Wednesday, December 15, 2010

U.S. holiday buyers are avoiding high-end consumer electronics

Yesterday, the price of Best Buy's stock plunged on the company's report of lower year-to-year sales for its fiscal Q3, and expected lower sales for the entire year. Analysts said that Best Buy poorly merchandised its "Black Friday" deals, while the company said that it deliberately decided not to offer the "third tier" (their term) consumer electronic brands and deals that Walmart and Target offered.

Even though the U.S. Commerce Department reported that overall retail sales rose 0.8% in November, consumers were much smarter about their Black Friday purchases this year. Historically, retailers have offered a limited number of low-priced products on Black Friday, expecting customers who find the product they want to be sold out to buy more expensive (and profitable) products. This year, consumers either walked out without buying anything if the bargain they were looking for was sold out, or put so much pressure on store management that they were allowed to purchase more expensive products at the price of the sold-out models.

At the same time, ECN Magazine is reporting that consumers are avoiding 3D and Internet-enabled HDTVs. The article quotes a fund investor who questions the logic of CE companies pushing expensive new 3D HDTVs just a year or two after most people purchased their first big-screen HDTVs. Consumers don't see the value proposition, especially in a still-fragile econony. In addition, consumers are put off by the requirement to purchase expensive 3D glasses for every person who wants to watch. There's also a dearth of 3D content, and consumers are afraid of becoming nauseated or getting headaches if they watch 3D.

In addition, consumers are avoiding Internet-enabled HDTVs if they're priced significantly higher than comparable non-networked devices. They realize that they can add Internet connectivity by purchasing an Apple TV or an Internet-enabled Blu-Ray player (some of which are available for under $100). They're also comparing the prices of those products with Google TV-enabled devices, and are going with the less-expensive products. As with 3D, they don't get Google TV's value proposition and can't justify the higher price.

What does it all mean? 3D HDTV won't really take off until an economical, reliable system that doesn't require glasses is available--which is what the CE industry should have waited for in the first place. As for Google TV, it may already be dead, but it certainly won't take off until the price is $99 or less. Google and its partners had no good reason to rush the products, which were clearly half-baked, into the market so soon. By the time they fix their many problems, consumers will have moved on.
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