Higher CE Prices Are Possible
By Steve Smith -- TWICE, 4/7/2008
Consumer electronics prices may be going up this year due to higher production costs in China.
As I first indicated in a blog on TWICE.com a couple of weeks ago, several top executives who want to remain anonymous have indicated that prices will in all likelihood go up due to higher manufacturing costs.
Sources close to our sister publication TWICE China confirmed the situation and Gary Shapiro, president/CEO of the Consumer Electronics Association said that some of his members have voiced their concerns over rising costs. (See story on p. 1.)
With the consumer electronics industry's reliance on Chinese manufacturing plants, either the OEM variety or those plants at least partially owned by brand-name manufacturers, higher prices could hit just about every category you can think of.
In just about any other industry, higher prices happen on a regular basis and are usually welcomed, but not in this business where retailers and consumers are trained that prices only go down in CE, not up. I've been told that certain national retailers are in denial about the situation, and I can see why. Usually prices go up in CE only when a new format is introduced, or when next-generation products bow with added features.
Manufacturers who rely on Chinese factories, (and who doesn't in the CE business?) may be facing lower margins to keep retailers. Retailers may get hit on the bottom line as to not pass along higher prices to consumers.
There seems to be a "perfect storm" of higher costs this year when it comes to Chinese manufacturing. Executives report many Chinese factories lost money last year, and some factories have closed down, causing production delays. The exchange rate between the U.S. dollar and the Chinese yuan has deteriorated. The U.S. economic downturn has hurt volume for these plants, while labor costs have increased 15 percent due to new labor laws in China that began earlier this year.
Raw-material costs, from plastics to electricity to copper and others, are all up, along with higher energy prices that have increased shipment costs to the U.S. And there are labor shortages in China, for a variety of reasons.
And one unique factor this year is that many Chinese factories will stop production in June to cut air pollution in the country before the Summer Olympic games.
All of these factors are also creating longer lead times for existing products and new introductions, depending upon the manufacturer you talk to.
And executives say there isn't any real alternative to Chinese manufacturing, at least in the foreseeable future.
In the past when the industry faced higher costs and threatened higher prices, the industry usually toughed it out and held firm... until one or two suppliers cut prices to gain market share. This year that might not be possible.
This "perfect storm" of higher costs and circumstances may just create a situation few of us have ever seen — a real increase in CE pricing.
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