Sales of TV sets turning into litmus test for U.S. economy
Electronics stores leading way in fight for wary consumers
By Matt Richtel
NEW YORK TIMES NEWS SERVICE
November 30, 2008
SAN FRANCISCO – In a volatile year that has turned many Americans into armchair economists, here's an important indicator to watch this holiday shopping season: How many people are lugging home big, flat-screen televisions?
DAVID ZALUBOWSKI / Associated Press
Black Friday shoppers aimed to take advantage of reduced prices on television sets at a Sears store in a shopping center in Aurora, Colo., a Denver suburb.
The answer matters to more than just TV makers. Just as high-definition TV sets have become the hearth of the digital home, they are increasingly central to the fortunes of the consumer electronics industry and plenty of retailers.
There's reason for serious concern. While retailers are trying to use discounted TVs as a lure for shoppers, many would-be buyers continue to wait for a magical price that is low enough to inspire a purchase. Others just have more pressing needs.
“The question is whether I buy a TV or something more important,” said David Lunsford, 62, who visited a Circuit City near San Francisco last week to shop for big-screen TVs. He would love to replace his aging rear-projection set, but he worried that he needed to save money in case family members hit tough times.
“I'm a stable provider. They may turn to me,” said Lunsford, who works for the federal government.
Americans are expected to spend $28 billion this year on TVs, making them the largest segment of the $173 billion electronics industry. So far, about half of American households have made the jump to flat-panel screens, which started out as status symbols but are on their way to becoming standard household appliances.
Advertisement More people may choose to upgrade this year because of the national switchover to digital broadcast signals that is coming Feb. 17. The change, which will mostly affect people who watch over-the-air signals on older sets, has generated a good amount of consumer confusion, which could be good for sales of new sets.
TVs also are a gateway to a host of other products, such as Blu-ray discs and their players; surround-sound audio systems; digital video recorders; and cable.
All of these factors have led electronics stores such as Circuit City and Best Buy, and even less specialized chains including Sears, Wal-Mart and Office Depot, to put TVs front and center in their advertising recently, promoting them on the cover of Sunday circulars and on the home pages of Web sites.
The stores are offering discounts – such as 42-inch TVs for less than $700 and 32-inch sets for $450 – that come on top of recent steep price declines for the sets.
For the industry, the feeling is that if retailers cannot get TVs to move, the holiday season could be a bleak one indeed. In that sense, the TV market offers a glimpse of the broader tensions this year between wary consumers on the one hand and retailers and manufacturers desperate to spur sales on the other.
“The television becomes a litmus test of the robustness of the American economy,” said Richard Doherty, an electronics industry analyst with the research firm Envisioneering. In his consumer surveys, the early word is mixed; many consumers want a new TV, but they think that if they wait to buy, retailers will drop prices further.
There were signs on Black Friday that more cuts might be necessary. At two malls outside Portland, Ore., the electronics stores were the only ones that were full of shoppers. But people seemed to be gravitating toward lower-priced items such as video games instead of televisions.
Doherty's firm tracked stores in New York and California and found that for some retailers, it was the slowest Black Friday of the decade. “There are lots of big-screen TVs still standing on the show floor,” he said. “This is not what was expected by retailers or manufacturers.”
Store owners may cut TV prices even further with revamped sales starting today, Doherty said.
Steven Caldero, chief operating officer of Ken Cranes, a 10-store consumer electronics chain in the Los Angeles area, painted a rosier picture.
“Our traffic has been very good,” Caldero said Friday. “Our sales have been good. I think people went out and decided to buy something to make themselves feel better.”
In just the first two hours of operation Friday, Ken Cranes matched about one-third of the business it did for all of Black Friday last year, he said. But while consumers bought plenty of TVs, they shied away from purchasing complementary products such as audio systems, Caldero said.
“I am not seeing as much of that as I would like to see,” he said. Consumers eyeing televisions have historically been rewarded for their patience: Flat-panel prices have fallen by nearly half in the past two years.
A year ago, for example, Sony sold a 40-inch model for $1,600 that now costs $1,000, and a 32-inch model for $1,100 that now goes for $749. And Sony is one of the costlier brands. Several manufacturers are selling 32-inch TVs for $450 to $500. Mammoth TVs, those more than 50 inches, have come down, too; Best Buy is offering a 52-inch Sharp for $1,299.
Beyond price drops, manufacturers and retailers are trying to spur demand with other incentives. At Circuit City, for instance, televisions get a 60-day price guarantee, whereas other products have a 30-day guarantee. Reflecting the special place held by TVs, Circuit City also offers 36 months of interest-free payments on some larger sets, compared with 24 months for other products.
Many major retailers are sweetening the pot by bundling TVs with high-definition DVD players or by offering discount bundles on cable. They announced Black Friday deals weeks in advance, and some – such as Best Buy – began sales events in the days before Thanksgiving, with heavy promotions on TVs.
Yet consumers remain cautious, and manufacturers are nervous.
Caldero of Ken Cranes said he had been in constant contact with electronics manufacturers, including TV makers, that were trying to gauge demand.
“I've had more calls from vendors in the last few weeks than I've had in the last three years,” he said. “They want to know what's going on, how's business, what's working and what's not.”
Just to be safe, TV makers have been shipping fewer sets – but they may not have pulled back fast enough.
In the third quarter, shipments to North American retailers of LCD TVs rose 21 percent from a year ago, and those of plasma TVs rose 20 percent, according to DisplaySearch, a market research firm. That's down from growth rates in the past two years that at times hit triple digits.
Paul Semenza, an analyst with DisplaySearch, said that the sharp downturn in retail sales of TVs did not hit until mid-October, so despite the slowdown in shipments, the retailers and manufacturers were still facing a glut of sets.
“Oversupply has just cascaded,” Semenza said.
As in other industries, that oversupply, and the uncertainty of consumer demand, has caused problems further back in the manufacturing and supply chain. In Taiwan and South Korea, where the LCD screens for the sets are made, prices are falling 5 percent to 9 percent a month – a “tremendous drop,” said Andrew Abrams, an analyst with Avian Securities, which tracks the electronics industry. Such drops suggest that retailers have far too much inventory, and Abrams said he expects another round of price cuts.
The question is, who will blink first: manufacturers and retailers, or consumers?
Bruce Tripido, vice president for marketing at the TV maker Sharp, said adequate discounts were already in place.
“We're not looking to shift gears from the offers we've planned,” Tripido said. “The pricing is so compelling for this holiday selling season that it's to the point of (being) irresistible.”
Yet resistance remains for many consumers, such as Bayani Deluna Jr., 35, who stood last week at a San Francisco-area Best Buy looking longingly at a 32-inch Sony television.
Deluna, who worked as a parking valet until a few weeks ago when he went on disability, is waiting for the $600 price to drop. “If it comes down to $450, I'd buy it,” he said. “And I'm sure the price is going to come down.”
