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Walmart Balancing Mass And Class Amid Long Recession

6/06/2011 02:44:20 PM Eastern
BENTONVILLE, ARK. - After six years of development, Walmart's CE business reached a pinnacle of mass-merchant assortment and display within its Project Impact stores in 2010.

The program, designed in part to attract higher-income customers, provided wide uncluttered aisles, a tighter assortment, improved lighting and signage, and emphasized a handful of core merchandise categories, including CE.
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There, within the discounters' entertainment departments, shoppers discovered some decidedly un-discount store-like enticements, including large-screen LED and connected TVs; tier-one brands like Apple, LG and Samsung; an expansive selection of smartphones and homenetworking gear; and staffed demo stations.

While CE specialty retailers shuddered at the prospect of declining market share and margins, circumstances proved that even the world's largest retailer was not immune to the macro forces impacting the industry. Falling average selling prices (ASPs), particularly in TV, were crimping Walmart comps; the extended recession and spiraling cost of food and gas took a disproportionate toll on its core customer base; and Amazon.com became an even more formidable competitor.

In response, the company returned to its everyday-lowprice (EDLP) roots, reemphasized its value message, and began returning some 8,500 previously edited general merchandise SKUs to store shelves, taking some CE floor space with it.

The changes, acknowledged Gary Severson, home entertainment senior VP for Walmart U.S., have required a number of mid-course corrections, including an increased selection of opening price-point products; a culling of legacy and slower-moving items such as boom boxes and landline phones; a small reduction in music and movie space; and an enhanced web strategy that includes more onlineonly SKUs.

What there won't be, he stressed, is any cutback in overall CE assortment, or any lessening of Walmart's focus on tier-one brands and advanced technologies like tablets, 3DTV and smartphones.

"Brands are really important to us," Severson told TWICE. "With higher prices for food and gasoline, some core customers may trade themselves down, but we have seen really good increases on tier-one name brands at really good prices."

The trend is readily evident in TV, where Walmart's tierone share is "solid and growing," and smart, 3D and LED models are gaining traction.

3D in particular is "starting to check," he said, after the company began rolling out Vizio, LG and Sony SKUs last Christmas. Most of the stores that stock 3DTVs offer passive technology models that are merchandised with glasses, and their 3D capability is positioned as a product feature rather than a separate category. However, 3D is merchandised separately with live displays in about 500 test locations, although it's still too early to determine which presentation is more effective, Severson said.

Similarly, connected TV is "consistently growing," he noted, although the price delta for smart models and the high cost of content is limiting the category's potential. "Customers are getting it," he said. "The question is, how much of a premium are they willing to pay? It will evolve into a good feature that has a reasonable step, but there's too much of a premium now."

The same holds true for Vudu, the IPTV movie service and platform developer that Walmart acquired one year ago. The business has grown several fold since then, as the service is added to new screens and devices and the company hones its ability to engage the customer. "We're layering on new customers every week and the feedback has been very positive," Severson said, "but the studios want a little too much and it's still too high a premium."

Conversely, Walmart's TV assortment still includes plasma and LCD models in certain larger sizes "where the consumer is screaming value," he said.

The TV wall itself is unchanged in length, although it now holds larger screen sizes, may soon lose some smaller displays, and features more integrated accessories like HDMI cables and mounts. "I feel pretty good about the amount of space devoted to the TV wall now," Severson said.

More noticeable is the addition this month of a dedicated tablet PC area with an iPad end cap serving as the section's lead-in. Severson regards tablets as an assortment business rather than an item business, and held off on the section's rollout until additional models began shipping this month. The tablets will be cross merchandised with accessories on a side counter, and product will either be tethered or under glass depending on the store, he said.

An expanded assortment of e-readers is also in the offing, as well as a greater selection of mobile, gaming and video accessories. "The customer wants more and better solutions for accessorizing hardware," he observed, prompting more brand- and model-specific accessories in smartphones and the solution-based accessories embedded in the TV wall.

Walmart is also tweaking its mobile business by developing a "grab-and-go solution" for its exclusive Family Mobile post-paid plan and handsets from TMobile, to make for an easier checkout, and will introduce additional hybrid plans like Family Mobile that require monthly payments but no contracts.

Elsewhere , the company is bolstering its e-c ommerce assortment and will move some categories out of the stores and onto the web. "The business is shifting more online for some categories, and we will adjust our presentation accordingly," Severson noted. "There is a natural evolution where in some instances the customer is more comfortable shopping online than in stores."

But that's not to imply a brick-andmortar retrenchment. "We're not abandoning our in-store assortment," he said. "You need to have product in the store."

Looking at the industry as a whole, Severson described CE as "fairly challenged right now" as it works through content delivery issues, and anticipates a "very competitive," albeit improving, second half. "It will get a little better," he said.
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