De-oligopolization and big screen TVs
While we believe that most industries tend toward oligopolization, shifts in the competition matrix can open up a market despite the best efforts of the biggest companies. That's what seems to be happening in the flat-screen TV market, according to Wall Street Journal article ("Want a flat-panel TV with that tool belt?' 9/21/06).
The sale of flat-panel TVs has been the province of the largest electronics megastores like Best Buy and Circuit City. Even as the US sales of flat-screen TVs is going crazy (expected to be $20.2 billion this year, up 79% from last year).
And the big box electronics dealers have been the big beneficiaries. According to the article, selling TVs give Best Buy and Circuit City up to 25% of their sales and an even higher portion of their profits. "In its most recent quarter, Best Buy reported a healthy 3.7% increase in sales at existing stores. But excluding TVs, Best Buy's comparable-store sales would have declined, estimates Morgan Stanley & Co."
But into this paradise comes a new set of retailers are entering the market in a big way. These include
- Office Depot, the stationery chain,
- Hardware retailer Home Depot
- Department store chain Kohls
- Discount retailers Costco and Wal-Mart
- Electronics store Radio Shack (which left the market a few years ago)
The one area where flat screens sales are not expanding are with computer makers Gateway, Dell, and Hewlett-Packard, each of which have had disappointing results big commitments to mail order/Web sales of TVs.
The consequence, according to the article is "the new outlets could trigger ever-faster price declines as lower-cost, lesser-known brands grab shelf space and consumer recognition" That comes with an explosion of flat panel TV brands, up to 90 in 2006.
Alongside the expected Samsung, Sony, Panasonic, Hitachi, and so on, are companies like Audiovox, Axion, ilo, Syntax Olevia, Marshall, TruTech and so on. An already crowded convenional TV vendor market is getting even more diluted with new brands.
Flat TVs and the evolution of technology are making flat screen TV ever more a combination of computer devices and home furnishing, hence the interest of Office Depot and Home Depot. Prices have been steadily falling, but the chances are good that major price reductions are about to happen.
Circuiy City and Best Buy have used their oligopoly status profitably in the last few years. Now they face an opening up of the market and can expect margins to drop along with rate of growth. What was once a safe niche is now part of a larger matrix.
