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While the margin outlook for the flat-panel TV business remains a major concern for CE dealers, other moving parts of the industry — including the audio business, high-definition video discs, competition from discounters and the macro-economic environment — will also command retailers' attention this year, according to industry executives.
Bill Trawick, president and executive director of the NATM buying group, believes that an important wild card to consider in 2007 is Wal-Mart. The world's largest retailer had a rough holiday season and could begin behaving in unpredictable ways as a result. "In 2005 they were concerned that they weren't promotional enough, so in 2006 they were very promotional, and their comparable-store sales were still down," he said. "So the question is, what does Wal-Mart do in the coming months?"
Joe McGuire, president and CEO of Tweeter Home Entertainment Group, said that the audio category is beginning to show renewed signs of life after a long fallow period, and that the national A/V specialty chain has planned its audio business accordingly. "We planned for it to be up a little this year, by 1 percent," he told analysts.
McGuire also believes that the increasing interoperability of TVs, set-top boxes and other digital devices bodes well for Tweeter's home services business due to their greater complexity. "Two years from now I probably won't sell a device that doesn't have network access," he said.
Warren Chaiken, president and COO of Almo, doesn't anticipate any breakthrough technologies capturing sales this year, although he expects to see refinements of existing ones. Nor does he hold out any high hope of Blu-ray winning the hearts, minds and wallets of consumers, at least until the players hit a $399 price point within the next two years. "It won't be a mass-market product until then," he said. "They look great, but how good is good? If you can buy a decent DVD player for under $100 vs. $1,000 for a Blu-ray, which one is the consumer going to choose?"
Matt Frankel, president of AIG Warranty, expressed concern for retail margins, with holiday and event promotions coming earlier and deeper. "Good retailers will do well, but marginal retailers will not," he said. "Retailers that buy the inventory and step up to the plate will have a very good season," he said of the extended holiday period, making up in unit volume what is lost in per-item revenue.
Looking at the macro-environment, Frankel remained optimistic. "I really believe business will be very good. Interest rates are not bad and retail has been very strong.
"We got spoiled for four years with the prime rate at 1 percent, and we've had many years of growth through new-home sales and remodeling," he continued. "With the current soft housing market, you've got to wonder whether the economy is slowing down or if consumers have completed their planned additions and new home purchases."
Either way, demand for consumer electronics in general, and flat-panel TVs in particular, remains solid, Frankel said, because unlike major appliances, consumers don't wait for their present CE devices to break before replacing them.
NATM's Trawick saw another positive economic indicator in the intensity of foot traffic generated on Black Friday, which demonstrated that the consumer is not averse to spending disposable income. "I didn't see one dealer who didn't have a decent Black Friday," he said. "So people are buying."