A slumping economy and woes in several large retailers could produce the first ever drop in sales of high-definition TV sets during the fourth quarter, according to Paul Gagnon, director of North America TV market research at DisplaySearch, which tracks shipments to retailers.
“We see a pretty dismal outlook for fourth-quarter shipments,” Gagnon said. “I think we could see on a unit basis, shipments actually decline one to two percentage points year over year in the fourth quarter. That is pretty significant because it would be the first year-over-year decline in fourth quarter shipments for flat panels, in particular, ever.”
That prediction highlights how quickly the economy has gone south in recent months. In August, when DisplaySearch was updating its fourth quarter estimates, the company was still projecting a 1% to 2% increase.
Gagnon said TV sales in July and August remained “pretty good” and third quarter shipments showed a 21% year over year increase for LCD TVs and a 20% increase for plasma TVs.
But, as markets plummeted in late September, consumers put the brakes on spending and the outlook for retail sales darkened.
“Since then, Best Buy has been talking about a dramatic slowdown in their demand and sales at Circuit City deteriorated so badly in September and October that they had to file for bankruptcy,” Gagnon said. “When you have the two largest consumer electronics retailers reporting dismal performance at the beginning of the fourth quarter that doesn’t bode well for the HD category.”
Retailers are also likely to offer heavier than expected discounts. Gagnon is predicting discounts in the “mid-teens to high-teens year over year for most screen sizes,” much deeper than the “high-single digits to low-teens” price cuts the company was predicting only a few months ago.
Still, there are several bright spots in the outlook. HDTVs are likely to outperform other types of consumer electronics and some stores, such as Walmart have been reporting strong demand. Price conscious consumers are also likely to embrace smaller screen sizes.
“Unlike the early adopters of HDTV, who were keen on having the biggest screen size, the highest resolution and the most advanced technology, the next wave of growth will come from the second half of the population that hasn’t already adopted HDTV,” he said. “Unfortunately that group is more price sensitive, so I think the character of the growth is going to be in more basic models and more modest screen size than a lot of manufacturers would hope for.”
In the run-up to the digital transition next year, Gagnon also notes that sales of the traditional CRT (cathode-ray tube) sets have improved. CRT sales actually increased in the third quarter compared to the second quarter, reversing significant declines in recent quarters.
“This economy is giving a boost to some of the technologies that were fading and the CRT is seeing a bit of a revival right now,” he said. “Consumers going to the store for a new digital TV are seeing they can get a CRT for about half the price.”