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Tight Supplies Could Hurt Holiday Sales

CE retailers and their suppliers anticipate a blockbuster holiday season as gasoline prices moderate and competitively priced flat-panel TVs and new iterations of iPods stoke consumer demand.

Still, dealers are keeping a watchful eye on two potential impediments to holiday cheer: tight supplies of plasma and LCD panels in key sizes and the arrival of the first home heating bills, which could take the wind out of December sales.

“It has been a very good year so far, with flat-panel sales driving the business,” said Bill Lyons, VP of Cardinal Electronics, the CE distributor. “The only obstacle I see in the fourth quarter is product availability. We have seen shortages in plasma and LCD already, and the outlook is for continued spotty availability.”

Richard Glikes, executive director of the Home Theater Specialists of America buying organization, believes “It’s going to be the biggest Christmas ever,” as high oil prices oblige consumers to spend more time at home.

“They want entertainment. They want our products, and we have a lot of stunning products to sell,” Glikes said. “As the products become more affordable, there’s more adoption, so everyone will have a great selling season.”

But Glikes also echoed the Christmas caveat that flat panel is becoming a victim of its own success. “Demand is outstripping supply, and it’s going to be a dogfight for merchandise,” he said. “It’s tough to get goods, and it’s going to be tight all season.”

Sam Taylor, president of Electrograph Systems, a distributor, agreed. “Recent price drops have increased demand in both plasma and LCD displays. There has been and will continue to be some product constraints, especially in the 42W-inch and 50W-inch plasma displays.”

“Shortages? You bet,” added Warren Chaiken, president/COO of Almo Corp., the Philadelphia-based distributor. “We’re seeing them in all brands of HD plasma and large-screen LCDs.”

Retailers and suppliers attribute the shortages to conservative forecasting and aggressive pricing by manufacturers. “Vendors like empty warehouses,” Glikes observed, while LG Electronics’ U.S. CE products sales VP Bob Perry admonished both lower tier and premium manufacturers for “inappropriate” price moves that “created huge demand … and left a vast majority of their dealers without inventory.” (See TWICE, Nov. 7, p. 1.)

Especially disruptive were this fall’s last minute line changes and price cuts on Sharp’s AQUOS LCD-TV models, delayed shipments of plasma displays from Pioneer, and tight supplies of LG’s own 50W-inch plasma panels, industry players observed.

“Manufacturers are struggling to keep up with production,” said Mike Hench, president of The Edge Distributors Group and a principal of Electronics Source. “It is difficult to properly forecast when you don’t know what the prices will be six months later.”

For dealers and distributors, the shortages have made it more critical than ever to maintain strong vendor ties. “Relationships are extremely important,” said Glikes. “It’s all about who has the merchandise.”

Size matters too. “We’re getting our usual unfair share of products,” quipped Ron Boire, executive VP/general merchandise manager at Best Buy, who added iPod nano and Xbox 360 to the list of hot and potentially hard-to-get products this season.

Moreover, strong demand for the nano and increased use of flash memory is also creating shortages of some flash-memory products, said David Golshirazi, president of International Supplies.

Meanwhile, some retailers fear that high energy costs, particularly for home heating fuel, could still constrain fourth-quarter spending. “The impact will be the difference between a great Christmas and a good Christmas,” Wal-Mart’s CEO Lee Scott told investors.

But Bruce Kuperman, sales and marketing executive VP for DBL Distributing, sees high pump prices as a boon to e-tailers. “We’re predicting increased Internet buying this season, both on the consumer side and within our customer base. The cost of shipping is more economical vs. driving around comparison shopping,” he said.

Nevertheless, Wal-Mart is hedging its bet by upgrading its CE floors and assortment to attract a less price-sensitive shopper. This season, expect to find $996 Toshiba notebook computers in all stores and 8-megapixel Canon Digital Rebel SLRs in select Wal-Mart locations for $957.63, representing unprecedented price points for those categories within the discount chain.

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(Oct. 30–Nov. 5)