Although the U.S. consumer electronics and technology industry has been hurt at least somewhat by the ongoing tariff war between the Trump Administration and Chinese government, the impact on American consumers has been more of a mixed bag. So far, anyway. But don't expect that to continue for a whole lot longer if the dispute drags on through the rest of 2019 into 2020.
Since our last report on the tariff war late last year, there have been a couple of major unexpected and unintended--but not necessarily negative--consequences of the tariff dispute so far in the U.S. For consumers, there's been the happy surprise of ultra-low pricing on many TVs at retail. For manufacturers, it's been a major boost at times, especially for Roku in the smart TV operating system battle.
TV panel prices ended up tumbling significantly in June after TV brands started "engaging in preemptive stocking" in the second quarter of this year over fears of a 25 percent tariff being implemented in the third quarter, along with Samsung Display's decision to shut down a key plant, TrendForce division WitsView said on July 5. Although Samsung Display postponed the shutdown of the plant until Q3 due to financial, technological, and other reasons, "end distributors' inventories of TV sets have already become bloated beyond saving in June, and brands' panel inventories have already reached dangerous levels," the company said.
Although some panel manufacturers made small adjustments to production capacity in June and July, there was just "no turning back from the oversupply situation," WitsView said. Despite signals at the end of Q2 that preparations would be made in anticipation of peak season demand in Q3, efforts by Chinese TV brands to promote sales in the first half of the year "haven't been paying off, leading to ever-increasing inventory levels," the research company said, noting "panel prices started to take a dive in May and continued plunging throughout June," while Chinese TV brands' "confidence in the markets has greatly diminished, and will take up a more conservative stance in procurements for July." It predicted that "most panel manufacturers will be turning a blind eye towards the prospect of making production capacity adjustments" in the third quarter, "in hopes of maintaining their respective shares of the market," adding that, "as demand stays weak and production capacity pressures continue to rise, negotiating power for TV panel prices in 3Q will probably remain firmly in the hands of buyers."
In a nutshell, that means it's been a pretty damned good time for consumers to buy a TV and may continue to be for the rest of this summer. Until, that is, the hammer comes down and more tariffs go into effect and/or those inventories start to thin out.
TrendForce analyst Eric Chiou warned that consumers might not be able to get the dirt-cheap prices on TVs this Black Friday that they've come to expect. "April to May forms the critical window for determining how to set deals for the Black Friday sales promotion at year-end, but since that window lay in a time of obscurity as to how the trade dispute would develop, brands, not knowing the effects of the tariffs on costs, found it difficult to work around promotions by marketing channels," he told me on July 30. "This may result in a smaller scale of promotion this year-end, and may even limit the extent of that promotion, affecting consumers' willingness to buy," he predicted.
"From a brand standpoint, TCL, Hisense, and other Chinese brands actively expanding their presence in overseas markets (including the U.S.) were affected by the tariffs, suffering a setback in both shipment and promotional effectiveness," he pointed out, adding: "Samsung, on the other hand, had its U.S.-bound TVs produced and put together in Mexico, and were not affected by uncertainties of the trade dispute. Add its sizeable brand strength into the equation, and we see Samsung becoming one of the few TV brands benefitting amid various interfering factors from the dispute."
Best Buy CEO Hubert Joly addressed the tariff issue on the retailer's most recent earnings call in May, saying the Trump Administration "has so far done a very good job of minimizing the impact of tariffs on U.S. consumers by limiting the number of consumer products on the tariff list." He went on to note that Best Buy had been able to "minimize the impact of these tariffs by employing a number of mitigation strategies, including by buying products ahead of the tariffs being implemented and by working with our vendors."
Best Buy estimated that the U.S. List 3 of targeted products--the $200 billion list that went into effect last September--represented "only about 7 percent of our total annual cost of goods sold," and "many of the products on this list are accessories," Joly pointed out. However, the proposed List 4 is made up of many consumer products, including many electronics, he noted. Although it was "premature to speculate on the impact of further tariffs as it is unclear whether List 4 will actually be implemented, what products would ultimately be included, at what rates and when," he warned "one thing is, of course, certain, as other retailers have noted, the impact of tariffs at 25 percent will result in price increases and will be [paid] by U.S. consumers."
Continue to Page 2 for insight from the CTA, the implications for Roku, and some future forecasting...