Get the picture: TVs may cost more

China, the weak dollar and higher fuel costs could team to bring home theater prices off their lows at holiday time.

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By Parija B. Kavilanz, senior writer

I would most likely take financial advice from:
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NEW YORK ( -- If you're looking for a deal on a flat-panel TV or home theater system, this may be the time to act.

Several independent electronic merchants say prices could creep higher in time for the year-end holidays.

These retailers blame a trifecta of higher production costs in China, which still accounts for a majority of the world's electronics production, ongoing weakness in the dollar and record-high fuel costs for elevating vendors' costs and eventually retailers' prices in the second-half of the year.

However, some industry experts say retailers will do whatever they can to absorb the price increases before passing them to shoppers.

Brian Hudkins, president of Gramophone Ltd., a Timonium, Md.-based seller of high-end electronics, said the flat-panel TV segment has been the most price-aggressive market in the industry.

"They [prices] are already exceptionally low today," he said. "It's hard to imagine that prices will get a whole lot less."

"Flat-panel televisions have been the force behind the industry's recent business growth," said John Robbins, president of Broomall, Pa.-based home entertainment company HiFi House. "I feel like we have gotten close to prices bottoming, if we're not already there."

Wilshire Home Entertainment president Michael McMaster is already anticipating prices to go up across the board.

McMaster, who heads the Thousand Oaks, Calif.-based seller of home theater systems, said flat-panel prices have been falling between 15 to 20% or more every year over the past few years.

"Today you can get a low-end model for $1,500. Four years ago, it was around $10,000," he said.

But McMaster said one his top vendors from Asia, whom he declined to publicly name, recently announced it would raise prices for its flagship flat-panel TV categories.

China: Changing the rules

"If you're still waiting on the sidelines for prices to come down, think again," he said.

In addition to a jump in raw material prices, industry watchers say manufacturers are paying their Chinese vendors much more for labor and energy costs.

"We've heard from retailers and manufacturers that new labor law regulations in China pertaining to enforcing employee benefits have driven up vendors' costs," said Shawn Dubravac, economist with the Consumer Electronics Association, the primary trade group representing the $161 billion U.S. consumer electronics industry.

Dubravac said the Chinese yuan's rise versus the dollar is also making imports into the United States more expensive - both for manufacturers who source from China and sell to retailers and for merchants who source directly from China.

"Import prices for all goods are up 3%. That's the fastest rate of growth in eight years," Dubravac said.

Experts say some Chinese vendors, responding to the dollar's decline, are shifting some of the inventory meant for their U.S. clientele to Europe because the euro's strength has made the region a more profitable market than the United States for Asian exporters.

This is especially troublesome because it could result in tighter supplies later in the year and heading into the crucial fourth quarter holiday period - which accounts for more than half of retailers' annual sales.

Merchants say the the challenges don't end there.

According to Robbins of HiFi House, the surge in global fuel prices have bumped up transportation costs for the industry. Outside of the flat-panel TV category, Robbins said a 25% to 50% hike in the price of copper - a main commodity used for wiring audio equipment - means speaker prices are poised to rise.

Another hot-button issue is the high-definition DVD category, in which Sony's Blu-Ray system recently emerged as the winning standard..

"With the dissolution of HD DVD, Blu-Ray is now the standard," Robbins said. "Demand has exploded for Blu-Ray, but Sony is struggling to keep with with demand."

A supply crunch will inflate prices for Blu-Ray players, he said. "We already know that Sony hasn't been able to supply [Blu-Ray players] over the last 60 to 90 days," Robbins said.

Gramophone's Brian Hudkins suggested that mass merchant gadget sellers such as Best Buy (BBY, Fortune 500), Circuit City (CC, Fortune 500) and Wal-Mart (WMT, Fortune 500) aren't insulated from these challenges.

"Wal-Mart is sourcing so much from China," Hudkins said. "I think the currency changes and higher fuel costs will hurt the lower-end retailers much more because they are less able to absorb these higher costs across not just electronics but toys and other products."

Circuit City spokesman Jim Babb told that the company does not comment on pricing. Best Buy and Wal-Mart could not immediately be reached for comment.

For his part, Morningstar analyst Brady Lemos isn't completely convinced about TV prices going up.

"You have to remember that technology becomes obsolete very quickly. This will keep [TV] prices in check in the longer term," Lemos said, even though over the short-term higher prices are a possibility because of tighter supplies.

"Now is the perfect storm for consumers," CEA's Dubravac chimed in. "Prices aren't bottoming. They are still as compelling this year but the rate of [price] declines may slow."  To top of page

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