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NEW YORK-Record low levels of inventory and eroding profits are ingrained problems that threaten to undermine the stability of the color-television business.

That was the message delivered by Steve Nickerson, vice president of marketing for Toshiba, at a press conference here last week.

The answer, according to Nickerson, is: Retailers and manufacturers need to take better care of business -- work closer and find ways to inject profit into their sales.

"If we don't plan better, we're in a dangerous situation," he said.

Sinking inventory levels along with eroding profitability are serving as a dark undercurrent to the rosy industry numbers now being touted.

Color-TV unit shipments for the first 15 weeks of 1998 are up -- 10 percent for all color TVs, 20 percent for projection -- over the same period of the previous year, according to the Consumer Electronics Manufacturers Association.

This is the first time this has happened in about four years.

But inventory levels are low. As of last week, about three weeks of direct-view TVs and about four-and-a-half weeks of projection TVs were in the pipeline, Nickerson said.

This is a sharp downturn from the eight weeks of inventory that was the norm until last summer, when the levels began to fall due to an unexpectedly strong fourth quarter and some manufacturers' delivery problems.

Three years ago, 10 to 12 weeks of inventory was the norm.

"Inventory is very, very low," Nickerson said. "It is as low as it has ever been."

Nickerson doesn't believe inventory levels will get better in the next four to six months because of several factors: Mitsubishi has exited the direct-view business; Zenith is moving a facility, which will upset its production; and the Asian crisis is affecting the manufacturing capability of some companies.

Additionally, most factories close for summer holiday for two to three weeks in the June-July period, which has historically slowed production in those months.

At the same time, manufacturers are hesitant to produce a product "that doesn't have a home," Nickerson said. Inventory has come to be viewed as a liability by many manufacturers because of the price drops inherent in the industry.

To make it through the lean times will require "a different level of planning" and "new relationships" between retailers and manufacturers, Nickerson said.

The lack of profitability is another snag in the color-TV business, Nickerson said, pointing out that rising unit sales do not necessarily reflect rising dollar sales.

In 1997, unit sales of projection TVs grew 3.4 percent over 1996 but sales fell 4.5 percent, according to CEMA. And whereas unit shipments of direct-view TVs fell 1.9 percent, dollar sales fell 6.1 percent.

In the fourth quarter alone that year, unit shipments of projection TVs fell 4.5 percent and dollar sales fell 13.6 percent, and direct TV units fell 10 percent and dollar sales fell 13.5 percent.

The industry needs to find profitability in new ways, Nickerson said. "Profitability comes from efficiency in getting the product from the factory to the consumer," he said.

"Profit is not in buying for less and then selling for less."

Stepping consumers up to higher-end models is another way to restore profitability, Nickerson noted. "We have to sell the value that is in our products.

"We have to communicate value in all channels -- not just those that have trained salespeople."

HDTV could serve as a boost by drawing consumers into the stores. At least that is what happened in March when Circuit City offered HDTV demos. "Having that in the store helped them sell analog sets," Nickerson said.

In the long run, Nickerson believes those retailers who work closely with their manufacturers have the best chance of surviving.

"Retailers need to be more open about their numbers," Nickerson said. "I have less confidence that those who don't will survive."

At the same time, Nickerson said, manufacturers have to be more upfront as well about where their own profits reside. A failure to do this could have led Mitsubishi to leave direct view.

"Did retailers kill the golden goose?" Nickerson asked.
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Author:Lieber, Ed
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:May 4, 1998

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