Channel Picture Gets Blurry with Big Screen TVs
It’s a well established fact that consumers have more choices than ever before when it comes to shopping for items in common categories including food, beverages, general merchandise, and health and beauty care.
The blurring of channels, however, has continued to spread as products such as washing machines, dryers, and televisions that once were controlled by one or two channels have begun popping up for sale in other retail formats.
A Wall Street Journal report said the phenomena is becoming particularly pronounced in the big-screen television category where retailers such as Best Buy, Circuit City, Costco, Home Depot, Kohl’s, Office Depot, Sears, Target and Wal-Mart have all tried to get a share of the $20.2 billion flat screen TV market.
“Competition has just exploded,” says Greg Petersen, a Philips North America vice president and a member of the company’s international retail board.
Of particular concern to retailers established in the business, such as Best Buy and Circuit City, is the prospect of a price war. Both companies owe much of their recent top and bottom line growth to the sales of big screen televisions.
Home Depot is one of the non-traditional retailers looking into whether flat screen televisions are a good fit for the company. Right now, the retailer lists 38 flat-panel televisions on its web site but does not sell any in stores. The company, according to unnamed sources in the WSJ article, is looking to test sales of televisions in its stores.
Office Depot is already selling televisions in its stores. The retailers sees TV as complementary to personal computers and monitor sales. “Our entry is absolutely a convenience play for our core customer,” said John Lostroscio, vice president of merchandising.
The chain, according to Mr. Lostroscio, is moving into the larger flat-panel TV business after having a positive experience selling 20-inch sets. By October, he said, 400 Office Depot stores will stock 10 to 12 flat-panel models, including a 42-inch TV.
Mr. Lostroscio also said the chain has been testing computer-repair services and was looking to expand that to include home and office installation of TVs, as well.
Discussion Questions: What is your take on the growing number of retailers moving into big screen TV sales? Where is channel blurring heading? What other
categories do you see becoming up for grabs that were once controlled by a one or two channels?
This is a natural, evolutionary, retail move. The same consumers who purchase TVs come into a Home Depot or an Office Depot, and these stores already sell complementary products like computers or cables and electronics. With a category which represents both strong demand and strong growth, this is a natural event for these retailers to consider how their store would be able to position this product and support it within their internal supply chain channel. All of these retailers should be offering these TV products. The best part here is that everyone wins, especially the consumer when more retailers compete. We should see lower prices during the holidays, and greater availability. This will mean better choice and market sensitive product positioning for the consumer as well.
What I fear is with the undercutting of margin, that an undercutting of experienced salespeople is inevitable. Prices will come down, but no retailer can afford experienced help in the electronics industry any more. It is now a consumer beware market…destined to be even worse in the near future.
Bernie Slome nailed it: the nontraditional TV sellers (Home Depot, Office Depot) will dump the TV category when the sales flatten. Tech innovation coupled with price reduction: an explosive sales increase formula. Do the nontraditional TV sellers hurt themselves by taking focus away from their core mission? Every time a category is added, isn’t authority reduced from the existing assortment?
Why not focus on something exciting within the basic position? For Office Depot: how about a Geek Squad in-store ad agency for smaller businesses? Or in-store smaller business insurance specialists? For Home Depot: how about sales, leasing, and installation of new and used home stairlifts? How about a national registry similar to www.AngiesList.com so that customers can rate and compare home improvement contractors?
It seems to me that consumers greatly benefit from having trained sales associates who can really inform them about the differences in features in big screen TVs. There are so many choices, it does get confusing.
This purchase often represents a big investment for consumers, and that often includes the purchase price as well as delivery and set-up at home. Not every retailer can offer these services effectively. I recently compared these TVs and was impressed that the sales person immediately could direct me to the models featured in a recent Consumer Reports magazine and even had a Xerox of their evaluation on hand.
Consumers may benefit from greater price competition as more retailers sell big screen TVs, but may get their questions answered at a specialty store.
I support Jeremy and Odanna’s comments wholeheartedly. Having worked with three of the names mentioned in the article, I know firsthand how challenging the staff training has been to effectively consult with shoppers on making their HDTV choice. Between Plasma, LCD and DLP, it’s not easy!
Forrester dives into this issue in-depth with their yearly Technographic surveys and they are seeing that the problem is getting worse rather than better. In fact, they have found that a huge percentage of HDTV buyers: (1) do not subscribe to HDTV services when they get their TV’s home because they weren’t informed that they had to and (2) rarely understand — or purchase — the correct cables and accessories to make the TV’s function properly for the HD. This results in an large return rate that’s been problematic for store operations.
If the consumer electronics specialists are having this struggle, it should be interesting to see how the new vertical players deal with it. It seems like it will be an opportunity or a potential black mark on their brands. We’ll see!
This is a natural progression for a retailer to try and get into the hot selling item. 25 years ago when the Atari 2600 was the latest, greatest and hottest item, all types of retailers were selling the hardware and software to not only the Atari, but also the Intellivision and Coleco. These products were being sold in appliance stores, drug stores and supermarkets. As soon as sales cooled off, the non-traditional retailers discontinued selling the product. The same will happen should the flat screen TV’s sales falter.
As an analyst in this space, we have been following this phenomenon for a couple of years; it is nothing new. It is driven by the explosive growth opportunities in the TV business. We expect 10s of millions of units to be sold in the next 5 years as consumer upgrade their TVs to HD as part of the analog to digital switchover. These new channels are taking advantage, as well, of the strong margins TVs generate. While a PC might deliver less than 10 points of gross margin a TV can deliver upwards of 30 points. Another reason that these outlets can enter this space is the proliferation of brands from China and Taiwan and the huge manufacturing capacity being developed in Asia for LCDs especially. Finally, despite comments here, shopping for TVs have actually never been easier. The web and its proliferation of sites offering comparisons between models and brands takes a lot of stress out of the purchase decision. In addition, as TVs become more of a computer like device, the comparison becomes one of speeds and feeds, and those are choices customers are likely to be able to make easily. One important caveat to all this is what types of TVs will be bought in these new outlets. We firmly believe that the opportunity for these retailers lies in bedroom TVs, kitchen TVs and TVs connected to your PC in a den or playroom. Sales of the primary big-screen TV in the house will mostly remain with the traditional electronics retailers who can explain the device, sell add-on devices that enhance the experience, sell vital services (like HD access from your cable provider) and sell personal services such as installation. Margins and prices will decline on those auxiliary TVs but with Americans spending more and more on their TVs in the coming years at least one of them will be a thoughtful, planned purchase at a store that they “trust” and that offers guidance and selection.
There’s nothing wrong with the blurring of channels, however, it all points to a bigger issue. The growth of retail channels really came of age during the 1980’s and 1990’s; what we’re seeing now is the maturing of these channels based on the fact the channel leaders are all finding it harder to grow same store sales and find new retail sites at the same pace as in the early years. We are at an apex in terms of retail channels and as such, we either need to find new ways to segment channels or consumer groups, or we run the risk of seeing the total retail experience become even more of a commodity-based activity. The poster child for this is the grocery channel, which has struggled for years with profits and in being able to create consumer excitement. This is the exact path numerous other channels are headed down if they don’t find better ways to segment consumer groups.
Although “one-stop” shopping is great, the true problem with this “blurring” is that the consumer is confused. Products are becoming more and more complex, yet retailers are cutting corners everywhere to shave prices, when in reality consumers need more help and information when it comes to the CE category. My opinion is that the consumer electronics and major appliance retail space is ripe for the rise of a privately held retailer that offers a better customer experience.
Am I the only one who found the term, “channel blurring,” humorous used in this context? Channel-blurring of products that define channels more clearly?
Can’t we recognize commoditization when we see it? Plasma, LCD, HiDef, flat-screen, etc. Daily quantum leaps in technology. Quality products assembled in mud huts in China (true story). The true blurring occurs at the consumer level where we’re confused, frugal, and just want to watch the game on Sunday. No one is walking house to house evaluating screen sizes, LCD vs. Plasma, or HiDef vs. RegDef (I made up that “Regular Definition” contraction — seemed appropriate).
Stay with me on this analogy: I’ve been a DirecTV subscriber for seven years. When I subscribed, I purchased a Sony TiVo machine online that was specifically built for DirecTV. Seven years later my Sony TiVo imploded, and I tried to buy another. Sony doesn’t make them anymore because DirecTV has taken over their DVR business for themselves. In other words, DVRs became commoditized. I tried to wirelessly connect my video feed to my Dell computer, and then to my TV. Surprise! This system works best (and sometimes only) with Dell-supplied TVs.
Viewing screens are a commodity, best sold by commodity merchants. Soon, in my opinion, they’ll simply become the final logical extension of the programming signal: Satellite-to-DVR-to-viewing screen. Maintaining brand integrity in this environment is like tagging Lance Armstrong with a doping charge. Way too late and way too little.