now different Best Buy locations carry different products, depending on which target customers they are trying to reach, he said. "Best Buy was founded as one of those big boxes that carries everything at the perceived lowest price."
For an industry that traditionally focuses on the last calendar quarter of the year -- when electronics retailers usually report their strongest sales -- Best Buy's powerful showing this spring was something of a surprise. Wall Street will gain a little more insight into how the consumer electronics industry is faring Friday when Best Buy rival Circuit City Stores Inc. reports its quarterly fiscal earnings.
Gary Arlen, president of the Bethesda-based research firm Arlen Communications, said he thinks there are a few more big price drops for digital televisions in the works in the near future -- enough to give electronics makers and retailers enough momentum for another strong quarter or two this year. And customers a reason to keep spending.
"It's not a perfect storm," he said, "but it's a storm."