[opendtv] News: TV Sales Becoming Litmus Test for U.S. Economy
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Sat, 29 Nov 2008 07:24:01 -0500
http://www.nytimes.com/2008/11/29/technology/29televisions.html?th=&emc=th&pagewanted=all
TV Sales Becoming Litmus Test for U.S. Economy
By MATT RICHTEL
Published: November 28, 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?
The answer matters to more than just TV makers. Just as
high-definition 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.
And 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, and 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 here last
week to shop for big-screen TVs. He would love to replace his aging
rear-projection set, but he worried he needed to save money in case
family members hit tough times.
"I'm a stable provider. They may turn to me," said Mr. 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.
More people may choose to upgrade this year because of the national
switchover to digital broadcast signals 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 are also a gateway to a host of other products, like Blu-ray
discs and their players, surround-sound audio systems, digital video
recorders and cables.
All of these factors have led electronics stores like Circuit City
and Best Buy, and even less specialized chains like 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. They are offering discounts - like 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 Mr. Doherty's
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 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 like video games instead of televisions.
Mr. 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 on Sunday, Mr. 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," Mr. Caldero said. "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 on Friday, Ken Cranes
matched about one-third of the business it did for all of Black
Friday last year. But while consumers bought plenty of TVs, they
shied away from purchasing complementary products like audio systems,
Mr. 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 nearly in half in the
last 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 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 offering discount bundles on cables.
They announced Black Friday deals weeks in advance, and some - like
Best Buy - began sales events in the days before Thanksgiving, with
heavy promotions on TVs.
And yet consumers remain cautious, and manufacturers are nervous.
Mr. 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 of this
year, 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 is down from
growth rates in the last two years that at times hit triple digits.
Paul Semenza, an analyst with DisplaySearch, said that the downturn
in 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," Mr. 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 Korea where the LCD
screens for the sets are made, prices are falling 5 to 9 percent a
month, a "tremendous drop," said Andrew Abrams, an analyst with Avian
Securities, which tracks the electronics industry. Such drops, he
said, suggest that retailers have far too much inventory, and 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," Mr.
Tripido said. "The pricing is so compelling for this holiday selling
season that it's to the point of irresistible."
Yet resistance remains for many consumers, like Bayani Deluna Jr.,
35, who stood last week at a San Francisco-area Best Buy looking
longingly at a 32-inch Sony television. Mr. 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."
Ashlee Vance and Claire Cain Miller contributed reporting.
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