Japan's Crisis Creates Uncertainty For Electronics Retailers
March 17 2011 - 9:12AM
Dow Jones News
Consumer electronics retailers are scrambling to assess the
impacts that Japan's earthquake and its after effects are going to
have on supplies, prices and, most importantly, demand.
Japan not only makes electronics products that go on retailers'
shelves, but is also a hub for manufacturing the semiconductors
that go into them, delivering a double blow as business is already
lackluster in many cases.
Retailers dedicated to the products, like Best Buy Co. (BBY) and
Hhgregg Inc. (HGG), have been seeing soft sales of televisions and
computer supplies due to less popular innovation and more
competition from the likes of Amazon.com (AMZN) and even Costco
Wholesale Corp. (COST). Demand weakness is widespread, with Costco
and Wal-Mart Stores Inc. (WMT) having pointed out at times that at
least parts of their electronics departments were weak.
"It's too early to give indications at this point," said Kristy
Reed, a spokeswoman for Wal-Mart's Sam's Club warehouse chain, said
of the potential impact from Japan.
Brad Thomas, retail analyst at KeyBanc Capital Markets said he
has no immediate plans to reduce earnings estimates for the
retailers, like Best Buy and Hhgregg, that he follows, but he is
watching closely.
"There is no question that some of the manufacturing plants were
damaged," Thomas said. "There is also the issue of destroyed roads
and rail routes and higher transportation costs as a result."
Camera, computer and smartphone retailers are doing their best
to stay in touch with the myriad of companies that supply them with
products, wondering how the devastation in Japan will impact
them.
"We have been in close contact with our manufacturers in Japan,"
Best Buy spokeswoman Carolyn Aberman said.
There is also the issue of what may occur if other shoes drop,
given the state of the Fukushima Daiichi nuclear power complex.
Already, consumer electronics retailers are looking at the
prospect of delays for the products that do sell and potential
setbacks for the design of the next "must-have" versions.
Japan supplies about a fifth of the global semiconductor market
and is a major producer of memory chips used in smartphones. "A
broad range of new products could be affected," said Paul Romano,
chief operating officer at semiconductor distributor Fusion
Trade.
And just like in fashion, which changes or gets tweaked from
season to season, consumers clamor for newness when it comes to
electronic products, already primed for the next tablet or
smartphone. However, one bright side is that any delay of new
products could help retailers work through current inventories
without building up a backlog of older products.
As manufacturers focus on supplying orders that have already
been placed, and keeping their delivery on schedule, retailers may
be faced with higher costs for future orders. However, any cost
increases retailers incur and pass along to customers would likely
be brief given that prices for consumer electronics have been
falling for some time.
If problems at the nuclear reactor continue escalating there
could be more severe product supply issues that would negatively
impact sales. Also, spending is highly correlated to consumer
confidence, which itself is influenced by the stock market. More
big declines in equity prices "could result in consumer's pulling
back," Thomas said.
General economic uncertainty from the combination of earthquake,
tsunami and nuclear disaster in Japan since Friday had wiped out
roughly $500 billion in U.S. equity value through Wednesday.
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com