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Retail Execs Hail UHD TV As A Holiday Sales Savior

For CE retailers beset by flagging foot traffic and faltering margins, Ultra HD TV, with its startling picture quality and big-ticket sticker, is something of a gift from above.

And the ribbon on that present, neatly tied just in time for Holiday 2015, is a pricing reset that puts the technology within reach of a vastly wider swath of consumers, while still proffering some profitability.

Little wonder then that retail execs are dreaming of 4K Christmas. As Tom Hickman, executive VP of electronics and distribution for the Nationwide Marketing Group observed this summer, “It’s a good time to be a CE retailer, especially with [Ultra HD] being very profitable” and the group gleaning strong double-digit gains in the category.

For mass merchant Best Buy, the price declines are especially propitious. As chairman, president and CEO Hubert Joly noted during a recent second-quarter earnings call, “As we enter the back half of the year and as pricing of these technologies becomes even more affordable, we believe that we will continue to benefit from the customer moving to larger-screen televisions and 4K technology.”

He continued, “The price drops that every one of us as a consumer can track are very material. And so the prices at which one can buy a 4K TV now are very, very exciting. We expect that this will continue in the second half.

“These TVs are becoming very affordable, and of course the innovation and the material change in picture quality is very helpful. So we expect the market to continue to do well in large TVs and 4K TVs.”

Best Buy and its vendor partners are also doing their share to fuel the 4K fires. According to Joly, the chain has expanded its Samsung home-theater stores-within-a-store from 500 at launch to 603, and its Sony hometheater in-store shops from 350 at launch to 372 nationwide.

In addition, the Best Buy has rolled out five of its 20-planned Magnolia Design Center premium in-store boutiques for this year, increasing their presence to 63 locations.

“The way we merchandise, and the customer experience in our stores, with investments we’ve made together with some of our key partners – with Samsung, with Sony, with LG – and the Magnolia Design Centers, allows us to really perform particularly well in that market,” Joly said.

Dennis May, president/CEO of hhgregg, is equally optimistic about 4K TV, which presently represents 41 percent of the chain’s video mix, and could comprise fully half of all his TV sales by the holidays.

“We believe the growth opportunity provided by customers upgrading to 4K is still significant and will have a long runway for us,” May told analysts during a first-quarter earnings call last month.

What’s more, the company, with its consultative sales floor, is already looking ahead to step-up display technologies like LG’s OLED and Samsung’s SUHD offerings.

“We do see Super UHD and OLED becoming more prominent at the top end of the business,” he noted. “You will see greater sales of the SUHD, or super 4K product, if you will, and I also think that you’ll see OLED start to become more of a ‘philosophy’ product as it also moves into more attractive price points.

“There is going to be more OLED, more curved screen TVs than originally expected,” he continued. “So, I would say that the innovation pipeline in TV is probably going to be a little more crowded than originally expected and that’s a good thing.”

Indeed, that innovation should serve as a hedge against price compression, which, while driving wider acceptance of UHD, can also eat into profits. As Best Buy’s Joly forewarned retail analysts: “As you would expect, as we get into the start of the cycle the margins are not going to continue at the same level, so factor this in.”

ProSource, the CE and CI specialty wing of the BrandSource buying group, apparently has, and, like hhgregg, is eyeing OLED as a safe haven from the falling knife of 4K price cuts. The division, which already claims a 50 percent mix of UHD and is projecting a 70 percent mix by year’s end, acknowledges that the category has entered a pricing “sweet spot,” although the window of opportunity won’t remain open for long.

To that end, president/CEO Dave Workman is supporting a major marketing, advertising and promotional push by LG behind OLED, as the manufacturer leverages its current production monopoly. Leading the charge is the price-protected 55-inch 1080p model, which can help drive showroom traffic with its eye-popping contrast and competitive $1,999 price point, he said.

ProSource is also partnering up with Sony and Samsung. The latter, Workman noted, has the No. 1 market share in TV; has kept industry pricing stable through its UPP policies; has “the best inventory in the country”; and, along with LG, is providing a unique 90-day product-return window to BrandSource dealers via the group’s in-house Expert Warehouse distribution program.

Back on the mass merchant side, Sam’s Club, which tends to attract a higher-income and better-educated customer than its discount sibling Walmart, is also heralding a UHD holiday season.

“It’s an important part of our business, and we’re seeing it really coming to life,” said Dawn von Bechmann, the warehouse club’s technology and entertainment senior VP. “Our members love new technology and big TVs.”

Indeed, the category currently represents 20 percent of Sam’s Club’s TV volume and 35 percent of its SKUs, she noted during the company’s shareholder gathering in June, and will likely comprise as much as 50 percent of the TV mix by the holidays, fueled by lower prices as well as fresh content from Netflix and the Hollywood studios, and the addition of 4K camcorders and Blu-ray players.

But not all of the UHD tidings are glad. Tom Campbell, corporate director of L.A. specialty chain Video & Audio Center, cautioned that 4K, which still remains “a statement of affluence,” could become a victim of its own success if demand outpaces production.

“We expect a record-breaking holiday season for the industry, driven by 4K TV,” he told TWICE earlier this summer. “The consumer is embracing technology like never before, and Q4 sales will go beyond analysts’ projections,” fueled by “more and more 4K content” and prices that “keep coming down, down, down.”

However, he warned, “there’s also the possibility of 4K shortages because demand has been underestimated. Right now dealers are trying to buy up inventory. We’ve been preparing for a record fall and so far haven’t been disappointed.”

Helping to allay any inventory shortfalls will be 4K newcomer Vizio, which is reaching out to the specialty dealer and custom-install channel with a new Ultra HD M series of full-array LED TVs, and a forthcoming 120- inch, HDR and 4K Reference-series model.

To encourage niche merchants to look past its mass-merchant heritage, the vendor will make its first-ever appearance at CEDIA Expo next month, courtesy of its distributor group the PowerHouse Alliance.

“We are very eager and excited to help Vizio enhance its visibility across the marketplace, while creating greater availability and easier access to new CI-designed specialty products coming this fall,” PowerHouse executive director Dennis Holzer said earlier this summer.

Added Vizio co-founder and chief sales officer Laynie Newsome: “Vizio is ready to partner with the Powerhouse Alliance to offer our product line to a new specialized audience of home technology installers.”