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CE Unit Demand Still Strong, But What About Profitability?

In the early 1960s, when I was working in the Electronics Division of the Japan Trade Center in New York, my boss, an engineer named Makato Toida, told me that the day would come when I would be able to buy a TV set for less than the price of a good quality table radio.

That seemed to be something of a fantasy at a time when a name brand 12-inch set retailed for about $129 and a 19-inch table model was $160 to $200. And I’m talking black-and-white here.

Well that prediction came to pass, and not just for monochrome. Today, color TVs too are priced below the radio level.

But not even my old honcho would have forecast the implosion of VCR pricing that now has that electromechanical marvel priced below both TVs and radios. One thing the 2000-2001 sales years should go down in history for is the dramatic collapse of what’s being charged for VCRs. What makes it even more astounding is that it came while consumer demand for VCRs continued at record or near-record levels. This proves once again that the traditional relationship of supply and demand to pricing doesn’t hold in the consumer electronics industry, where unit volume, rather than sales dollars and profitability, seems to be the main goal of marketers.

And there is no doubt in my mind that it is pricing, not consumer demand, that made 2001 one of the toughest years in more than a decade for the industry.

In the good old days, when we had lots of publicly-held domestic manufacturers, we had two reliable ways to judge just how the market was going: the Consumer Electronics Association’s weekly video unit sales statistics and the makers’ quarterly financial reports. The latter are now all but unavailable, and, because of market and product changes, the CEA figures don’t present as sharp a picture as they used to. But they are all we’ve got, and with a little adjusting, do offer a reasonably accurate view. And when adjusted, they show that the view, from a consumer unit demand standpoint, isn’t that bad at all.

One key to the adjusted picture are sales of TV/VCR combos. Based on sales to dealers through the first nine months of 2001, the year should come in at or just under 4.7 million units. It’s reasonable to assume that a TV/VCR is purchased as a convenience alternative when either a new TV or a new VCR is really what’s wanted.

What makes that important is the impact is has on our view of sales of those standalone products. Based on the nine-month seasonally adjusted selling rate, full year sales of analog direct-view color TVs should run to just over 21 million units. That would be the lowest annual sales level since 1992. But even, so it would mark the 10th straight year — and the 13th of the last 14 — in which sales exceeded 20 million, and during which a staggering 309 million sets were sold. And if you credit standalone color with just half of TV/VCR sales, you end up with the fourth-best total direct-view color sales year ever.

Similarly, the outlook for 2001 VCR deck sales is for a five-year low of about 16 million units. But crediting VCRs for the other half of TV/VCR combos makes this the fourth-best VCR sales year as well.

As for DVD players, nobody has anything to complain about here. We are in the running for sales of a record 8.5 million units or better.

Unfortunately, price erosion is going to make business tougher than the unit numbers indicate, but hopefully retailers will be able to make up the difference through additional sales of high-end digital A/V products and new video game hardware, software and accessories.