NEW YORK (MarketWatch) — Even if they already have a flat-panel, high-definition TV, consumers now have another reason to buy a new TV.
The reason: the latest TV technology, called 4K Ultra HDTV, has four times the resolution, or over 8 million pixels, compared with what’s available on the nearly ubiquitous HDTV. In simple terms, it means the TV screen image can show such fine details as mosaics on a castle wall or tiny dots on a fish in an aquarium, according to the Consumer Electronics Association.
And these TV screens, especially those 50 inches or more in size, have become a bright spot in an otherwise declining market for TVs and other electronics.
“The last five to 10 years, there’s not been a lot of value in the TV business,” Stephen Baker, an analyst at market research firm NPD Group, said in an interview. “Now there’s a premium product people are trading up to. 3D TV (that flopped) was focused on gimmicks. (4K) gives you what you want — a great picture.”
Baker said as the falling price of glass and other components knocked down the price of big-screen TVs, it fueled consumer appetite to trade up. For instance, the average 4K TV price has fallen by half to about $1,600 in the first quarter of this year from $3,200 in the fourth quarter of 2013, the year 4K TV was introduced in small quantities. Meanwhile, the number of 4K TVs sold jumped 16-fold and the total value of those sales, even at the lower unit price, is up nine times, Baker said. Average TV price is $450 for a 40-inch set, he said.
In total, sales of flat-panel TVs 50 inches or bigger have risen 22% to $8.4 billion in the 12 months through April from $6.9 billion two years earlier, according to NPD Group. In contrast, overall flat panel TV sales fell 5.8% over the same period.
One in four consumers said they plan to buy a new TV this year, including 38% of those under age 30, according to deal site FatWallet.com’s TV Buyer Survey, released in January. Among those who are planning a purchase, 53% said they would spend more than $500, up 18% from 2014. The percentage of those planning to buy 4K TV jumped 45% to 11%, the survey showed.
3D TV (that flopped) was focused on gimmicks. (4K) gives you what you want — a great picture.
Stephen Baker, NPD Group
And that’s good news for such retailers as Best Buy Co. BBY, -2.22% The top U.S. specialty electronics retailer on Thursday reported better-than-expected first-quarter profit and sales on higher demand for products like 4K TV that helped offset lower tablet and other traditional consumer electronics sales, an area that represents about two-thirds of its U.S. sales. Industrywide consumer electronics sales dropped 5%, NPD’s Baker said.
There’s a “genuine customer interest for larger screen televisions,” said Best Buy Chief Executive Hubert Joly on Thursday. Partly driven by 4K, “a large screen TV is actually very appealing given (the number) of pixels.”
Joly said Best Buy has worked with suppliers including Sony and Samsung to better showcase the products and staff “expert labor” on the floor to answer customer questions. “We’ve really created a material difference in the customer experience,” Joly said. He expects Best Buy will pick up “a material share” in the category especially because “it’s still early in the cycle of adoption” of the large screen TVs and 4K TVs.
“We are believers in 4K and what it could generate in sales throughout the year,” said Morgan Stanley analyst Simeon Gutman. He estimated 4K TV category could contribute 4% to 5% to Best Buy’s U.S. same-store sales even as the average selling price is expected to continue to decline.
Telsey Advisory Group analyst Joe Feldman estimated TVs make up about a quarter of Best Buy’s total sales.
And it’s not just Best Buy that’s capitalizing on the demand.
Best Buy’s smaller rival HH Gregg Inc. HGG, -4.62% said this month 4K ultra-HD TVs, which represent about 30% of its TV products mix, will jump to about half of its assortment by this holiday. “We continue to see growth in this part of the television business,” said President and Chief Executive Dennis May. He calls it a “significant shift into more premium television.”
Wal-Mart’s WMT, -0.33% Sam’s Club began carrying 4K TVs a year ago. They have since become one of its best-selling televisions, spokesman Bill Durling said. “We feel it’s a bright spot and is driving members to upgrade their TVs,” he said. “The larger sizes are definitely selling best.”
“2015 is a sweet spot of opportunity for retailers who are focused on 4K TV,” said NPD’s Baker.
TV is also a category that could offer physical retailers a better defense against price competition from Amazon AMZN, -0.93% than most other electronics. A lower percentage of TV sales are online compared with the percentage for the overall electronics category, Baker said.