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Discounts This Year Don’t Match Those of a Year Earlier; More Targeted Cuts Should Help Margins

Retailers are trumpeting great deals on televisions heading into Black Friday, but the steepest discounts this year are limited to a few sets as promotional activity is less frantic than a year ago.

In part, said analysts, retailers have reduced inventories to match demand and worked with manufacturers to develop targeted flat-panel TV offers that won’t result in losses. Several retailers also are offering the same price on select models now as they are on the day-after-Thanksgiving, indicating the advance planning of these offers.

The pinpoint discounts should avoid the damage to profit margins that panicked price cuts caused last year as long as shoppers come out this weekend in a buying mood, they said.

“The retailers are trying to create a perception of low prices and deals but without starting a full fledged, no-holds-barred price war,” said Frank Luby, a retail-pricing expert and partner at marketing consultants Simon-Kucher & Partners.

With deals including a 32-inch LCD TV for $248 at Wal-Mart Stores Inc. and a 40-inch LCD set with top-tier high-definition screen for less than $500 at Best Buy Co., retailers are hoping that low-prices on select TVs will draw shoppers on Friday but encourage them to buy more full-priced items or extras such as Blu-ray players, according to retail analysts.

“They’re trying to say, ‘This is a great place to come hunt,’ but they’re doing it with very surgical prices,” Mr. Luby said.

TV prices, to be sure, are much lower than a year ago, but that’s largely because prices have fallen sharply all year—a function of manufacturers and retailers responding to weak demand and the deflation that normally occurs in electronics as gadgets are replaced with newer technology.

“Television prices are definitely off from the same time last year by, I’d say, roughly speaking, a third to a half in many cases,” said Jeff Trester, co-chief executive and chief economist at price-comparison Web site Inc.

Last year, an oversupply of TVs and dismal demand following the financial markets meltdown combined to prompt steep price cuts during the holiday season that savaged profits for retailers and manufacturers alike.

But this year, retailers have planned inventories cautiously and have had longer to plan their promotions. For example, Mr. Trester said, prices on TVs 20-inches to 29-inches have held up better than other sizes so far this year. So some chains are offering Black Friday deals on those smaller sets as a way of showing off steep discounts without hurting margins too much.

A 19-inch Samsung LCD set normally priced at $380 at Sears Holdings Corp.’s Sears stores, for example, is marked down to $300 on Black Friday. Wal-Mart’s sales on that day include a 19-inch Sansui LCD high-definition set for $128.

At the other end of the size spectrum, some larger TVs, such as 50-inch plasma sets, dropped so far in price earlier this year that prices which look great are roughly the same as a few months ago.

Credit Suisse said its recent survey found Best Buy’s average discount on TVs for Black Friday is 13% below its pre-holiday prices compared with 24% below last year. At Sears stores, this year’s TV models similarly are discounted by an average of 14%, compared with 22% off last year.

“Price deflation is still impacting sales, but tighter inventory levels should bode well for margins,” Credit Suisse said Thursday in a note to clients. Industry trade group Consumer Electronics Association estimates overall electronics prices fell 7.7% in the first six months of this year alone.

Credit Suisse said it also sees evidence that big-name TV manufacturers including Samsung Electronics Co., Sony Corp. and Panasonic Corp. are enforcing minimum advertized pricing rules—which make it tougher for retailers to tout deeply-discounted products. “It may be getting more difficult for some Internet retailers to quote sales prices,” it said. The result may be a slowing in consumer-electronics price drops as retailers have less reason to match online pricing.

Retailers are also hawking a smaller percentage of their total products as door busters this year, brokerage house Thomas Weisel found in its survey of Black Friday ads for 10 major electronics retailers, office supply chains, discounters and warehouse clubs. Only 17.5% of products are being advertised as door-busters, compared with 25% having door-buster promotional prices last year, analyst Christian Buss said. Best Buy had 13% of its ad space devoted to such deals, he said.

Industry analysts generally report that Best Buy and Wal-Mart are very competitive in pricing against each other. Both offer price-matching of competitors’ published advertising.

Still, Wal-Mart last week said electronics deflation had pressured its revenues, and analysts are concerned that Best Buy could ratchet up the discounting if its store traffic is weak this week. Sony last month declined to say when its TV business would return to profitability, citing ongoing electronics price deflation and currency exchange rates as two concerns.

Source: Wall Street Journal