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TV Prices Still Falling, But Shopper Interest May Be, Too

Post Time:Aug 04,2009Classify:Industry NewsView:547

Televisions are among the few big-ticket items that recession-weary consumers have been buying this year, but shoppers' interest may be faltering as worries over rising unemployment take a toll.

While prices continue to fall, key TV component costs are rising, and manufacturer supplies are more balanced with demand than earlier this year. As a result, retailers may not be able to offer the kinds of steep holiday discounts they did in 2008 without a hit to margins, said Paul Gagnon, director of North American TV research for research firm DisplaySearch.

"It's going to be hard for retailers and brands to show a big promotional drop in prices during the holiday season compared to what we're seeing right now," Gagnon said.

The average retail price of a television in the U.S. and Canada dropped nearly 20% in the first quarter from a year earlier, to $732 from $913, according to DisplaySearch.

The firm doesn't yet have second-quarter figures in but is expecting prices to drop another 3% from the first three months.

Electronics prices routinely fall, since technology becomes cheaper to produce as it ages. Unit prices also decline as a technology is widely adopted and ramped up retail competition pressures prices.

About 75% of American households now have a digital TV, and more than half have high-definition TV sets, said Megan Pollock, spokeswoman for the Consumer Electronics Association. Her group estimates average wholesale TV prices will fall 17% this year after an 11% decline in 2008. Average TV prices rose in 2006 and 2007 because people were buying larger, more expensive plasma and LCD TVs.

But the U.S. recession has slowed that trend.

"What we're seeing this year is some people are buying smaller sets," opting for a 30- or 42-inch TV instead of a 50- or 52-inch set, Pollock said. Others are selecting entry-level models.

The association expects wholesale unit shipments to increase 14% this year, to 35.4 million. Some people justify a new TV as cheaper than going out often or taking a trip, which is one reason TV sales have held up better than other big-ticket items, such as furniture and appliances.

Still, sales of TVs and other consumer electronics are under pressure.

Best Buy Co. (BBY) reported an 8.8% same-store sales decline in its consumer-electronics category, which includes TVs, for its fiscal first quarter ended May 30, worse than the companywide 6.2% decrease.

And shares of growing regional retailer Hhgregg Inc. (HGG) fell July 16, in part because of disappointing preliminary sales in its video category. Hhgregg said video sales fell 17% in its fiscal first quarter ended June 30 on a same-store basis.

Best Buy and Hhgregg representatives declined to comment.

Gagnon said many of the price declines that hit retail shelves earlier this year were tied to dramatically falling prices for the plasma and LCD display panels used in TVs. Manufacturers increased production in 2008 but took a while to dial it back after the global recession hit hardest last fall.

Now, strong demand in China and the lower production levels have tightened the supply chain. That's good for companies like LCD glass maker Corning Inc. (GLW), which last week posted better-than-expected results.

It could mean moderating prices for retailers, too, as long as their own inventories are in line with demand. Best Buy spent the early part of this year boosting TV inventory after cutting it too deeply late last year and missing out on some TV sales.

Some industry watchers worry demand isn't strong enough to support prices.

Jeff Trester, an economist and co-chief executive of price-comparison Web site PriceScan.com, said flat-screen TV price declines have accelerated in recent weeks.

"People who are concerned about their jobs, their first instinct is not to go out and buy a TV," he said.

During the last week of June, PriceScan's price index for 52-inch TVs with full high-resolution resolution dropped 9% after falling less than 1% throughout the earlier part of the second quarter. The price index for 40- to 49-inch plasma TVs has fallen 15% since late April after showing no overall change from January through April.

One factor may be that sales leading up to broadcasters' switch to digital signals have now tailed off. The sheer steepness of some recent price drops, however, leave Trester ascribing a substantial portion to flagging demand.

Only 20% of consumers surveyed in late July by Stifel Nicolaus in its twice-monthly spending study said they plan to buy a high-definition TV in the next year, down from 23.5% of those surveyed in late April.

And consumer expectations regarding technology spending dropped in July after three months of increases, mirroring declines in consumers' confidence in the economy, according to a monthly index published by the Consumer Electronics Association and CNET.

Analysts note, however, that retailers this fall will have easier comparisons because of last year's dismal TV demand, which prompted steep holiday promotions. "Deflation may not be as bad by then," Stifel Nicolaus analyst David Schick said recently.

Source: online.wsj.comAuthor: shangyi

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