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Walmart Rocks CE, Embraces New Strategy

6/07/2010 09:20:00 AM Eastern
BENTONVILLE, ARK.  - It's been vilified by labor unions, planning boards, social commentators and competitors, but for many American shoppers, Walmart is a lifesaver.

That's no less true in CE, where the world's largest retailer continues making technology more affordable as categories like computers and mobile move from luxury to necessity.

But for the past five years, the discounter has been reaching out to a more aspirational customer by bringing in tier-one brands and advanced technologies, including LED TV and 4G smartphones this season, and 3D TV this fall.

In the process, the chain has rocked the CE boat by redrawing the boundaries between retail distribution channels and the impact has been profound: Manufacturers are finding a new conduit for their factory output; specialty dealers are feeling betrayed and threatened by the brands they helped nurture; and industry observers foresee greater pricing pressure on a sector that already devolves from innovation to commodity at alarming rate [see analysis, p. 22].

Stephen Baker, industry analysis VP for The NPD Group, believes Walmart's transformation from commodity outlet to name-brand destination gained momentum with the recession. "Vendors had been skeptical about Walmart's ability to execute, and exhibited a certain geek elitism," he observed. "But then Circuit City went out, the economy dropped, and the Walmart model started looking better to manufacturers."

TWICE's Complete Walmart

aker's theory is borne out by NPD research showing that Walmart, along with CE archrival Best Buy, were the biggest beneficiaries of Circuit City's demise, having captured two-thirds of that chain's dollar share from March 2009 through last December.

Mike Decker, electronics marketing senior VP for Nationwide Marketing Group, the $12 billion independent dealer organization, believes Walmart's goal is a 25 percent share of the CE market, putting it in "a horse race" with Best Buy. If true, Bentonville has its work cut out for it. According to the latest TWICE Top 100 Retailers Report, Walmart's $18.5 billion in annual CE sales represents 15 percent of the ranking's total revenue, compared with Best Buy's 24.7 percent share.

Dave Workman, executive director/COO of the Progressive Retailers Organization (PRO Group), a collective of independent A/V specialty dealers, agrees that Walmart's up-market aspirations assumed an added urgency during the economic downturn, as its core customer found it harder to make ends meet.

"Walmart was the beneficiary of higher-income consumers migrating down during the recession," he noted. "The question for them is how to hold onto that demographic when the economy improves."

For its part, Walmart said it draws a wide swath of consumers of all incomes, and strives to provide value at every level. "A good core of our customers operate paycheck to paycheck, but not all do," said Gary Severson, Walmart's home entertainment senior VP. "Some are saving for a special purchase. Customers shop us at every price point, and we seek to offer value whether it's a tier-one or value brand."

Severson said the CE initiatives, like most of Walmart's merchandising decisions, were made in the service of its customers, particularly women. "While CE specialty stores have a predominantly male customer, our breadth of assortment gives us a large customer base of women," he explained. "And our research showed that female customers want great brands, which they equate with quality, as well as great value."

Also driving Walmart's CE evolution is an increasingly sophisticated consumer who researches products online and views instructional videos on YouTube. "The emergence of a more knowledgeable customer empowered by the Internet is tightening the technology cycle of specialty retailer to mass merchant to discounter," he observed.

Still, bringing limited-distribution brands to a discount floor was, and remains, an uphill battle for Severson's team. "We needed a good strategy, and did a lot of work trying to understand our customer and how technology has evolved," Walmart's chief CE merchant recalled. "As the customer became more and more engaged in technology, we had to focus more on how we were engaged in the products, presentation, brands and suppliers, and how that was messaged while staying within our own brand."

Some vendors responded faster than others to Walmart's vision of what it wanted to become, and some, he said, are still watching and waiting. "But over the years we've had pretty good success bringing brands in. Through teamwork and education we've been able to establish good relationships."

One of the oldest is with Sony Electronics, which traces the partnership back to legacy products like the Walkman. "As their business evolved, so has our relationship," said Ken Stevens, Sony's consumer sales senior VP. "Walmart knows who they are better than most and, like Sony, understands its customer. That makes it pretty easy to map the intersection points where we can be relevant and successful together."

Severson described his prototypical CE shopper as "a practical adopter of technology who may not want to know all the bits and bytes of technology. They want it to be a part of their lives, but they want it to be as easy as possible."

To that end, Walmart works with manufacturers "to drive as simple a communication and experience as we can," and backs that up with "a lot of basic training," provided by suppliers via an online learning tool called Cyber-
Scholar. Once home, he said, customers can call supplier hotlines, purchase home-theater installation and IT services through a recent initiative with NEW, or find what they need online.

Looking ahead, Walmart will continue to drive a better, richer and simpler CE experience as technology becomes increasingly embedded in consumers' lives, Severson said. "Hopefully Walmart will be an important part of that."
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