Vital economic indicator: Big-screen sales
I recently saw one of the scariest economic indicators I’ve run across in a long time: The growth curve in sales of flat-screen TVs is starting to, well, flatten.
This is a startling development. Could it be that the American consumer’s God-given right to ever bigger and brighter TV screens is starting to yield to the economic realities of rising mortgage payments, falling bank balances, and wage rates that have, well, flattened?
Yes, if you suspected Americans’ paychecks are stagnating, here’s your supporting evidence from a think tank called the Economic Policy Institute:
After rising quickly in the second half of the 1990s, most workers’ real wages have been stagnant in the 2000s, especially since 2003.
While productivity jumped almost 20 percent since 2000, the real median hourly wage of all workers rose just 3 percent in the same period. Since 2003, productivity has risen 5 percent, while the median hourly wage fell 1.1 percent…
Both high school and college workers saw hourly wage gains of about 2.5 percent since 2000. Yet, in the period between 2003 and 2007, wage gains for median workers, male and female, as well as high school and college workers have all been flat or falling.Not so for workers at the highest end of the wage scale. At the 95th percentile, real wages have risen 9.4 percent since 2000 and 5.1 percent since 2003.
And there’s no clearer evidence of this growing divide between the haves and have-nots than the sales figures for big-screens. It might be of even greater significance than the iPhone Index, this blogger’s proprietary albeit informal measurement of the consumer economy’s strength. The New York Timesrecently reported:
[Compared to last Christmas, consumers now] see more name-brand models along the wall and a lot fewer of the second-tier brands that also happen to carry lower price tags. They may also find themselves accosted by sales employees pushing expensive but nonessential services like extended warranties and professional installation. Liberal return policies are getting tougher at some stores.
“We’re abandoning the entry-level price point,” said Joe McGuire, who was the chief executive of the regional electronics chain Tweeter Home Entertainment Group until stepping down this week. “Compared to last year, we’ll be very much focused on models with superior picture quality and large sizes.” To increase profits, the company will also push customers to purchase its $399 professional installation package and its $79 picture calibration service.
Electronics retailers are doing this because, although they are selling more HDTVs than ever, they are making less money on them. Indeed, even as consumers inexorably move toward buying ever-larger screens and retailers’ revenues climb, competition is forcing price cuts. And as the low-price, high-volume mass merchants like Wal-Mart or Costco become major vendors of big-screen HDTVs, all retailers are forced to keep their prices — and their profit margins — as low as possible.
Indeed some retailers have negative profit margins on their big screens, thanks to the fierce competition and a glut of the panels used to make hi-def sets.
Prices have continued to drop substantially this year. According to the research firm iSuppli, the average retail price of 42-inch HDTVs — one of the most popular sizes this year — has declined to $1,522 from $1,844 last Christmas, an 18 percent drop.
(If you’re like me and have trouble wrapping your mind around spending $1500 fora freaking TV, you might want to pause here for a few seconds to let everything I’ve said to this point sink in, the better to absorb what follows.)
Yet even as prices come down, the market appears saturated:
Perhaps as worrisome to retailers are signs that growth is slowing, said Gregory Melich, a retail-sector analyst at Morgan Stanley. “For the past few months, growth in the total TV market has been zero or negative, because demand is not there at these price points,” he said.
Morgan Stanley research indicates that two-thirds of American households will not buy an HDTV until the price of a 37-inch or larger set drops below $600. The price of a 37-inch L.C.D. set averaged about $1,200 in June, according to iSuppli. “When the price goes to $800, 17 million more Americans will consider buying one,” Mr. Melich said.
Memo to Mr. Melich: I’m seeing ads all over the place hawking 37-inch LCDs for $750. Obviously they’re not the highest-resolution 1080p models. But they’re out there. So those 17 million consumers better swallow their qualms about their adjustable-rate mortgages that are about to reset and pull out the plastic soon if his projections are going to pan out.
Until then, retailers have decided to kiss off those 17 million and focus on selling upgrades to the upscale. Hence the $399 professional installation packages. ($400 to hook up a freaking TV? Oh, never mind.) Trouble is, according to the Times, there aren’t a lot of high-profit accessories to buy with a big-screen to make the effort worthwhile. Game systems, perhaps. But not hi-def DVD players; they’re going nowhere for the moment because of a format war. And sound systems?
Sales of surround-sound systems have also been disappointing, [said James McQuivey of Forrester Research], because TV makers have been promoting their own high-quality sound built into the TV sets. And many consumers do not understand that to get true surround sound requires the addition of external rear speakers.
“The first thing customers want is picture quality, and the next is good sound,” Mr. McQuivey said. “But the average consumer is not that sophisticated. To most people, that means a big, loud TV.”
Now, I know a little bit about quality audio gear, and I find this just flabbergasting. Surround sound technology has been readily available to the home consumer for, what, 10 or 12 years now? And in all that time, the consumer electronics industry still hasn’t gotten it through the consumer’s head that you need a surround-sound receiver and rear speakers (and a center speaker) to get that in-the-theater sensation of, say, an airplane flying over your head? What’s so hard about setting up a showroom to demonstrate the glaring difference between built-in speakers (“high-quality built-in speakers” is an oxymoron) and even a modestly priced surround sound system? That’s pathetic. In fact, it should go down in marketing history both for the magnitude of its failure and the time that failure has taken to play out, across the entire span of both the dot-com and housing bubbles, when consumers were flush with credit.
But it’s too late now. Consumers are getting gun shy as their adjustable-rate mortgages reset and they see growing numbers of layoffs in the news. Electronics purchases that once seemed compulsory for the sake of keeping up with the Joneses are increasingly deemed discretionary for the sake of keeping up with minimum payments.
Hey, at least the big-screen prices are still coming down. (What percentage of “core CPI” does a TV set comprise, I wonder? Could that be one reason it stays so low?) If you have the cash and want to splurge, the Times article advises waiting till next January. The bargains will be even better as retailers try to unload the inventory they couldn’t sell for the holidays.