On the Undercutting Edge of Electronics
TV Price Cuts Signal This Holiday Season's Version of Store Wars

By Ylan Q. Mui
Washington Post Staff Writer
Thursday, November 30, 2006

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.

By Thanksgiving, speculation abounded that Best Buy would trump Wal-Mart's price on Black Friday, the day after Thanksgiving, when retailers normally unveil temporary blockbuster discounts. In television commercials aired during the ever-present football games that week, Best Buy made its move: It cut the price on the Panasonic to $999. Circuit City came in second at $1,199, and Wal-Mart fell to third.

"The price on these products has come down to the point where retailers are willing to try to drive some traffic with those products," Baker said.

Of course, such prices can last only so long. Yesterday, the television sold for $1,439.99 on Best Buy's Web site -- the same price as at Circuit City -- putting Wal-Mart back in front for the lowest price.

Manufacturers have helped drive down prices of flat-screen TVs by producing sets more cheaply and in greater numbers. Suppliers, who are also battling for market share among consumers, have lowered their costs to compete with cheaper, second-tier brands .

All told, industry experts say, retailers are not making much -- if any -- money off TV sales. Instead, they are counting on customers buying accessories, warranties and service plans for their expensive new gadgets. Order the Panasonic flat-screen online from Best Buy, and a pop-up screen appears with a reminder that a four-year service plan costs $1,000. Don't forget the $302.99 TV stand or the $199.99 two-shelf wall mount.

Analysts point out that price, while important to get shoppers' attention, isn't the only factor people consider when they hunt for electronics. Many are overwhelmed by the number of choices and the jargon that go with cutting-edge technology. The Panasonic, for example, boasts an HD tuner, 2 HDMI connections, a built-in ATSC tuner and a 16:9 aspect ratio -- huh?

"If they just go for the price, they may not be satisfied with their purchase," said Bill Cimino, a director of communications for Circuit City. "That, for us, is a key thing. You're going to blame the person who sold you the TV if they didn't help you get it the way you wanted it to be."

Both Best Buy and Circuit City try to augment their appeal by advertising their customer service, and both have made that a focus of their holiday campaigns. Circuit City just launched its "firedog" service unit in September and is promoting in-home installation along with discounted flat-screens.

Still, experts say shoppers can expect even deeper discounts on electronics from retailers as the holiday season wears on. Last weekend set a new bar for price, and customers are unlikely to accept any increases.

"The cat's out of the bag at this point," Weinhart said.

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