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How Vizio Became #1 in Flat Panel TVs

By Ross Young, Founder and President of DisplaySearch

Our latest Quarterly Global TV Shipment and Forecast Report, which reveals shipments and revenues by technology, region, size and resolution for 56 different TV brands, included a big surprise about the North American TV market. Vizio, which has only been in the TV market since mid-2003, became the #1 LCD TV brand for the first time, rising from #4 in Q1’07 to #1 in Q2’07, with more than 70% Q/Q and 400% Y/Y unit growth and overtaking Samsung, as shown in Table 1. Furthermore, due to Vizio’s #4 position in plasma TVs in Q2’07, up from #5, the company was #1 in the North American flat panel TV (LCD + Plasma) market on a unit basis with an 11.9% to 11.3% advantage over Samsung, as shown in Table 2.
Table 1: Q1′07 - Q2′07 North American LCD TV Unit Share and Growth

Table 2: Q1′07 - Q2′07 North American Flat Panel TV Unit Share and Growth

I believe Vizio’s rise from the #15 flat panel TV brand in Q2’05 to #1 in Q2’07 is quite remarkable given the intense competition in this market, and can be attributed to its unique channel strategy. Its warehouse club channel focus and lack of channel conflicts enabled the company to achieve disruptive price points—helping to fuel the rapid rise of the warehouse club channel in the US TV market and causing its shipments to surge.

For example, if Samsung sells a 40” LCD TV at Best Buy for $1999, it has to sell the same set at Costco for $1999; otherwise it may lose Best Buy; which is its largest retailer. It must offer the same SKU at the same minimum advertised price (MAP). So, Samsung is not able to pass along the lower retailer margins at Costco to the consumer unless they offer a derivative SKU; which may upset Best Buy. Instead, they simply earn higher margins at Costco. Because Vizio focused solely on the warehouse club channel, it could pass along the lower retailer margins in the warehouse club channel to the consumer, resulting in 20% lower prices. Furthermore, because they run a very lean ship with just 85 employees, they require lower brand gross margins and could get to prices 25% lower or more than leading brands.

While price was critical, it was not clear that the warehouse club channel was strong enough to drive volume sufficiently to enable them to be a top five brand. There are other brands that are just in the club channel. What Vizio did differently from other brands was get into all the warehouse clubs.

It also helped that the national electronics retailers began shifting their focus to larger and higher margin 1080p TVs after last year’s margin collapse to improve their bottom lines, while the clubs continued to emphasize 720p product. Since March 2007, more than 63% of Sunday circular advertisements for 40”+ LCDs were 1080p at much higher price points that the clubs are targeting. Although a bit of a generalization, it seems that the national electronic retailers are focusing their ads on getting consumers to buy new 40”+ main TVs at $1500+, while the Clubs are targeting the $599-999 price point that many consumers are looking for when buying their second or third flat panel TV. With more traffic going to the clubs, it has boosted Vizio’s position.

Q2’07 was also boosted by Costco and other retailers making a concerted effort to keep more Vizio stock on hand. Vizio VP of Operations Jeff Schindler indicated at our US TV Supply Chain Conference that these retailers boosted store inventory on hand from one week to three weeks due to concerns from often running out of Vizio stock due to strong demand, panel shortage fears and the fact that store layouts allowed them to do so inexpensively.

Speaking of panel shortages, securing sufficient panel supply has also been critical to their success and will remain critical through at least 2008 as panel supply/demand remains tight. How have they done this? Two of their external investors are Taiwan OEMs: AmTRAN and Foxconn. Both of these OEMs have extensive relationships with panel suppliers, and Foxconn even has its own panel fabs through Innolux. Vizio also benefited from lower utilization at LPL last year with LPL as its leading supplier. But with LPL slowing its capacity growth, they have secured supply from Samsung and CMO. Panel suppliers also appreciate their high volumes as they look to fill their fabs as well as their club channel success which should inevitably reduce retailer margins in national electronic chains and enable panel suppliers to account for a larger share of the total TV cost. This means that panel prices wouldn’t need to fall as fast to get to sweet spot street prices. Going forward, it will be critical for them to keep up with the cost reduction efforts of its competitors one of which is regional module assembly which shortens the supply chain. We hear that one of their OEMs has plans to launch this effort in Mexico.

Finally, Vizio management knew that they did need to make a concerted effort to move outside the warehouse club channel and did so successfully at Circuit City, Sears and Wal-Mart. They were able to maintain the Club channel price points in most cases and benefited nicely from Circuit City and Wal-Mart ramping in Q2’07, which resulted in significant growth and the #1 ranking in the North American flat panel TV market.

What do you think? Would you buy a Vizio if you haven’t already? They are buying from leading panel suppliers and have won numerous awards. Although they aren’t always able to get the latest features that Panasonic, Samsung, Sharp and Sony offer such as 120Hz or 1080p plasma, they are serving the needs of mainstream America, which is looking to replace CRTs in a growing number of rooms at cost-effective prices as the digital transition nears. In addition, they are rolling out a number of 1080p TVs, which will appeal to more discretionary buyers.

For more information on the dynamic HDTV market, as well as HD content, register for DisplaySearch’s 5th Annual HDTV Conference on October 10-11 which will feature speakers from leading TV brands, DVD brands, retailers, movie studios, HD gaming manufacturers, HD broadcasters, HD content distributors, audio manufacturers and semiconductor manufacturers. More information can be found at www.displaysearch.com/hdtv2007.

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