Looking to Christmas sales: the lessons of the software market

Amid market uncertainty, Tristan Irwin, account executive at GfK, sees hope for retailers this Christmas. Sales of software packages could be the icing on the cake this year...
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With 'Back to School' behind us, IT retailers now need to begin looking forward to the key Christmas period.

While there is some market uncertainty driven by fears over the impact of the credit crunch, historically, GfK data suggests that from week 44 onwards the total UK durable goods market tends to show an eight per cent volume growth week on week, culminating in year high sales in week 52 as consumers rush to the post- Christmas sales.

While most product groups have shown a significant slowdown over the year to date, and indeed the market has seen negative growth for the past three months, there will likely be some uplift over Christmas, but such growth will be starting from a smaller base.

The IT sector is one of the few sectors which has bucked this trend. In terms of value the total IT market has performed encouragingly, up 7.6 per cent year to date versus last year. By far the best performing IT product has been the mobile PC, driven by the rise of the netbook, and the preponderance of subsidised laptop deals on the high street. Mobile PC sales have slowed somewhat in recent months, but still have shown 30 per cent volume growth year to date.

With mobile PC sales continuing to boom in retail channels, a large proportion of the rest of the IT sector is maintaining its position despite the clouds of economic uncertainty. When one looks at the sales of key product groups over the Back to School period this year a clear trend is evident, with key mobile centric products such as external hard drives, notebook mice, and security software following the same trends as laptop computers.

Retail boxed software in particular should prove to be a good indicator for the strength of the coming Christmas in the IT market. As you can see in the chart the key software segments in terms of pure volumes – security and office suites – follow a general trend in line with laptop sales. This suggests a relatively high attach rate at point of sale, with consumers naturally both taking advantage of promotional deals and wanting some software to use with on their new computer.

One should not underestimate the power of promotion either. When looking at the weekly sales volumes of office suites at the start of the Back to School period, following major high profile price reductions of key software lines in addition to long standing laptop deals in some of the major multiples, the segment doubled in volume in comparison to the average levels seen for the month previously, selling just over 26,000 units in week 35.

Not only does such promotion benefit software sales, but in effect it increases the consumers' perception of the hardware those attached deals are being run in conjunction with, contributing to the value judgement all consumers make when they select the model they go home with.

While forecasting can never be an exact science, there is no suggestion as yet that we will not experience a strong Christmas for the software market. Though promotional activity will reduce the total sales value of the period somewhat, we can expect to see encouraging sales figures this Christmas to top off a strong year despite the difficult economic times.

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