The Consumer Electronics Inventory Glut

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"As we've moved into the fourth quarter, a lot of the vendors are trying to push volumes into the market to meet targets" set in early 2008 or earlier, before demand for new or high-end phones slumped, Blaber says. The oversupply could contribute about two percentage points to a 12% industrywide decline in the number of phones sold in the first quarter, he adds.

Partly as a result of inventory buildup, annual sales of flat-panel TVs will decline for the first time in 2009, to $21.8 billion from $24.4 billion this year, according to researcher iSuppli. The overall TV market will drop 13.3%, to $27.9 billion in 2009 from $32.2 billion this year.

The TV industry is currently keeping enough inventory to last about eight weeks, in keeping with previous years, says iSuppli analyst Riddhi Patel. But current demand warrants a much smaller supply, lasting about four to five weeks, he says. The pileup could pressure prices for much of next year, making it difficult for lesser-known brands to survive. "Because of this excess inventory, the special prices [you normally see on a Black Friday] will become your normal prices in the second quarter of 2009," Patel says. Normally, retailers won't start offering those prices until months later, in the third quarter.

When Low Prices Aren't Enough

Prices are dropping earlier than usual in other products as well. In PCs, "we are starting to see Black Friday [pricing] on regular weekends already," Giusto says. The problem is, lower prices may not be enough. PC manufacturers may need to take a page from carmakers and tap the brakes on production, Baker of NPD says. "Given the state of the economy, the way of clearing out the inventory is going to be to stop producing rather than lower prices," he notes.

Electronics manufacturers can't afford to let unsold wares gather dust. Many retailers require makers to take back inventories or otherwise compensate them when items don't sell. Many TV models change in February or March. And since prices of components like liquid-crystal display (LCD) panels are plummeting, new models may be cheaper and more profitable to carry than older ones.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.