Best Buy: Consumers baffled by HDTV

NEW YORK (CNNMoney.com) -- As Best Buy gears up for its important high-definition TV sales months, a new survey from the No. 1 electronics retailer reveals that almost 90 percent of Americans still don't understand HDTVs - and close to 50 percent underestimate the cost of buying one.

This is especially troubling for Best Buy (Charts, Fortune 500) as the retailer is banking on flat-panel HDTV purchases to fuel a big chunk of its fourth-quarter profit and sales.

The November-December period typically accounts for more than half of retailers' profits and sales. For Best Buy, the year-end holiday shopping period is estimated to account for nearly 70 percent of its annual profit.

What's more, the retailer also needs to reduce the high number of returns for flat-panel TVs that it was plagued with last year because of lack of awareness among its shoppers.

"We were getting a lot of anecdotal evidence that showed consumers were frustrated with their HDTV purchases," Mike Mohan, vice president of home theater merchandising at Best Buy, told CNNMoney.com Monday. "We felt that we had some gaps in key area of consumer education. That's why we decided to commission this study and really understand where the issues were."

The survey, which polled 1,012 consumers nationwide from Aug. 3 to Aug. 5, found that 89 percent of people said they lacked a complete understanding of HDTV technology.

"You won't believe the number of times that someone will come in to a Best Buy and say 'I just want a flat TV,'" Mohan said.

Best Buy also said 48 percent of consumers didn't budget appropriately for the "entire" HD experience.

This means consumers allocated their budget almost entirely for the television only and neglected to consider additional costs for cables, audio systems and upgrading to cable or satellite services that offer HD channels.

"There's a misconception that flat-panel means HD. No. you have to do something else. You have to upgrade to a HD service provider," Mohan said. "We don't only want to bring down the return rate [for flat-panel TVs], we want to make our customers more satisfied with their overall experience."

To that end, Best Buy has launched an "HD Done Right" education campaign this week with more information about HDTVs available in stores and on its Web site as well as a HD troubleshooting hotline.

"We could've done better online in educating consumers about the total costs for an HDTV experience. So we're addressing that now," Mohan said.

More importantly, Best Buy knows it can't afford to lose crucial holiday sales. Although the retailer continues to see an uptick in HDTV purchases, company executives recently said housing and credit market pressures on Americans pose an ongoing risk to big-ticket purchases.

Additionally, both Best Buy and Circuit City are facing stiffer competition in the HDTV category from discounters like Wal-Mart (Charts, Fortune 500), Target (Charts, Fortune 500) and Costco (Charts, Fortune 500).

"It's not just Best Buy. Everybody is looking to maintain the buying momentum heading into the holiday shopping season," said Stephen Baker, consumer electronics analyst with market research firm NPD Group.

"In the past few years, retailers have put a lot of emphasis on just the TV and not on the home entertainment package that you can build with an HDTV," Baker said. "This is a profit opportunity for Best Buy and Circuit City (Charts, Fortune 500)."

With HDTV prices down about 20 percent year over year, Baker estimates that flat-panel TVs with HD technology could see robust sales over the holidays.

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