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Tuesday, 1 February 2011

It’s over; war in small electronics and household appliances market claims another casualty

Don't look for me around this town
'cause I will be so far away, you'll never find me anywhere
and I won't take no souvenirs
no perfumed picture promises
because it's over
and I ain't coming back

In The Netherlands there is a dirty war going on between the store chains that sell small electronics and household appliances. I guess this situation is not new for the rest of the world, but Holland is my home country.

This war has now claimed another casualty: It’s electronics, a not-too-spectacular, but decent electronics and household appliances store was crushed between the jaws of the murderous competion.

It couldn’t compete with the Kamikaze tactics and excellent supply of MediaMarkt, a originally German chain of electronics megastores:
-         Selling under the purchase price? No problemo, Señor!
-         Handing our V.A.T. (value added tax) away? You got it!
-         Leica Digital Camera’s? There in the corner, Sir!

It did neither have the stamina of BCC – a shop that tries to offer you the lowest price at whatever the cost – nor did it have the low fixed costs of internet shops that don’t have to pay for a shop on an A-location and a lot of personnel to advise the customers and can therefore offer lower prices.

If your fate is, that you don’t excel in anything in an extremely competitive market, then you have to disappear from this market. In case of It’s this happened at the cost of a thousand peoples job’s. And It’s is probably not the last company that fails to run the gauntlet.

But what makes the market for electronics and household appliances so extremely competitive? Please look at this table (roughly based on average prices at the time) and remember that the performance (that is not the Quality(!)) of almost all electronics increased over the years:

Prices (EUR)       1980-1985        2010
Color TV             800             500
Hifi Installation    800             600
Videorecorder        750             300
Washing machine      500             700
Tumble drier         400             550
Electric razor        75             150
Personal Computer   2500             500      

Please notice, that most things only became cheaper over the years and only a few things became more expensive. There is, however, a price to pay for this:

-         Instead of being built up with transistors, capacitors, diodes and resistors all electronics nowadays are built up using micro-electronics. Repairing it when it is broke is something from the past
-         Even your German Miele washing machine, in the past built to last you at least 20 years, does not have the indestructible bearings anymore and might last you now only 10 years instead.
o        Your South Korean or Chinese washing machine might even last you only 5 years before it is broke.
-         Your personal computer, although it is 40,000 times more quickly than your first one in the 1980’s, seems also 40,000 times more flimsy.
-         The durability of goods in common ranges from average until extremely poor nowadays:
o        Remember those Nokia phones in the 90’s that you could play football with? Don’t try this now. Instead you are happy now when your smartphone lasts for more than a year.

Result of keeping prices for electronics and household appliances at roughly the same level for 30 years or even lowering those prices in time is:
-         The German, American and Australian factories can’t make electronics at all anymore and only a limited range of household appliances
-         The Chinese and South Korean factories can only make these by:
o         using 3rd grade parts,
o        ignoring all environmental rules
o        exploiting their workers
-         The margins for importers, wholesale companies and shops reselling those appliances are extremely small.

This means that only the strong store chains  survive and – in return- get almost a monopoly position on the business-to-consumer market and people will have to get used to crap quality and durability, except for a happy few that can afford German, Swiss and American goods of impeccable quality. For It’s, however, it’s over…


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