| 05.01,12. 03:21 AM |
Curse of cheap TVs
A customer studies an array of flat-screen televisions Source: AFP
January 05, 2012
EMBATTLED retailers are facing a flood of super-cheap, Chinese-made electronics and flatscreen TVs.
Analysts believe the imports are eroding the dwindling profits of local retailers, who have already watched TV prices plummet 25 per cent over the past 12 months.
China is now the world's largest producer of flatscreen TVs, outproducing Korea and Japan and seizing market share with record low prices.
As fierce competition forced prices through the floor, Australians have jumped on the bandwagon, buying 2.4 million TVs in 2011. A few years ago panel TVs sold for $3000 and gave retailers a $600 profit on a 20 per cent gross margin.
Today, units selling for $1000 on the same 20 per cent margin deliver just $200.
The fallout is so dire that Myer chief executive Bernie Brookes recently said: "It is getting to the stage where it will be dearer to buy a movie than a flat screen TV."
Retail leaders yesterday predicted casualties as major outlets "rationalised" stores - closing those outlets that weren't performing.
Commonwealth Bank analyst Andrew McLennan said he expected the trend of falling prices to continue as retailers admitted their profits on electronic goods were in free fall.
"The deflation we are seeing at the moment is likely to persist," Mr McLennan said.
"A lot of people thought the deflation ... was due to the rising Aussie dollar and intense competition for market share from Korean manufacturers. People thought that, once the currency stabilised, a lot of that pressure would dissipate.
"But what we are seeing globally is that Chinese manufacturers are about to significantly expand their production capabilities - and that will create further problems.
"So it won't be the Koreans fighting for market share - it will be the Chinese and they will be more aggressive than the Koreans."
Australian Retailers Association executive director Russell Zimmerman said prestige brands might also be moving into China to make their products cheaper.
"The problem for the retailer is that, to make the same margin, they have to sell a bucket load of the units. We are seeing this across the board - it is not just limited to TVs," he said.
"I'm not sure how retailers will prosper on margins that are thinner and thinner."
Harvey Norman boss Gerry Harvey said his stores sold 10,000 Chinese-made flatscreen TVs at $199 each in just three or four days over Christmas but, overall, sales were down by up to 40 per cent.
"All the (major) brands have had to reduce their prices ... the whole market has come down to such ridiculous prices that flatscreen TVs are no longer a luxury," he said.
"The factories making them are mostly losing money."