Black Friday's Underside
By Steve Smith -- TWICE, 12/8/2003
As usual there was blanket coverage of the Black Friday phenomenon during the Thanksgiving weekend, with newspapers and plenty of local, network and cable news outlets going to stores, taping people shopping and showing all the long, long lines of consumers waiting at check-out lines.
Annual publicity like that makes one wonder why so many consumers love to go shopping at the crack of dawn on that day, or any time that day for that matter. As senior editor Alan Wolf, who got up before dawn that day to observe the goings-on in the wilds of New Jersey, said, "I overheard some families on line say it's an annual outing, a party, a rite of the holiday season." I guess if crowds, lack of sleep and deeply discounted bargains are your thing, it would have to be family holiday tradition. (Check Alan's coverage of the day, starting on p.1.)
The consumer media told all of us that electronics products are on the top of everyone's holiday gift-giving lists. But there is an underside to all this Black Friday hysteria. Those deeply discounted products that drive store traffic and create a buzz about the industry are also detrimental to the profitability of both retailers and suppliers.
All those $29 DVD players, $99 flat-tube analog color TVs and the like amount to creating busy work for retailers and manufacturers. But to what end?
Plenty of people are employed building those products, employed to distribute, sell and get those boxes, and customers, out the door. Most products at those price points, whatever brand name is slapped on them, are of borderline quality. Why? The manufacturers who supply such products are probably the "winners" of those retail auctions, which have been discussed in this column earlier this year. In enough cases to count, for each box of discounted product at $29, $50 or $99, manufacturers are losing money on each unit.
And of course there is the product quality issue. CE products at such prices are not really bargains. They are more like rental products. They will die within three, six or 12 months and not be worth repairing, given its original price and overall quality. Repair services will tell consumers to go out and buy another one.
Some consumers used to resent that scam and swear they would never buy another product from that manufacturer again. (They might go back to their favorite retailer, but will not buy another product from the manufacturer. Suppliers take the hit on that one.)
Last year's holiday season was when DVD pricing first became really aggressive, or as Gateway would say "disruptive," and crossed the $100 barrier. A college student who bought one of the cheap DVD players was quoted in The Wall Street Journal as saying (I'm paraphrasing), "I've got a year and a half left in college. I know it's a cheap DVD, but I hope it'll survive until I graduate and get a job, so I can buy a real one."
Oh, and what about the profitable side of the industry? Well, demand for large-screen projection, LCD, plasma and DLP sets are in short supply. Consumers want to spend, but manufacturers didn't make enough this year. As JVC and industry veteran Harry Elias told me last week, "On one hand, [shortages] are great because suppliers and retailers will have clean inventories at CES. On the other hand, plenty of us will probably say in a month, 'Gee, if we only had more product, how many more plasma or LCDs would we have sold?' "
And, more importantly, what would the collective profitability for the industry be like at the end of the year if there was more high-margin product available now, vs. the low-end dreck that draws traffic and headlines, but saps margins along with it?
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