Sliding Electronics Prices May Favor Walmart, but Best Buy Has It's Place
Price wars on computers and other electronics have driven unit sales and made the process that takes a technology item from expensive premium status to low-cost commodity swifter, but even if circumstances seem to favor price-oriented retailers such as Walmart (WMT), Target (TGT) and Costco (COST) don't count out Best Buy (BBY) because it still has a role in the market.
Market research firm The NPD Group, in the variety of research it did on Black Friday electronics sales results, concluded that consumers continued their 2009 focus on price and value while shopping for technology items in and around that selling occasion. Total revenue for the week of Black Friday came in at $2.7 billion, down just over one percent from 2008.
Computers and TVs have led U.S. consumer technology sales throughout 2009, and NPD Black Friday week research demonstrated that a strategy combining the promotion of in-demand products and product categories with aggressive discouting continued to drive unit sales even if dollar sales sometimes suffered. Spurred by new operating systems, fresh variations on product forms and low price levels, overall computer sales volume increased 63 percent versus last year. Average prices for notebook computers fell to $500, a $160 decline from 2008. Flat-panel LCD TVs also generated strong demand, but aggressive price-cutting resulted in negative revenue growth versus 2008. The average selling price of a flat-panel TV fell to $535, which is down more than 20 percent from a 2008 figure of about $670 and almost $200 from 2007. High levels of discounting drove revenues down by nine percent but unit volume sales surged by 15 percent.
The average sales price of LCD TVs during Black Friday week fell 22 percent versus the period in 2008, which itself was off five percent from the same time frame a year earlier. That wasn't the biggest average price decline, however. Camcorder prices fell by 33% on top of a decline of seven percent in the period last year, and notebook computer prices fell by 26% on top of an eight percent decline. Categories that experienced significant but lesser price declines include stereo headphones down 19% in this year's period over an 11% slide in the 2008 time frame, GPS down 14% over 22% and point and shoot cameras down seven percent over 12%.
NPD analyst Stephen Baker told Bnet that the lower pricing hasn't arisen from a bevy of new bargain brands rushing into the sector. In fact, a few value brands have established themselves firmly in the electronics market with specific performance propositions that have played solidly with discount-oriented shoppers, the Flip camcorder being a good example. First-tier brand producers such as Sony have had to scale back some products, producing less feature rich models that fit consumer needs without pushing shoppers on price. Still, those manufacturers can offer a range of brands and price to accommodate consumers who want sold core performance at less cost and those who are willing to pay for enhanced functions.
What the current market has done is clear out the second-tier brands, Baker said, adding, "When was last time you saw an RCA television or a Mitsubishi?"
Manufacturers that have a strong brand image either for features they can provide or price they can reach have the advantage, and something like that operates in electronics retailing as well. Of course, Walmart has been trying to enhance its profile as an electronics retailer throughout the holidays based not only on price but also on the assortment of products available. By offering brands such as Apple (APPL), the company has been able to polish its image even as it drives home its price message. Best Buy continues to talk about services and the even wider range of products it stocks in categories such as laptop computers as it battles Walmart on low price items. As a result, it establishes a stronger price image but also reminds consumers of how thoroughly it can support their interests in electronics now and in the future.
Although he prefers the term democratization to commoditization, Baker acknowledged that the desire of both retailers and manufacturers to maintain unit sales volume in electronics continues to drive down prices of recently introduced items, with the soft economy speeding the process.
"And in electronics, once you go up you can't go down in terms of pricing," he said.
Although the circumstances might favor a Walmart over a Best Buy (BBY) in some respects, Baker pointed out that first-tire manufacturers continue to drive innovation, establishing multiple performance tiers to tempt consumer to trade up. More consumers will do that as the economy improves and many of the retailers who have benefited from the recession aren't in a position to offer the range of products and support services that more feature-driven electronics consumers require.
Baker noted that the difference in value between a 32-inch and a 42-inch flat screen television is influenced by features and related considerations as well as viewing vista, so a full-service specialist that can help consumers deal with the complexities has a place in the market.