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Is LG Electronics Price Gouging Or Simply Taking Advantage Of COVID-19?

Brands such as LG Electronics are awash with money, with questions now being raised as to whether big multinational consumer electronics companies such as LG are taking advantage of COVID-19 to jack prices up or are simply price gouging because of stock shortages.

Globally the South Korean company logged sales of 63.26 trillion won last year, up 1.5 percent from a year ago, while its operating profit surged a staggering 31.1 percent on-year to 3.18 trillion won which means they are charging a lot more for their products. Net profit for the year was $2.6 Billion.

When the Australia dollar hot $0.53 to the US dollar a lot of big brands moved to jack up prices by over $15%, now that the dollar is back to trading at A$.77 to the US dollar many Companies have not slashed prices because costs have risen.

An LG 55″ OLED 4K TV is now selling for upwards of $2,995 14 months ago that same sized TV was selling for $1,999 a rise of over 30%.

According to recent ABS data the prices of appliances and furniture have risen significantly during COVID-19 lockdowns, some Companies such as LG blame freight however insiders claim that the business is “awash with cash” from what many believe is opportunistic price gouging due to the lack of stock due to increased demand.

Prices for major appliances such as refrigerators sold by the likes of LG rose almost 10 per cent in the December-quarter as retailers and suppliers cut discounts.

Despite inflation running at 0.6 prices for major appliances jumped 8.9 per cent in the September quarter and 9.9 per cent in the December quarter according to ABS and Citi data.

Small appliances manufactured by the likes of Breville and Delonghi rose 4.5 per cent in the September quarter and 8.6 per cent in the December quarter, after falling 0.7 per cent a year over the past five years.

“It’s the law of economics at work. Demand is high and supply in some areas is a bit constrained, so prices have gone up,” Citi’s head of research, Craig Woolford told the Australian Financial Review.

“Typically, in retail, there’s an abundance of supply globally so there are high levels of discounting activity at certain times of the year,” Mr Woolford said.

“Some of that is planned and sometimes it’s because there’s too much inventory, either at the retailer or the supplier,” he said.

“But that’s not the case at the moment and hasn’t been the case since the middle of last year. We think the majority of the issue is demand, as we’re not seeing substantial stock shortages.

“We’ve gone from excessive discounting to more rational behaviour. It’s not like [the retailers] are being greedy.”

A recent Citi report claims that same-store sales at JB Hi-Fi’s Australian stores rose about 21 per cent in the December quarter, lifting same-store sales for the half by 24.2 per cent.

The performance was even better at The Good Guys, which is owned by JB Hi-Fi. The appliance chain’s same-store sales rose 26.4 per cent in the half, prompting JB Hi-Fi to issue better than expected December-half profit guidance.

“Appliances, audio-visual, IT and furniture all recorded much higher inflation than average,” Mr Woolford said.

“The inflation rates are 5 to 10 percentage points higher than normal and would account for about one-quarter of the elevated sales growth rate in household goods.”

The only sector that experienced falling prices or below-average deflation was women’s clothing. Prices there dropped 3.3 per cent in the December quarter after declining 2.1 per cent a year for five years.

The reduction in discounting also helped boost gross margins, which combined with strong sales will underpin stellar first-half profits for retailers such as JB Hi-Fi, Harvey Norman, Super Retail Group, Nick Scali and Premier Investments.

“People have a lot of built-up savings and can’t spend on other things outside of retail so they’re willing to pay higher prices for the same product,” he said.

Citi expects prices to ease, but not fall sharply, in the second half of the calendar year as inventory levels rise and retailers have to resort to more discounting and promotions.

“We can expect less discounting and more inflation [in the June-half] but as we enter the second half of calendar 2021 a lot of companies will start to see some benefits from the higher Australian dollar on raw material costs and other product costs,” he said.

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