Are the Rich Going Down with a Bang?

on Oct 11, 2012

Danish high-end electronics maker Bang & Olufsen (CPH:BO) reported that its quarterly revenue remained flat, with sales tumbling by 20 percent. On 10 October 2012, The Times reported that while B&O tried targeting younger consumers with a range of cheaper, albeit still high-end, electronic products, sales of more expensive products suffered, with wealthy clients downgrading their purchases.

**Bang & Olufsen Sales Tumble**
Sales of B&O’s luxury hi-fis and televisions went down by 20 percent sending the company’s shares down by 4.4 percent in Copenhagen. The audio-visual division, which produces the sound systems, accounts for half of the company’s sales and the decline overshadowed good progress made elsewhere in the business.
As noted in B&O’s interim report, the group’s revenue for the first quarter of the financial year 2012/2013 was 600 million kroner (£64.6 million), only marginally above the 599 million kroner (£64 million) revenue generated in the same period last year. B&O’s pre-tax profit fell to 64 million kroner (£6.9 million) between June and August. The lower profit also reflected an increase of 18 percent in development and marketing costs during the reported period, mostly on account of the launch of the new B&O Play product line.

!m[B&O Suffers As The Wealthy Downgrade Their Purchases](/uploads/story/557/thumbs/pic1_inline.png)“Overall, it is quite bad compared to what was expected,” notes Nicolaj Jeppesen, an analyst at Sydbank (CPH:SYDB), as quoted by Reuters. “Most of it comes from capacity costs which are quite a bit higher than forecast.”
**Consumers Less Willing to Spend**

The Times reports that Bang & Olufsen’s President and CEO, Tue Mantoni, has tried to target younger professional consumers with cheaper electronic products, namely the B&O Play range, launched at the start of the year. And while the new line is intended to reduce the company’s dependence on its highest-value products, Mr Mantoni noted that the new range of cheaper products was not a signal that the company was moving downmarket. Although the company reported that sales of the B&O Play range went up by as much as 92 percent, they were outweighed by the decline in sales of more expensive products, with wealthy customers downgrading their purchases.

“The crisis in Europe is also hitting Bang & Olufsen, no doubt,” pointed out Michael Jorgensen, analyst at the Danish financial services company Alm Brand (CPH:ALMB), as quoted by Reuters. “They are feeling the lack of consumer willingness to spend.”
Mr Mantoni has also signalled that China could be a growth market for the Danish company, given the booming middle class in the county. Analysts, however, are questioning the timing of the move, due to signs of a slowdown in East Asia’s luxury markets. “Bang & Olufsen has to have a presence there, but the timing is another issue,” comments Mr Jorgensen, as quoted by Reuters.

**The Company Keeps Full-Year Outlook Unchanged**
Despite the disappointing quarterly results, B&O maintained its growth outlook for the 2012/2013 year, with Mr Mantoni pinning hopes on the B&O Play product line and particularly on the launch of two new products in October, expected to “drive significant revenue in the second quarter,” as noted in B&O’s company statement.
Bang & Olufsen also has an automotive unit, which saw a 37 percent increase in sales. The company has struck partnerships with carmakers such as Aston Martin and Mercedes to install its audio technology into their vehicles.