Wal-Mart stalks electronics stores
Posted on Friday, December 23, 2005
URL: http://www.nwanews.com/adg/Business/140465/
DALLAS — When Wal-Mart wants to dominate a merchandise category, it usually gets its way. And the world’s largest retailer is showing that it wants to be No. 1 in consumer electronics.
It has remodeled the electronics departments in about a third of its U. S. stores to accommodate big-screen plasma TVs, rows of digital cameras and satellite radio displays. It has bumped up its breadth of brands, such as Canon cameras, Toshiba notebooks and Sony camcorders. And it has started offering warranties on some products and service contracts with wireless phones.
“This year, they’re going after the well-heeled consumer and the enthusiast,” said Alan Wolf, senior editor at industry trade publication TWICE. “It’s too early to tell because they haven’t made a total transformation. It’s a start — and a scary proposition for electronics retailers.”
Bentonville, Ark.-based Wal-Mart Stores Inc. is already No. 2 in U. S. electronics sales after moving ahead of Circuit City Stores Inc. in TWICE’S 2003 sales rankings.
Last year Wal-Mart’s electronics sales hit $ 12. 11 billion (not including sales of $ 2. 07 billion at its Sam’s Club chain ). Best Buy Co. is No. 1, with sales of $ 20. 75 billion.
Wal-Mart management has said it views electronics as a way to entice customers from its grocery aisles to the other side of its stores. Although Best Buy still has a substantial lead and electronics chains trump the discounter on selection, service, installation and warranties, no one is underestimating Wal-Mart.
When asked about Wal-Mart’s potential in consumer electronics, analysts point to toys and groceries. The discounter reigns in both categories.
“Wal-Mart always wants more. In this category, it’s No. 2, but Wal-Mart doesn’t like being No. 2 when it thinks it can be No. 1,” said Edward Weller, retail analyst at ThinkEquity Partners LLC. So far electronics is Wal-Mart’s best-selling category online, Wal-Mart. com spokesman Amy Collela said.
“We offer an expanded assortment of electronics to complement our stores on our Web site,” she said.
Electronics chains have a history of stumbling when unexpected rivals arise. And their responses haven’t always won over Wall Street.
When Dell Inc. expanded into printers, cameras and flatscreen TVs a couple of years ago, TWICE’S Wolf remembers Best Buy management calling Dell “dangerous.” But it wasn’t until Wal-Mart moved ahead of Circuit City that Best Buy started to respond to the competition with its “customercentric” stores, he said.
Almost two years ago, Best Buy defined what these new and remodeled stores would look like and what items they would carry, based on neighborhood demographics. It opened several of these stores in California and acquired an upscale home theater company called Magnolia.
On Dec. 13 of this year Wall Street battered Best Buy’s stock price after the retailer said higher spending on new initiatives — including its customer-centric stores — and stiffer competition in Canada cut into third-quarter profits.
CompUSA Chief Executive Larry Mondry said stores selling technology have an advantage over Wal-Mart.
“We all had $ 400 notebooks and huge lines the day after Thanksgiving, too, and so did Best Buy,” he said.
Shoppers who want to integrate their big-screen HDTVs with their computers, install cables and cut holes in the wall “can’t go to Wal-Mart,” Mondry said. “Our sales associates know what else you can do with your new iPod and can show you what you need to run it through the car stereo or make it an alarm clock.”
Best Buy touts its reliance on service agents from Geek Squad — which helps draw customers and drive revenue.
“Geek Squad and hometheater installation revenues were up a strong double-digit percentage,” Prudential Equity Research analyst Mark J. Rowen said in a report in mid-December.
Similarly, Circuit City said earlier this month that it was expanding service capabilities by hiring PlumChoice Online PC Services to supply remote computer support.
Warranties are also important to shoppers buying complex electronics, and Wal-Mart has started offering them. But a warranty is a product that needs to be sold, analysts said. Last year, warranties represented 3. 8 percent of Circuit City’s domestic sales.
Just before Thanksgiving, Rowen published an in-depth report on Wal-Mart’s potential threat to the consumer electronics chains this season and beyond.
Although Wal-Mart has improved its assortment of advanced-television technologies, he concluded that at least for Christmas 2005, the electronics chains have better selections.
Wal-Mart’s foray into selling warranties is nonetheless alarming for the chains, he said. Ultimately, he added, Wal-Mart and such directto-consumer retailers as Dell pose threats — especially in product categories that consumers view as commodities, such as DVD players and entry-level cameras.