If you are a client, colleague or collaborator of mine you’ve probably heard me preaching about how TV retailing needs to change. For years, primarily since the flat panel TV transition kicked off near the early part of the last decade, TV’s have been a go-to door buster for retailers seeking to entice early holiday shoppers.
Rapid price drops each year, enabled by rapid cost reductions in manufacturing as LCD and plasma production capacity expanded, let retailers promote huge savings on the price of highly desirable flat panel TVs. This was especially true in the flat panel boom years between 2005 and 2008. Few consumers had a flat panel TV at the time and the “cool” factor was still very strong.
Then the market started to change after the Great Recession, and shoppers’ budgets were slashed and price sensitivity skyrocketed. At the same time, as the technology adoption curve progressed from early adopter to mainstream consumer, ever-growing numbers of households found a flat panel TV in their living room and there was little need to buy another one so soon. As I mentioned in an earlier post, people in the US replace their TVs at a rate of about every 7-8 years.
What happens when a large portion of consumers swap their tube TVs for flat panel TVs very rapidly? Retailers need to work even harder to reach the technology laggards, or entice the current flat panel TV owners to swap their relatively new TV for a newer, probably bigger one. Likely, both have to happen.
Which brings me to Pavlov’s Dog, and our current predicament.
First some facts.
- Household flat panel TV penetration in the US is high, over 70%.
- Most of those flat panel TVs are years away from being replaced on a normal cycle.
- Secondary TVs tend to be smaller, often older displaced TVs from the living room.
- A surge in smart devices like tablets, smartphones and cheap laptops with access to streaming services means consumers don’t need to buy a TV to watch TV. (cannibalization)
So how can the TV industry (brands and retailers) keep the market for TVs growing in light of these pressures? By keeping the discounts big, consumers can be prompted to buy another TV, almost on impulse, whether they need one or not. But big discounts these days require huge sacrifices in margin because the costs of the flat panel TVs are not going down as fast anymore. According to our TV cost modeling, average margins for brands at key sizes are in the low single digits at best, and mostly negative, while retailers make half of what they used to a decade ago on flat panel TVs. Therefore, they can only push these big discounts selectively, hence the heightened focus on the holiday season and Black Friday in particular. The most deeply discounted TVs on Black Friday probably even have double digit negative combined brand and retailer margins
Examining the retail POS data from The NPD Group, it’s apparent that the seasonality for Black Friday in the TV category has been growing in recent years. Just like the conditioned response of Pavlov’s Dog, consumers have become “trained” to wait for special discounts during Black Friday, and since the general demand for TVs has waned, the willingness to defer purchases that might otherwise have been spread out throughout the year has grown. Based on my observations this Black Friday, the situation has gotten even worse. Not only are consumers waiting for Black Friday to buy a TV, they are waiting for the top 4-5 key deals on Black Friday and largely ignoring the dozens of other less spectacular TV sales. Ever-optimistic retailers and brands continue to push product into stores hoping consumer demand will spill over onto other TV deals once the door busters run out, but that doesn’t seem to be happening. As a result, inventory languishes and pressure mounts to clear the inventory after Black Friday, sometimes lingering into the following year, and fueling the unprofitable cycle.
Breaking the cycle is not an easy proposition, but one that probably needs to start happening as growth in TVs falters. There are many other hot products that suffice to get consumers in stores, as evidenced by the long lines for tablets and smartphones this year. A deep discussion about how to promote TVs responsibly and return profits is long overdue, but so long as competition remains fierce, the conditioned response will probably continue.