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Wal-Mart Resumes Aggressive CE Pricing

11/20/2006 02:00:00 AM Eastern

Wal-Mart has slashed Panasonic's benchmark 42W-inch HD plasma TV from its minimum advertised price (MAP) of $1,800 to $1,294 in an opening salvo of holiday discounts.

The opening price point model, TH-42PX6U, is one of nearly 100 CE products including digital cameras and mobile handsets that Wal-Mart has earmarked for promotional fodder as the retailer returns to its low-price positioning.

Other "rolled back" items include Polaroid's 37W-inch LCD HDTV (to $997 from $1,297) and an RCA-branded 32W-inch LCD HDTV (to $847 from $997).

The price reductions, announced earlier this month, represent a return to Wal-Mart's traditional discount posture while the world's largest retailer also repositions itself with better goods at higher price points. Analysts have questioned the trade-up strategy, which has thus far failed to invigorate the company's sales or stock price and could alienate its core lower-income customers.

The CE rollbacks were the second in a series of planned price cuts on thousands of key holiday goods, including toys and small appliances. Lee Scott, president/CEO, telegraphed his intentions during Wal-Mart's annual analyst meeting in October, where he indicated that the retailer would take "a rational approach to disrupting the market." In a recorded earnings call last week, Scott said the company is "implementing our most aggressive pricing strategy ever across core categories" including CE, while vice chairman John Menzer, in a conference call with analysts, reported "big growth" in flat panel TV, MP3 players, notebooks and mobile phones.

Nonetheless, Wal-Mart posted flat same store sales in October and foresees little improvement this month, which could prove to be the retailer's weakest November in a decade. The company attributes its poor performance to an overly ambitious apparel upgrade and a disruptive store remodeling program that included over 1,000 CE departments.

Wal-Mart is trumpeting the price rollbacks in-store with large banners and prominent displays of promotional product, and was conveying its improved CE assortment through TV spots under its "Be Bright" holiday advertising theme.

"Wal-Mart recognizes that Mom wants to get the perfect gift for the best value," said Gary Severson, Wal-Mart's senior VP and general merchandise manager for electronics. "We've lowered prices so that families can afford to get and give more of the best brands and technology in electronics this season."

Other new CE price points include:

  • Madden 2007, $37.88

  • Kodak C875 digital camera, $249.64

  • Cingular C139 prepaid phone, $19.97

  • Panasonic PV-GS39 mini DV camcorder, $268.76

  • Lexmark z600 printer, $134.44

  • Net 10 1600 prepaid phone, $39.98

Severson added that Wal-Mart would also sell iPods, HDTVs and Sony's PS3 GameSystem at the "best value."

Retailers were troubled by the price moves, particularly on the Panasonic plasma. "I'm not happy about it," said John LaRegina, senior TV/video buyer for P.C. Richard & Son, a top ten Panasonic dealer. "It's a little too visible, but we'll address it accordingly."

"The price impression in New York will not be that great," he continued, "but in other parts of the country where Wal-Mart has a saturation of stores, this will have tremendous impact on retailer margins. It is both unfortunate and unnecessary."

Another CE dealer said breaking MAP on the 42W-inch plasma was "very aggressive" on Wal-Mart's part. "I would say it's been disruptive," he told TWICE. "It's unnecessary. It's the number-one selling TV, was top-rated by Consumer Reports, and at $1,799 you should be able to sell plenty."

Jerry Throgmartin, chairman/CEO of hhgregg, was more resigned to Bentonville's blowout of Panasonic's plasma. "Wal-Mart has been selling TVs for a long time," he told analysts during a conference call, "and when they move pricing, pricing moves in the marketplace. We have our plan and we have our play, and we have to run with it."

Gregg president Dennis May added that "While we don't minimize the concern, it opens up a lot of opportunities for us" by bringing in a new crop of HD consumers and inspiring current owners to trade up to larger screen sizes. Both customer groups will require consultation and installation services, he added, which a traditional "grab-and-go" merchant like Wal-Mart doesn't provide.

The response from national chains was more immediate. Costco moved its TH-42PX6U display from the newly reset flat panel aisle to the central entranceway, where it now sells for $1,500 including an instant $100 manufacturer's coupon. At press time, Best Buy was selling Panasonic's step up TH-42PX60U for $1,600, as was CircuitCity.com, while Target was offering it online for $1,400.

Other dealers responded by promoting Panasonic's 42W-inch ED plasma, including Boscov's (for $1,200) and 6th Avenue Electronics (for $1,088).

P.C. Richard's LaRegina anticipates further footballing on Black Friday weekend when Panasonic — and, according to sources, other vendors — temporarily lift their MAP requirements on flat panel. Indeed, David Strasser, a hardline retail analyst with Banc of America Securities, reported that Best Buy has been pressuring manufacturers to drop MAP during the Thanksgiving period, and speculated that the unprecedented move could stem from the company's high inventory position at the end of the third quarter or in reaction to Wal-Mart's aggressive pricing.

"It is unfortunate that the retail community will no doubt misuse and misrepresent the merchandising opportunity that Panasonic has created for Black Friday," LaRegina said. "It is my hope that the consumers who get out of bed at 3 a.m. on a cold November morning do not get disappointed."

Dealers and vendors reported that with the exception of certain holiday specials, other first-tier manufacturers were largely holding their ground on price, at least for the time being.

Matt Fassler, a managing director of Goldman, Sachs, believes the impact of Wal-Mart's price moves on the CE marketplace is overstated. "Mass merchants do not yet carry the assortments or offer the services to pose a serious threat," he observed. "This action is no different than past holiday seasons."

Michael Perlman, president/CEO of BrandsMart U.S.A. agreed. "Wal-Mart's gonna do what Wal-Mart's gonna do," he said. "You can cry about it or you can get on with your life." — Additional reporting by Amy Gilroy

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