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.

Pricing Wars Could Lead Discount TV Brands in the Dust

As the price of flat-panel TVs continues to come down to jaw-dropping levels, we're seeing signs that the value brands, which often managed to take a significant chunk of the pie because of their cost advantage, are now feeling the heat. Why? Because the name brands have reduced pricing to a point where they're often times actually in line with the value brands!

Research firm iSuppli reports that, during Black Friday weekend in the U.S., premium TV brands like Sony, Samsung, and LG, advertised pricing that was 23% lower than their average, while value brands like Vizio and Westinghouse reduced pricing by only 19%. Continuing on to today, Tina Tseng, an Analyst for the consumer electronics channels at iSuppli, says that the price differential between a 32" premium and value-branded LCD is just US$61. For an extra $60, would you opt for the brand name model over a lesser-known brand? Things probably won't be changing much any time soon either, as retailers scramble to move product during these difficult times.

So what does this mean? Will the value brands be obliterated by the premium models? On the flip side, however, how much money are the premium brands losing by selling products for prices that are essentially almost at cost? While the consumer comes out on the winning end of this stick, the business situation surely can't sustain itself like this for any great length of time.

It will be interesting to see how things pan out once the crazy pricing wars, not to mention the recession, come to an end. Stay tuned.

Plasma Reaches Less Than $600

Vizio is offering a 32", 720p plasma TV through U.S. Wal-Mart stores for less than US$600, further proving just how competitive the flat-panel TV arena has become. Additionally, the manufacturer is selling a larger, 42" model for just $200 more.

Has the $600 pricing decision been made because of the stronghold that LCD technology has on the 32" flat-panel HDTV market? After all, in Q1 2008, research firm DisplaySearch reported that 32" LCDs dominate the market, representing more than 40% of total LCD TVs shipped. Indeed, it looks this way since Vizio is also launching new LCD TVs for more reasonable pricing: $1,499.99 for a 42" 1080p model and $1,899.99 for a 47" model. If Vizio is looking to help plasma increase marketshare in the 32" category, these aggressive pricing can surely help.

It's mind-baffling to think of a company essentially "blowing out" plasma TVs. How will this bode for the category as a whole? DisplaySearch indicated for Q1 2008 that, although worldwide plasma shipments grew 53% year-over-year (Y/Y) to reach more than three million units, they have shown a quarter-over-quarter (Q/Q) drop of 19%. Interestingly, 32" plasma panels actually rose 4% in the first quarter of this year to account for 15% of the market. Will Vizio's new sub-$600 plasma, which is already available in all 3,400 U.S. Wal-Mart stores, take a huge bite out of LCDs 32" pie?

Indeed pricing in the plasma category (and arguably LCD) has been dropping to meet both consumer demand and the increasingly competitive landscape. There's no doubt that a $600 plasma from Wal-Mart won't do anything to help the price erosion crisis.

And to think that just a few years ago, plasma TVs were products for just the elite of society, costing in the thousands and thousands of dollars...

Have Partnerships & Acquisitions Become a Necessary Evil in CE?

Looking back at all of the companies that have either partnered up or followed through with a complete acquisition, I'm wondering if this activity has become a sort of necessary evil in the consumer electronics space. Do these companies need to join forces in order to remain competitive within the market, or are the moves made strategically in an effort to boost profits?

The latest company to join the rumour mill of acquisitions and partnerships is D&M Holdings, the parent company to brands like Denon, Marantz, and Boston Acoustics. The company is reportedly auctioning off a major stake, and several sources cite that current bidders include mammoth retailer Best Buy (yes, you read that correctly), Merrill Lynch, the Advantage Partners LLP, and, most recently, a joint bid with Kenwood and Bain Capital. The press section of the D&M Holdings Website states that “recent press reports concerning the potential sale of D&M shares is not based on any information provided by the company.” When contacted, D&M Canada said that the company had “no official announcement to make at this time.”

Although that information is merely based on speculation, Blockbuster's recent bid for Circuit City is indeed true. As mentioned in a previous post, this move was in an obvious attempt to revitalize a business that has been experiencing tremendous pressures as of late. Blockbuster likely hopes that, in combining its DVD rental business with Circuit City's consumer electronics hardware offering, it can become a sort of one-stop-shop for consumers.

Back to the manufacturing side, it appears that many partnerships are forged in an effort to remain profitable rather than gain additional profitability. Take the flat-panel arena, for example, where companies like Toshiba and Pioneer have partnered with Sharp on LCD TV initiatives (with both companies also providing specific technologies and expertise to Sharp). Pioneer also recently announced it would outsource plasma panel manufacturing to Panasonic, while Philips has inked a similar deal with Japanese manufacturer Funai. The reasons for these partnerships are obvious: reduced costs, simplified manufacturing process, and the need to keep up with the increasingly competitive market. Flat-panel pricing has come down tremendously over the years, while new entrants are being added to the foray by the dozens. Will we reach a point where all TV brands eventually lead back to just one or two factories?

In the audio manufacturing arena, Canadian manufacturer API, maker of the Mirage, Energy, and Athena Technologies brands, was acquired by Klipsch Audio Technologies back in 2006. In many cases (like this one) the acquired brand or company remains an independently-operated entity. Was the acquisition made to strengthen the brand? After all, API is one of the biggest speaker manufacturers in the world!

The list goes on and on. In some cases, partnerships are indeed made to strengthen a company/brand by utilizing resources that the other can provide. In others, it's to "take out" the competition. But it appears that, as of late, we're seeing more and more traditionally considered "competitors" looking at one another and saying "I need you and you need me. We can't do this alone."

Whatever the reason, is the competitive nature of this industry in danger?

TV Prices to Drop Like Flies

It's no secret that price erosion in the flat-panel TV market is running rampant. Pricing usually dips to an all-year low during the final months of the year, due to holiday season promotions and the like. Now with many retailers already reducing prices in wake of the strong Canadian dollar, how significant of a drop can we expect to see over the next few months? According to Consumer Reports, pricing will be somewhere in the ballpark of 30% cheaper than we saw this time last year.

Consumer Reports predicts that plasmas will see the cheapest pricing, with a 42" 720p model available for as little as US$1,000 (so would this translate to $920 CDN?), and some 50-inchers flying off shelves at $1,500 a pop.

Translation: if you're in the market for a flat-panel TV, and even think you might be in the near future, now is the time to buy. Pricing probably isn't going to get any better than it is now, given that so many factors are coming into play to drive it to an all-time low.