Too Much Of A Good Thing?
By Steve Smith -- TWICE, 3/22/2004
We should find out in a few months how negative the saying "Too much of a good thing" really is.
By every indication sales of HDTV, especially flat-panel sales, are on the verge of really breaking out. That's what all the retailers that we have spoken to lately have told us. This is the year for which the industry has been waiting, for what seems like an eternity.
Finally cable providers and broadcasters are providing significantly more HD programming. Consumers want their HDTV … and are willing to pay for it. And while supplies of certain top models may be in short supply as we speak, by the fall there will be plenty of product available, and hopefully plenty of customers willing to ante up.
Warren Mann, executive director of the MARTA Cooperative of America, said his members are "excited about HDTV's potential this year." He added that if HDTV's sales pattern is similar to other emerging technologies of the past, "we'll go from 10 percent [household] penetration to 90 percent in what seems like overnight."
Jim Barry, media spokesperson for the Consumer Electronics Association, has been traveling the buying group circuit in the past few weeks confirming the good news about pent-up consumer demand for HDTV.
So why are more than a few retailers apprehensive? Are they really afraid of "too much of a good thing?"
Well retailers, as usual, have a lot on their mind. First off, "pent-up demand" is only a good thing if it gets quickly converted into sales. If predicted sales don't happen, inventories will be loaded. The crunching sound you will hear this autumn will not only be people walking on fallen leaves, but the stomping of prices and margins.
Autumn is six months away and plenty can happen. Traditionally during Presidential election years, which coincide with the Summer Olympics, the demand for TVs goes up, as does the general economy. But during a time when economic indicators seem to go back and forth at will, the nation is still at war, and the world is still dealing with the ongoing menace of terrorism, who knows what will happen.
Retailers are also concerned about all the new manufacturers who have entered, or are about to enter, the market, plus existing vendors who have ramped up production to meet expected demand. As executive editor Greg Tarr quotes Myer-Emco's Jon Myer in his page one story: "So far margins are holding up. But we haven't felt the full brunt of the new imports yet. My feeling is that by the end of the year we could see a 180-degree shift."
Another nagging concern in this picture is what Tweeter's Frank Roshinski calls, "a lack of a two-tiered distribution strategy for flat panel." The strategy for projection TVs that earmarked "premium goods to premium channels" hasn't happened yet.
The breakout for HDTV sales comes at a time when new Far East suppliers, especially from China, are ramped up and ready for action. Of course all CE products go down in price. The industry usually tries to slow the pace of price erosion down for an up-and-coming category, while developing new technology in the back room to get prices back up two or three years down the road.
The issue that should concern everyone — established manufacturers, retailers and new suppliers, whether they be Far East vendors or newcomers from the PC business — is that if HDTV prices go down quickly, it will be economic poison for all concerned.
The good news should be that everyone knows the stakes involved, based on the lessons of history. (Remember $1,000 DVD players?) There should be enough time for the industry to make marketing, production and distribution adjustments to avoid the specter of bargain basement prices for top-quality HDTVs.
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