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Merchants See Ultra HD Price Moves As Dual-Edged Sword

NEW YORK — Ultra HD TV has been touted as the great bright hope of A/V retail: an exciting new display technology that will revive the lynchpin video category from softened sales, incessant discounting and its 3D misfire.

For many CE specialty retailers, that is partly the case. On earnings calls and in discussions with buying group merchants representing thousands of independent dealers, demand for the super-sharp panels was described as strong, and sales projections for the holiday season are largely rosy.

The downside of the equation is that fourth-quarter strength in 4K is predicated on stepped-up discounting by vendors, giving full-service dealers a limited window before the state-of-the-art TVs devolve into low-margin terrain.

“Moore’s Law demands a certain speed,” said Tom Hickman, electronics VP for the $15 billion Nationwide Marketing Group. He noted that price moves are coming faster than they did for prior innovations like digital TV and Blu-ray, and predicted a “hypercompetitive market” for Ultra HD this quarter and next as pricing compresses at an accelerated pace and the runway for healthy margins narrows.

Jim Ristow, co-president and chief business officer of ProSource, the CE specialty and custom integration wing of the BrandSource merchandising group, concurred. Prices on some Ultra HD TV models have already fallen as much as 40 percent over the past three months, he said, although the new affordability will help his dealers sell more 4K sets between now and year’s end than they have since the technology was first introduced, while still realizing higher average selling prices (ASPs) overall.

“We’re still very bullish on 4K for this year,” Ristow noted. Affordable 4K especially plays into the hands of Walmart, which plans to “dip our toe in Ultra HD,” said Steve Bratspies, the discounter’s executive VP and chief hardlines merchant. “There’s not a lot of content, but we expect prices to come down very rapidly,” he recently told TWICE.

Sam’s Club, which caters to a more tech-savvy customer base, is already outpacing the industry’s 5 percent penetration in Ultra HD by a wide margin, CE senior VP Dawn von Bechmann said. Despite a dearth of native content, the warehouse club has at least one 55-inch Samsung 4K model in each of its 636 stores, shows 65-inch displays in select locations, and is adding LG and Vizio SKUs to the assortment.

Bechmann said sub-$2,000 price points, the improved picture quality of even up-converted content, the availability of 4K cameras and camcorders, and customers’ desire to “future-proof their purchases,” should help drive substantial sales during the holidays.

Also high on Ultra HD is Theo Wright, chairman/ CEO of the 89-store electronics, appliances and home-furnishings chain Conn’s. On a second-quarter earnings call this month, Wright told analysts that 4K comprised 13 percent of LED TV sales during the period, and rose to 21 percent of LED sales in August.

“Pricing is more attractive, and we now have 4K products on the floor with prices below $2,000,” he said. “These products are affordable for most of our customers.”

Even with 4K deflation, product gross margin for the electronics category increased to 29 percent during the quarter, due in large measure to the rising proportion of Ultra HD sales, he said.

Looking ahead to the holidays, Wright predicted that “4K television should have a greater impact in Q4 and help us maintain both ASP and margins.”

Dennis May, president/CEO of multiregional appliance, home and CE chain hhgregg, similarly reported “seeing a little more velocity” in Ultra HD during a recent fiscal first-quarter call. The company is currently carrying two 4K SKUs, both from Sony, “and we’ve seen some movement out of these products,” he said.

hhgregg will up the Ultra HD quotient in time for the holiday season, when it will offer six or seven sets, including models from LG Electronics and Samsung as well. OLED will also join the holiday lineup, albeit at a higher price point.

“What we love about Ultra HD is that it’s a product that can up-convert existing content,” May told investors. “We are somewhat encouraged for the longer term as we see products like 4K starting to sell, and getting some traction on the [sales] floor.”

Nationwide’s Hickman believes the outlook for Q4 and the start of 2015 is bright as Ultra HD and OLED models hit popular price points.

“We will be up in CE in the fourth quarter, and 4K and OLED will be the drivers,” Hickman declared. “It will be a 4K holiday, and the next six to eight months for the category will be phenomenal.”