Plummeting television prices draw shoppers

Televisions were some of the hottest-selling products this holiday shopping season, and thanks to fundamental supply and demand principles, prices have dropped precipitously over the past few years.

Stores selling televisions and other electronic products once derived a significant amount of revenue and profits from television sales. Over the past decade, the introduction and subsequent soaring popularity of LCD and other flat screen televisions helped drive a surge in buying, with consumers flocking to stores to take advantage of the latest in high-definition technology.

However, those days are over. Television prices have dropped significantly over the past few years. As sales soared, more manufacturers entered the market segment, affirming the economic axiom of profits attract entry. As opposed to the mid-2000s, when only a handful of companies produced flat screen televisions, scores of companies currently do so, as they endeavor to offset a loss in revenue in other divisions.

The uptick in television manufacturers is squeezing profits not only at such companies, but also at the retailers who sell them, The New York Times reports. Televisions that fetched upward of $6,000 only a few years ago are now selling for less than $2,500, television salesman Ram Lall told The Times.

"We are making less money because the company is forcing us to slash prices," he affirmed.

Televisions have become so cheap to produce over the past few years that companies that produce them have largely squeezed all the profits they can from the production process. In an effort to reignite the segment, some firms have implemented cost reduction programs, while others have contracted with procurement consultants and supply chain management companies.

Consumers are benefiting from the drop in prices, but retail stores and manufacturers are hurting, a set of circumstances that has defined the holiday shopping season and, to an extent, all of 2011. With retailers representing all corners of the shopping spectrum now selling televisions - Wal-Mart, Best Buy, Target and Sears, among others - store executives are mostly limited in their ability to raise prices to offset the squeeze in profits. If one store were to raise prices, shoppers would simply flock to other stores, experts say.

Best Buy announced quarterly earnings earlier in the month, disappointing investors and analysts. Company executives asserted aggressive price reductions had helped fuel revenue growth - albeit slightly - but they conceded such tactics had eroded the company's profits, which sunk 29 percent compared to the same period the year prior.

Nevertheless, though profit growth has lagged, sales have remained relatively robust. This has prompted  firms such as Sony, Toshiba and Panasonic - whose earnings have slumped over the past few years - to overhaul television operations. Drastic times, experts say, call for drastic supply chain consulting measures.

Sony, which has sunk from its heyday as the world's most popular and innovative electronic company, announced this week it would end its partnership with Samsung. The two companies inked a deal in 2004 as they sought to take advantage of the beginning of the boom in television sales, but their LCD joint-venture has become unprofitable for Sony, whose business model differs significantly from Samsung.

Samsung manufactures and sells the electronic components that make up a wide range of electronic products. The company produces critical chips for Apple's iPhone and iPad, among its many strategic agreements, and it will pay Sony nearly $1 billion to assume its stake in the partnership, according to a press release.

With Americans unlikely to ratchet up consumer spending anytime soon, companies are overhauling spend management and indirect spend as they adjust to a consumer climate that has become the new normal.