Cheaper gadgets in vogue this holiday

Merchants see pick-up in sales of refurbished products and netbooks as money-conscious shoppers trade down on electronics.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Even when money is tight, gadgets are high on holiday wish lists. But instead of rushing to grab the latest gizmo, many folks are eyeing refurbished TVs and stripped-down purse-sized laptops under $600.

Retail analysts said a shaky job market amid an economic downturn is making consumers "trade down" across most retail categories. Shoppers are buying fewer and less pricey products.

In the highly discretionary consumer electronics arena, that trend is hitting some sellers especially hard.

Circuit City (CC, Fortune 500), the No. 2 specialty electronics seller after Best Buy (BBY, Fortune 500), announced Monday that it was shuttering 20% of its U.S. stores as its sales continue to evaporate.

"We believe that while Best Buy is likely faring better, the results from Circuit City are indicative of a weak consumer electronics market," Deutsche Bank analyst Michael Baker wrote in a note this week.

At TigerDirect.com, sales of refurbished electronics have spiked over the past two months.

About 20% of TigerDirect.com's sales are now refurbished products that include personal computers, flatscreen televisions, digital camera, GPS devices and even Apple's iTouch.

"It's not a tidal wave, but it's definitely increasing," said Bruce Matthews, vice president of business development with TigerDirect.com.

Matthews explained that refurbished products typically offer consumers savings of between 20% to 25%.

"These aren't defective products. They're items that people decided they didn't want and returned them in the 30-to-60-day return period," Matthews said.

The retailer then returns the product to the manufacturer, who checks it and subsequently puts it back out in the market.

"Usually the refurbished item is only one or two cycles old [in terms of technology] by the time we get it," Matthews said.

The "sweet spot" for how much consumers are currently spending on gadgets on TigerDirect.com in between $300 to $400. "Consumers are looking for value," he said.

Among its refurbished offerings, Matthews said the e-tailer is selling an LG 42-inch flatscreen HDTV for $600, about $300 less than its original retail price and a Navigon GPS device for $79, down from its original price of $149.

About 75% of products sold on BlueBayElectronics.com are refurbished, according to Daren Thompson, president and CEO of electronics of the online merchants.

Even so, its been a tough year for his company, with annual sales of about $16 million. But lately he's spotted a quirk in his sales: refurbished gadgets have shown strength over the past few weeks.

With just a few weeks to go before Christmas, he thinks consumers may be buying refurbished electronics as holiday gifts.

"All year, our sales have been down, but then we got a spike last week," Thompson said.

What's selling well? "Refurbished PS 3s (PlayStation 3), iPods and GPS devices," he said. "We've got PS 3's for $319 and they retail for $399," Thompson said. And on the new generation of iPods, Thompson said shoppers can save between $25 to $75.

The need to watch the budget is also making netbooks very popular. Netbooks are small laptops that are used primarily for emailing and surfing the Internet.

Most models cost between $300 to $600, although premium models can sell for more than $1,000.

"Netbooks are something that's in-between a BlackBerry and a notebook computer," Matthews said. " They are great for students or business people who are on the road and they need to check their e-mails," Matthews said.

However, price isn't the only factor spurring netbook sales. Stephen Baker, analyst with market research firm NPD Group.

"Netbooks are PC makers' next great opportunity," baker said. "They weren't conceived with the economy in mind, although it's a nice coincidence that the pricepoints are suited for the environment."

With flatscreen TVs, Baker said some consumers still want a name-brand product.

"People don't want to compromise on the brand but now they are just buying the lower-cost models," Baker said. To top of page

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