Publish in Special Reports - Wednesday, April 15, 2015
Latin America's strong presence at the FIFA World Cup helped spur TV sales. Here Colombian star James after scoring against Japan. (Latinvex collage from Samsung and FCF).
Latin America was the fastest growing market in the world for digital televisions in volume terms in 2014.
While it is not a true essential for survival, connectivity – whether it comes from a computer or a smartphone or even a television or watch – is increasingly seen as critical, both globally and in Latin America. Internet access allows for connectivity that is important for education, professional, and social purposes. An increasing desire to have devices that permit this kind of connectivity at home coinciding with rising levels of disposable income makes the future for consumer electronics markets in Latin America quite positive in 2015 and beyond.
HOME ELECTRONICS: RECOVERING FROM A WORLD CUP HANGOVER
2014 was a banner year for televisions in Latin America. With a 13 percent rise, Latin America was the fastest growing market in the world for digital televisions in volume terms in 2014, compared to 2 percent volume growth on a global level. This growth will be short-lived however; Euromonitor International currently anticipates a significant volume decline for Latin America in 2015. The reason for this? 2014’s growth was driven largely by the World Cup, as seven of the 16 participating teams came from Latin American countries. Consumers across the region, but especially in Mexico and Brazil, either postponed or accelerated television purchases to coincide with both the entertainment value of the event, as well as World Cup-themed promotions and discounts.
While 2015 growth will represent a slower sales year than 2014, a few considerations will buoy the category moving into the forecast period. In Latin America, Smart TVs as well as set top boxes (which allow consumers to have an analogue television receive digital broadcast or to turn a normal digital TV into an internet-enabled device) will perform well. In many Latin American markets, like Mexico, which expects to complete its digital transition by the end of 2015, and Colombia, where the process is still ongoing, transitions to digital broadcasts are still underway. While many consumers will opt for the much less expensive option of purchasing a set top converter box, some will choose to upgrade from an analogue to a digital television.
Even on digital channels, the amount of HD programming is very limited, especially outside major cities in many Latin American countries. This is disappointing for owners of new digital televisions, as most new televisions are capable of HD, and consumers want to take advantage of the full product features. Internet content such as Netflix is expanding coverage and usually brings the widest variety of content, typically for a much lower monthly fee than traditional cable packages. With the level of internet subscriptions rising, internet connectivity will be an increasingly important function for televisions over the next five years.
Finally, falling average prices of digital televisions in tandem with rising disposable incomes will help boost volume sales, as digital televisions – in particular, LCD televisions – become more affordable to the average consumer. OLED televisions, on the other hand, will remain out of reach from a price perspective for the vast majority of Latin American consumers.
SEEKING THE INTERSECTION OF CONVENIENCE AND FUNCTIONALITY
The key story in computers in Latin America as in other regions is the theme of cross functionality, but not to the point that any one competency suffers. For both convenience and budgetary reasons, consumers would rather have one multi-purpose device than several function-specific devices. In many markets globally, we are seeing tablet growth, which has now boomed for several years, slow significantly. The same is true in Latin America, where we project volume growth of tablets will show a CAGR of 16 percent from 2014 to 2018, compared to 2013 volume growth of nearly 170 percent, according to Euromonitor International.
In part this speaks to the normal explosive growth seen in this industry, where a new product grows extremely rapidly from a small base followed by tapered growth as the market matures. In the particular case of tablets, though, part of the issue is that tablets ultimately constitute a compromise between smartphones and laptops, but cannot quite match the portability of a smartphone nor the functionality of a laptop. Most PC companies have started offering hybrid laptop-tablets to bridge this gap; it will be interesting to see how consumers react to these devices – which typically have a higher average price than a nonconvertible laptop or tablet – over the next year or so.
There is much hype about the potential of wearable electronics, but Euromonitor International expects that the impact of wearables on the Latin American consumer electronics market will be minimal in 2015. These products were hard to find in stores in 2014, and, even at the start of 2015, it is common for just a few brands to be present in any given market. Apple Watch and the powerful backing of Apple’s marketing department will draw a lot of interest to the category, but the concept is still in the process of launching, and, for now, there is still scepticism in Latin America that wearables have developed a sufficiently robust range of functions to be appealing to mainstream consumers. Most brands that are present are fitness-oriented and tend to appeal most strongly to high-income consumers. This narrows the potential market for wearables in Latin America, since, while disposable income is rising in the region, other types of electronics like laptops, smartphones, and even tablets are seen as having greater day-to-day importance than limited function wearables and are thus a higher priority purchase.
PHONES: SMARTPHONES CONTINUE TO GROW
The market for mobile phones continues growing in Latin America, driven by several factors. First, while Apple and Samsung dominated the smartphone market during the boom years of the product lifecycle, an increasing number of lower-cost brands have entered Latin America, like ZTE and Huawei, working to drive the average unit price of a smartphone downwards. Second, significant telecommunications reforms in Mexico and Colombia announced in 2014 will significantly increase the amount of carrier competition in these markets, resulting in more favorable prices and conditions for consumers. Lastly, the average replacement cycle for a smartphone is low compared to other devices; in most countries in Latin America, the average replacement cycle is approximately 20 months. The fact that consumers replace their smartphones on a regular basis will help sales stay elevated compared to other categories. For example, the average replacement cycle for a smartphone in Brazil in 2014 is 21 months, compared to 30 for tablets.
Smartphones embody the overarching consumer electronics trend of the importance of cross-functionality. In addition to being useful for making phone calls and receiving texts, they are often a key way to access the internet, as demonstrated by the rising number of mobile internet subscriptions in Latin America and the growing buzz surrounding mobile commerce. Importantly, smartphones are also causing volume declines in other portable electronics categories like digital cameras and in-car electronics like navigation devices, which can easily be replaced with a low-cost or free GPS app.
APPLIANCES: A WORK IN PROGRESS
On a global level, Euromonitor International anticipates that smart consumer appliances will not see even early adopters in 2015 on a global level, but adoption will not be widespread as the technology is not quite ready; in Latin America, smart appliances are still some time off. Many companies are doing interesting things – not just consumer electronics companies, but appliance companies and third party groups seeking to bridge the two – in the smart appliances space, but the technology is not yet ready for mainstream consumption and there is little Latin America-specific innovation. Additionally, penetration rates for common consumer appliances in Latin America are still low compared to other markets. One would expect that consumers in Latin America will first purchase economy-priced appliances, which will at least initially exclude premium-priced smart appliances.
Furthermore, there are still doubts about how to best connect such a wide variety of devices and what the ultimate goals of connectivity of appliances should be. In addition, the cost remains outside the reach of most consumers in most markets, including in Latin America. The potential of smart appliances does, however, further illustrate the importance of interconnectivity. Whether it is their smartphone or, someday, their washing machine, consumers increasingly expect their devices to “cohabitate.” Companies that can best integrate product features over the widest range of devices are the ones that will do the best over the forecast period.
Amanda Bourlier is a Research Analyst at Euromonitor International. This article was written for Latinvex.
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