(AFP) – Jul 12, 2008
COPENHAGEN (AFP) — Despite a recent upswing for the luxury goods market, Bang & Olufsen, the Danish maker of sleek, high-end sound systems and televisions, is struggling to attract consumers as rivals increasingly focus on design at lower prices, analysts say.
Having carved out a niche in the market with cutting-edge esthetics and technology, B&O is facing rising competition from manufacturers such as Sony, Samsung and Philips who now put more emphasis on sophisticated design and technology at moderate prices.
"Even rich consumers are asking themselves why they should spend four times more for a B&O product when competitors are offering them equally sophisticated products, esthetically and sometimes even technologically," Bjoern Schwarz, chief analyst at Sydbank, told AFP.
He said that in the luxury goods and high-end market, B&O would "lose its raison d'etre" if it tried to compete with other manufacturers' lower prices.
The company, whose headquarters are based at the edge of a fjord in Struer in northwestern Denmark, on Monday announced its third profit-warning in six months.
Facing declining orders in western Europe, its main market which accounts for about 75 percent of its sales, B&O said revenue for the fiscal year ending May 31 would probably come to 4.1 billion kronor (550 million euros, 868 million dollars) instead of the 4.7-4.8 billion kroner previously forecast.
In the third quarter (December-February), its net profit was slashed four-fold and in January the chairman of the group was unceremoniously sacked following a set of bad earnings.
But even that move does not appear to have soothed the market's fears and apparent loss of faith in the group, established in 1925 with the goal of developing superior products.
Since January 1, 2007, the B&O share has tumbled almost 75 percent on the Copenhagen stock exchange.
This is not the first time the company has fallen on hard times. In 1990, and again in 2001, it struggled through thin years but recovered both times.
This time, "it will take awhile," Schwarz predicted.
"To survive, B&O has to develop new markets, like Russia, Asia and the Middle East where it is not very strong."
Its western European markets, in particular Britain, Germany and Denmark which together account for more than a third of sales, are lagging, along with the United States and Canada.
Stephen Rammer, an analyst at Alm.Brand Henton, said B&O's annual growth of around five percent was "too weak."
"It invests too much in research and development -- 10 percent of its sales compared to four percent for its German rival Loewe -- but despite that, it doesn't come out with rapid launches of flagship products.
"B&O needs to come up with a less exclusive and less costly series in order to stop losing market share," he said.
Corporate business professor Per Hansen of the Copenhagen Business School agreed, saying the company needed to renew itself and focus more on consumer needs.
Despite the bleak outlook, the company's chairman of the board Joergen Worning insisted: "B&0 is not in crisis."
"How you can you talk about a crisis for a company that is earning money, that is one of the strongest brands in the world and that has a loyal clientele," he said in a recent interview in Danish daily Berlingske Tidende.
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