On the Undercutting Edge of Electronics

TV Price Cuts Signal This Holiday Season's Version of Store Wars

The Panasonic 42-inch plasma high-definition television sold for an average of $1,762 at Circuit City in September. By October, it was $1,687. And the day after Thanksgiving, the price hit a temporary low of $1,199.

Of course, Best Buy was offering the same TV for $999.99 that day. Not to be outdone, Circuit City bounced back with an announcement this week that it would beat every competitor's price on TVs.

Let the race to rock bottom begin.

"Once one retailer starts lowering prices, the other retailers have to respond," said Richard Weinhart, an analyst with BMO Capital Markets. "There's kind of been a downward spiral."

The Christmas shopping season accounts for about 20 percent of all sales for retailers, and success or failure during these two months can have long-term effects. When Wal-Mart began cutting prices on toys three years ago, it dethroned Toys R Us and ended up controlling the market.

This year, consumer electronics dominate the landscape, thanks to two new video game consoles, PlayStation 3 by Sony and Nintendo's Wii, and the rollout of more affordable flat-screen televisions.

"In electronics, there aren't too many categories that have very poor growth prognoses," said Stephen Baker, vice president of industry analysis for consumer research firm NPD Group.

Sales of high-priced electronics helped drive an average spending increase of nearly 19 percent during the official kickoff to the holiday season last weekend, even though fewer shoppers turned out than last year, according to the National Retail Federation.

But the fight for shoppers actually began much earlier. On Nov. 3, Wal-Mart announced it would cut prices on 100 key consumer electronics items through the end of the year. The hefty discounts were the type normally reserved for the day after Thanksgiving -- video game Madden 2007 was slashed from $49 to $37.88 and a Kodak digital camera was cut from $298.77 to $249.64.

And that 42-inch Panasonic HDTV? It was one of Wal-Mart's signature deals. The behemoth retailer led the pack by lowering its price by $500, to $1,294.

"The flat-screen TV is a big trend that will go beyond the holiday season," said John Fleming, Wal-Mart's chief marketing officer.

The move signaled Wal-Mart's aggressive stance this Christmas and caught its competitors off guard. About two weeks later, prices on the Panasonic television at Best Buy and Circuit City were still several hundred dollars higher than at Wal-Mart. But the early discounts also gave them time to plot a comeback.