HDTV shoppers tune out Best Buy
Posted
Mar 07 2008, 02:59 PM
by
Anthony Mirhaydari
Rating:
Best Buy and Circuit City are reeling this week from the loss of their edge over discounters in the minds of high-definition television buyers -- just as total industry sales are beginning to slow. Yesterday's retail numbers showed that more consumers are trading down to price-focused shops for entertainment products, eschewing the better service and selection offered at specialty stores. Wal-Mart, the king of discounters, yesterday reported "extremely strong sales" of flat-panel TVs and home entertainment furniture.
This is a remarkable turn of events for specialty retailers that once had the high end of the business locked up. Vendors like Sony and Panasonic used to sell exclusively through the leading specialty stores to protect their brand image and leverage the service levels these outlets offer. But now, as the big electronics makers are fighting for their own lives, squeezed by low-cost competitors and a slowing consumer, they’ve become a lot less picky about where to sell their wares. At the end of the day, it's about the sales targets.
This backs up the findings of a recent survey by AlixPartners, a consultancy, which showed that U.S. consumers at all levels now rank "low prices as the most important determinant of what and where they buy, eclipsing product quality, customer service, the shopping experience and ease of shopping." In the words of AlixPartners managing director Fred Crawford: "It's a whole new ballgame."
But understandable when one considers new Federal Reserve data showing Americans aren’t just feeling poorer, they are in fact actually poorer. For the first time in more than five years, total household wealth has decreased, falling $533 billion to $57.7 trillion in the fourth quarter. Blame falling home prices and retirement accounts. Ouch.
If this wasn't bad enough, Morgan Stanley analysts note that HDTV penetration is edging closer to 40%. Now that the technophiles have had their fill, all that’s left are miserly mainstream households: The analysts' survey noted that 61% of American households weren’t interested in buying a new TV unless prices fell below $600. The December average selling price was $1,250. Over time, this gap will have to close.
While prices have been falling for awhile (average selling price in 2006 was more than $2,000), largely due to the influence of the discount retailers, transitions to larger screen sizes helped offset the decline. This helped keep the industry's total sales growth healthy. Although the manufacturers continue to push the envelope, like with this ridiculous 103-inch monster from Panasonic, the trend is set to slow as living room space (and taste) becomes an issue. Estimates from the guys at Morgan Stanley have retail TV sales moving down 2% this year, and falling a full 8% in 2009 to around $24 billion as price declines start affecting the bottom line.
As these trends rearrange the specialty retail landscape, I wouldn't be surprised to see Circuit City bankrupt, Best Buy knocked from its high horse, and Wal-Mart and Costco dominant.
In trading today, Best Buy hit a two-year low as the market digested the grim outlook. Significant technical support was knocked out along the way. Circuit City continues its slide toward Bagel Land.
(Disclosure: I don't own any shares of the companies mentioned in this post.)
