Flat-panel TV makers sing the discount blues

Big consumer electronics manufacturers and retailers say deep price cuts on flat panels will eventually end. They hope.

LA JOLLA, Calif.--Vizio is making LCD televisions an almost-affordable option for middle-class consumers. It's also making life difficult for some TV retailers and name-brand manufacturers.

The discount LCD maker is one of a handful of smaller manufacturers many believe are driving down prices and profits for virtually all sellers and makers of flat-panel TVs.

The astonishing success of Vizio seemed to catch the industry by surprise last year, and was a boon for consumers who were in the market for flat-panel TVs but couldn't afford to spend a few thousand dollars on a premium LCD from Sony or plasma from Panasonic. But that discounting had a downside: frustration among electronics retailers and big-time grumbling from well-known TV makers like Sony.

The rapid drop in flat-panel TV prices was the topic du jour here at the U.S. Flat Panel Display Conference on Tuesday. Call it sour grapes or a plea from savvy executives who want their industry to show some restraint and avoid self-destructive discounting, but most executives at the three-day conference agreed with Steven Colky, vice president of merchandising for retailer Ken Crane's, when he said, "There are absolutely too many brands on the shelf."

"There are absolutely too many brands on the shelf."
--Steven Colky
VP, Ken Crane's

Of course, complaints from manufacturers and retailers about low prices aren't exactly going to gain sympathy from consumers, particularly when it comes to high-end items like flat-panel televisions, something many "never would have imagined (affording) in their wildest dreams," said Noah Herschmann, director of audio and video for Amazon.com.

Indeed, the prices of flat-panel TVs dropped dramatically last year, between 38 percent and 75 percent in a range of screen sizes, according to DisplaySearch. The rapid drop in prices alarmed many in the high-end TV business. Last fall, the price war among brands was like a "gunfight at the O.K. Corral," said Dave Workman of the marketing and merchandising firm PRO Group.

"What happened last fall was someone sent the sheriff on vacation, passed out pistols to everyone and said, 'Go have a blast,'" he said. "Retailers are often undisciplined when left to their own devices," he added, and major manufacturers such as Samsung, Sony, Panasonic, LG and Sharp were not strict enough with their minimum price requirements as they joined in on the discount binge.

Though unit sales of television are actually up due largely to the great deals, some brick-and-mortar retailers are hurting. Many of them are operating on, as Ross Young of DisplaySearch put it, "margins thinner than Nicole Ritchie."

Those low margins are wearing on national consumer electronics sellers such as Circuit City, CompUSA and Best Buy. Circuit City announced last month it would be closing 70 of its North American stores and would restructure the company due to price-margin pressure in the flat-panel television market in the third quarter. CompUSA is taking even more dramatic steps, announcing last week it would shutter half of its stores in the next two or three months.

Best Buy has weathered the storm better than most, said Matthew Fassler, managing director of Goldman Sachs. The nation's largest electronics retailer actually raised its operating margins to 5.6 percent in 2006 from 5.3 percent the previous year by pushing hard with a high-end specialty home theater section called Magnolia, Fassler said. (Circuit City's operating margin, by comparison, dropped from 1.9 percent to 1.2 percent.)

But other specialty home theater retailers aren't having quite as easy a time of it. At Ken Crane's, the January average selling prices were "the lowest in years," Colky said. Unit sales are way up, but executives at the retailer worry they're carrying too many brands, he said. "I'd rather have two Samsungs and two Sonys" than a variety of no-names because of the promise of a better return on shelf-space, he said.

That's not to say the Sonys and Panasonics of the world are getting shoved aside. Amazon reports that the top sellers are still the premium brands, and not, in fact, Vizio. Of the more than 1,000 television sets it offers for sale, Amazon's top sellers Tuesday were, in descending order, Samsung, Panasonic, Sony and Mitsubishi.

That could bolster what many analysts believe: that the logjam of brands will eventually shake itself loose. "The market will work itself out," Bill Lucas, president of NPD's retail business group, told the audience.

The bottom line? Many at this conference believe the biggest manufacturers will in time do what they do in any industry, be it televisions, PCs or cars--reel in the discount competition. Eventually, they hope, the discounters like Vizio that are digging into their bottom lines will lose steam. It could take time, but they believe it will happen.

"As major manufacturers move into more parts of the market...second-tier (manufacturers) have less room" to grow, Crane said. "Sony is Sony, Samsung is Samsung."

Tags:
Tech Culture
About the author

Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.

 

Discuss Flat-panel TV makers sing the discount blues

Conversation powered by Livefyre

Show Comments Hide Comments
Latest Articles from CNET
Fashion forward: Yahoo acquires social-shopping site Polyvore