New Year, Old Hangover
By Steve Smith -- TWICE, 1/8/2007
With all the sales volume at retail during the fourth quarter, the mood at International CES, celebrating its 40th anniversary this week, should be upbeat. However, more than a few retailers and flat-screen TV suppliers will be nursing hangovers and licking wounds from the pricing debacle which began on Black Friday and continued throughout the season.
Yes, HDTV became a mass market product category, but at what cost?
The fourth-quarter flat-screen TV giveaway has caused the impact that was predicted by many. There is plenty of hand-wringing and finger-pointing about "Who's to blame," with the usual suspect — Wal-Mart — being the first among equals.
Everyone complains, but if a major retailer or manufacturer feels the need to drop prices the way they were dropped on Black Friday and beyond, many are forced to react. And eventually suffer. And, like waking up Jan. 1 after a long New Year's Eve party, most get a hangover.
Take a look at the comments from some major retailers over the past few weeks. Tweeter's president/CEO Joe McGuire, whose chain reduced its loss in its most recent quarter, commented that the chain "competed along with everyone else" on flat-panel pricing and that the holiday promotions "will hurt a lot of people."
Best Buy executives used a phrase I hadn't heard of before — "Red Friday" — in referring to the day after Thanksgiving in 2006 due to the wild promotional efforts. Vice chairman Brad Anderson said that the chain made "the right choice on margin" even though it was lower because it gained more customer loyalty. And he said, "I would do it again."
Arch-rival Circuit City reported a surprising loss for the quarter ended Nov. 30 of $16 million. Phil Schoonover, president/CEO said flat-panel prices "fell to unanticipated levels" and called the price declines "unprecedented." He blamed the volatility on unnamed plasma and LCD TV suppliers. (See p. 8.) He felt the chain had no choice but to "hold the hill" and keep market share and that "we are not prepared to give [consumers] back to our competitors."
What has to be sobering to everyone in the industry is possible deep price cutting to keep customers and market share may continue into the new year.
Some manufacturers are not standing idly by, waiting for flat panel to become a commodity. Several major brands will be differentiating their 2007 lines. At CES Pioneer will show a new plasma technology, Hitachi has a line called "HD 1,080" which is unique to its brand and Philips continues to expand its Ambilight line.
All this is a step in the right direction, but as Bill Trawick, president/executive director of the NATM buying group, told our senior editor Alan Wolf for a story in today's TWICE CES Daily, Wal-Mart wasn't promotional enough in 2005's fourth quarter and too promotional during the season last year and its comp sales were down. "The question is what does Wal-Mart do in the coming months?"
That's a sobering thought. Here's another one. In McGuire's comments to analysts recently he reiterated the old line, "There's no nourishment in a bowl full of volume." One should add that there is a hangover after all the volume, and plenty of red ink.
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