Price Hikes Expected for '09

It sounds like marketing hype, but there really is no better time to shop than right now. Not in terms of the economic situation, of course. But in the long run, product pricing is at such a low point right now that there's nowhere else for it to go but up.

As mentioned in the previous post about the flat-panel market, these low, low prices simply can't continue in the interest of manufacturers, distributors, and retailers all looking to turn a profit and sustain a successful business operation. Not surprisingly, some Canadian manufacturers and distributors are already sending out perfectly-composed notices to dealers advising them that pricing will be increased next year due to the economy, and the current exchange rate. Some have added surcharges anywhere from 10-20% on products.


"Our expectation is that Canadian consumers will begin seeing higher prices at retail after the holiday season on many popular items," comments a representative for an audio/video manufacturer who asked not to be named. "All this means is there will be no better time to buy during the next few weeks, and that there is no more waiting any longer for the best deals."

Others have echoed this very statement, pointing to the fact that vendors have been "eating margins" lately just to keep price consistent. A spokesperson at a major digital camera manufacturer says he expects to see prices increase upwards of 20% on replacement cameras.

"Major categories are at thier lowest prices," confirms a spokesperson at Future Shop. "For example, pricing has dropped 17% for 40-inch TVs since September."

Indeed, I've seen evidence of manufacturers/distributors intending to increase prices by as much as 13% as of January '09.

One independent dealer claims that big-box stores have a "glut of inventory" that's resulting in the incredible price slides we're seeing in the marketplace right now.

"To combat this, retailers should try and hold the line with regards to pricing, and manufacturers should look at streamlining distribution to help the deflation of the perceived value of their products," he opines. "It’s easy to widen distribution when there are no issues with demand. With the decreased demand, production should be cut back, distribution tightened, and allow profits to flow. At this point, there is a state of panic that includes vendors sitting on too much inventory, big box stores doing the same, pricing sliding to zero, and the buying public listening to the media and simply not spending. If production decreases, and distribution decreases then perhaps there is a chance for the industry to weather the storm."

And weathering the storm is all we can hope for at this point. But the paradox we're in certainly doesn't make things easy on anyone, including the consumer. On the one hand, you should spend now because pricing, especially on big-ticket items, simply won't get any more attractive. But on the other, it's risky business to start handing out money frivolously when we're uncertain about just how long it will take for the economy to turn around. From a manufacturer and retailer perspective, they want you to buy now (how else can they get rid of this back up of inventory?) but they also want you to buy later when product is at a higher price. A healthy balance needs to be achieved. Right now, it's just a matter of figuring out how to accomplish one.

Discount Retailers Attempt to Take a Big Bite Out of CE Sales

Discount retailers are arguably profiting more, in some sense, from the downturn in the economy as shoppers flock to those stores known to always offer great "deals". So it comes as no surprise that many discount shops are attempting, more so than ever, to take a big bite out of the consumer electronics market this holiday season.

This weekend, I was surprised at the number of Wal-Mart commercials that aired (during my favourite primetime programs!) centred around flat-panel TVs, home theatre, and even Blu-ray. I'm used to seeing plenty of TV marketing dollars from the mammoth retailer, but of all product segments, I wouldn't peg Wal-Mart to be spending so much to plug things like Blu-ray and flat-panels. Kid's toys, home decor items, clothing, DVDs and CDs, yes. But big-ticket CE items? I'm genuinely surprised that so much of the marketing budget went toward this category. The move is a clear indication of one of two things: Wal-Mart is making its mark known as a CE retailer; and/or the retailer is responding to the prospect that home theatre is going to take over as the main activity of choice during these sad, economic times. And of course it goes without saying that one should

Aside from that, pricing is also mind-boggling. Right now, a name-brand 42" 1080p LCD is $950, and an up-converting DVD player is $50. (Interestingly, no Blu-ray players are featured on the Wal-Mart Canada Website, although Blu-ray discs are in abundance). At Costco, a 42" plasma is $860, and a Blu-ray player is $270. At retailers like Tiger Direct, pricing is relatively the same. A colleague told me this morning of a friend who just bought a 46" TV (name brand) for $800 over the weekend! If you can spare the cash and are in the market, now is certainly the time to buy a new TV!

But from a retailer perspective, what happens when these pricing wars continue? The same thing that has been happening for the entire year, even before the recession came into play: other retailers are forced to lower their prices; if not to be in line with discount stores, at least to be close. Products are sold off at almost no margin just so smaller companies can sustain themselves and make it through the storm. And more focus is placed on "added value" services, like free delivery, after-sales service, installation, and product expertise (certainly not a bad thing).

Still, it's an incredible observation overall knowing that just a few years ago, a plasma or LCD could not be had for less than a few grand. To put this in perspective, I searched for some old news stories on our sister Website, http://www.marketnews.ca/, and cam across this 2002 announcement from LG Electronics about the company's brand new plasma displays: the cheapest was $8,500, and the most expensive 60" model was a whopping $26,000: the price of a new car! My, how things have changed...

[Photo: Screen shot at http://www.walmart.ca/]

Black Friday, Holiday Shopping Looking Up...Considering

You've probably been bombarded with the words "economy", "downturn", and, (yikes!) "recession" over the past few months but, as Tracy Mullin, President & CEO of the National Retail Federation (NRF) puts it, "no one is canceling Christmas because money is tight." To the contrary, while customers will be tightening their belts a bit, they're still going to be out there shopping like they do every other year. They'll just be more mindful of snagging the best deals.

The NRF says that price will play by far the largest role in purchasing decisions this holiday season, with 40% of respondents to its Holiday Consumer Intentions and Actions Survey citing sales or promotions as what they'll be looking for. This year represents the smallest increase in planned spending: up just 1.9% to US$832.36 per person vs. $816.69 last year. But the number is still up, which is a positive sign.

Shoppers will likely cut back on gifts for the family, says the NRF, because they feel their family will "understand their current situation". Surprisingly, however, many will still make personal purchases, waiting until the holiday season to take advantage of the best deals. Overall, the NRF expects holiday spending to increase 2.2% to US$470.4 billion: not too shabby, considering.

As for Black Friday, which is one of the busiest shopping days of the year and scheduled to take place on Friday, November 28 (right after Thanksgiving), the NRF projects that shoppers will be gravitating more toward "personal and practical gifts" instead of big-ticket items this year. The Federation cites things like DVDs, CDs, and books as being most popular in the technology category (55.6%), followed by gaming consoles, Blu-ray players, and other like items (30%). (Funny enough, HD DVD players actually outsold Blu-ray players on Black Friday last year!)

Consumers will be changing one other thing this year: more will be opting to pay by cash instead of credit. But with good enough deals, they will fork over the dough.

Given the number of e-mail notifications I've received over the last few days about product price reductions, it appears that retailers (and manufacturers) are working hard to offer enticing enough deals to keep customers in the shops. Remember: if you don't shop while the economy is in a downturn, you'll only make it worse! (Some may call that female logic, but I digress).

In retrospect, it's eye-opening to think that at this time last year, retail prices were dropping drastically due to the strength of the Canadian dollar. Meanwhile this year, price drops are happening for a completely different, and opposite, reason. But on a positive note, it just goes to show that things happen in waves, and for every downside there's an up. I'm confident that holiday shopping will be just as hot this year as it was last; leading up to bigger and better years to come!

Happy Shopping!

Results are in for Black Friday: Less Money, But More Shoppers

There's likely one question on everyone's mind this Cyber Monday: how did the Black Friday shopping extravaganza pan out in the U.S? Aside from playing a large part in U.S. retailer revenue for the year and holiday season, Black Friday provides a glimpse into what the year's holiday shopping season might be like overall. According to the National Retail Federation (NRF), the number of shoppers during the Black Friday weekend was up 4.8% to 147 million; but dollars per shopper were down 3.5% to US$347.44.

This isn't necessarily a bad thing. What it means is that there were more people shopping for smaller-ticket items rather than large purchases. Not to mention that the average selling price of many high-ticket items (especially flat-panel TVs) has dropped considerably since last year.

NRF President Tracy Mullin says that hot items this Black Friday were things like digital photo frames, laptops, and cashmere sweaters. Last year, the coveted items were higher-ticket buys, like high-definition TVs. Perhaps consumers have a more giving nature this season, having purchased something for themselves last year. This year, men shopped more than women, outspending them at $393.63 vs. $303.95.

Encouragingly, consumer electronics items accounted for 35.7% of the purchases. Books, CDs, DVDs, videos, or video games accounted for 41.7%. This will likely contribute to a welcome upsurge in final sales numbers for the CD and DVD market, which has been plagued by piracy and counterfeit materials for years. The most popular items included clothing and accessories at 46.8%. Other "hot" shopping items were toys (28.2%) and gift cards (21%).

Sales also started earlier this year, as more stores decided to open at midnight (and even earlier!) The strategy seemed to work, as 14.3% of consumers left the house to shop prior to 4 a.m.; up from 12.4% last year.

"Knowing that consumers would be challenged by the current economic environment, retailers hoped that higher traffic would offset lower individual spending, which it did," explained Phil Rist, Vice President of Strategy for BIGresearch, which conducted the poll for NRF. "...The holiday season is off to a good start."

Although discount stores led the pack, snagging 55.1% of the shoppers, it was nice to see that specialty retailers came in second at 43.2%. Traditional department stores received 38.7% of the traffic, while Websites welcomed 31.6%.

Today, nicknamed "Cyber Monday", will extend the deals to the Web, and will contribute more sales to the bottom line of what looks to be a positive holiday shopping season. Although NRF is still sticking to its estimation of a 4% rise in holiday sales this year, Mullin advises that final holiday shopping results won't be available until the last two weeks of December. Stay tuned.