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Mass Merchants Upgrading CE Mix

11/08/2004 02:00:00 AM Eastern

The line of demarcation between full-line mass merchants and specialty CE dealers, once as clearly defined as the Berlin Wall, is beginning to crumble.

In place of the off-brand, low-end commodity goods that once comprised discounters' electronics departments, shoppers are finding sharply priced state-of-the-art technology under some of the industry's best brands.

While many of these models are from derivative lines developed for the mass merchant trade, many are not, including Apple iPods (at Target), Sharp AQUOS LCD TVs (at Wal-Mart), Sirius radios (coming soon to Kmart) and Samsung 50W-inch DLPs (at Costco).

Even older models, like Costco's Samsung sets, convey the message that mass merchants are now serious contenders in the CE stakes, giving pause to specialty stores like Best Buy, which is working frantically to better differentiate its offerings.

To get the lay of the mass merchant land, TWICE canvassed its leading lights: Wal-Mart, Target, Sears, Kmart and Costco. What we found will open eyes and, quite likely, wallets.

Wal-Mart

CompanyName The world's largest retailer has been busy beefing up its CE department both in quantity and quality. PC accessories, digital cameras, DVD software and film developing still comprise the backbone of its offering, although Wal-Mart has been making up for lost time in HDTV.

Following last year's limited test of plasma displays, the discounter has rolled out an HDTV aisle with flat-panel, rear-projection and direct-view models, along with descriptive signage that walks shoppers through the basics of high-definition.

During a recent visit, two plasma display monitors were offered: a 42W-inch ILO enhanced definition model for $1,994, and a 42W-inch Sanyo HD-capable unit for $3,484.

In LCD, six displays were offered, ranging from a 15-inch Sanyo for $397 to a 26W-inch RCA HD-ready TV for $1,884. (The aforementioned Sharp AQUOS, a 20-inch model, carried a $984 price point.)

The HD fixture also held five CRT-based RPTVs, including a 51W-inch Magnavox monitor for $992 and a 52W-inch RCA HDTV for $1,686. A pair of 30W-inch glass sets, a $697 Sanyo and a $748 Philips, rounded out the selection.

Analysts anticipate that Wal-Mart will add a private-label HDTV to the mix by the end of the month, with talk centering on a DLP rear-projection model.

Target

Like Wal-Mart, the fashion-forward discounter also had a late start entering the HDTV stakes, but it established its turf last spring with a multi-SKU LCD TV assortment consisting of 13-inch to 20-inch models by Samsung, Sharp, Magnavox and Go Video, at price points ranging from $400 to $1,100. The units sit on tiered shelves within a specially-designed display replete with descriptive shelf talkers that ask “What's the skinny on LCD TVs?”

Target still has no big-screen presence, instead devoting the bulk of its TV footprint to analog and HD glass.

On a recent visit, the LCD facing was backed by Target's exclusive Liv line of clock radios, alarms, CD players and other small electronics by Sony. The latest iteration continues the collection's female-friendly fashion focus with a new cool blue colorway.

Another nearby display sports 12 SKUs of portable DVD players from Audiovox, Kawasaki, Polaroid and Sony, while home players, including dual-deck and recordable DVD units, were remanded to an aisle that they share with Monster Cable and Disney kids' CE displays.

Accessories, portable audio, and cellular and cordless phones each get aisles of their own, while digital cameras and video games are secured behind glass. Clearly the greatest amount of square footage is devoted to movie and music software, which appears within a separate but adjacent department.

The combined electronics and entertainment areas have been further expanded within Target's new P2004 stores, a traffic-boosting prototype that was introduced in March.

Sears

Sears' CE department is a business in transition. Beginning last spring, the company exited seven product categories, including PCs, peripherals, component and mobile audio, film cameras, cellphones and PDAs, and replaced them with deeper assortments of digital cameras, DTVs, gaming hardware and software, DVD movies, HTiBs and other digital products.

To better showcase its new merchandise mix, and as part of the chain's store-wide renovation, Sears spent the summer resetting its CE floors with new layouts and fixtures, glass walls and improved product adjacencies. The company also moved its plasma and LCD displays from their previous in-aisle perches to eye-height platforms along the departments' rear walls, and briefly tested its first Liquid Crystal on Silicon (LCoS) rear-projection TV, a 65-inch, 720p monitor from Brillian Corp., which it marketed under a new private label Veos brand.

In the midst of all this change, the company tapped former Wiz chief merchant Tasso Koken to head its CE business as VP/general merchandise manager of home electronics.

While Koken has only recently begun to put his stamp on Sears' CE operations, the earlier actions appear to have gained traction. Although third-quarter comp sales were down by the mid-single digits — due to disruptions from the department retrofits and aggressive markdowns to move out old CE inventory — the reset has since yielded a 65 percent increase in sales of plasma and LCD TVs, a 20 percent hike in A/V accessories, and a 100 percent spike in sales of digital cameras, according to CEO Alan Lacy.

“The reset has narrowed and sharpened our focus,” he said, and has led to “improved quality and breadth of offerings in core [CE] categories.”

Kmart

CompanyName Industry pundits had predicted that CE would either shrink or completely disappear from Kmart's post-bankruptcy product mix. The industry pundits were wrong.

Perhaps in pursuit of a younger, more trend-conscious customer, the powers that be in Troy, Mich., have decided to go in the opposite direction. Under the leadership of recently named home electronics VP Ray Brown, the discounter has begun to redesign its floors and significantly upgrade its assortment from low-end commodity goods to newer technology products bearing better brands.

Among the latest offerings found in Kmart's self-described “New electronics department” were Philips and Panasonic LCD TVs ($449.99 for the latter's 14-inch 4:3 model), a 30W-inch Advent glass HDTV for $749.99, and an RCA 7-inch portable DVD player (on sale for $259.99).

The company has also added Disney's kid-vid line of TVs and DVD players, expanded its MP3 assortment from one model to six (including a 128-MB iRiver with FM tuner for $99.99), and quadrupled its digital camera offering to some 12 models, including a 4-megapixel Olympus with 3x optical zoom for $249.99.

Brown, who also oversees entertainment software, was previously Sears' chief CE merchant. Joining him is former Sears TV buyer Chuck Bacon, who recently assumed a similar role at Kmart.

Costco

Costco's no-frills warehouse approach appeals to price-conscious, techno-savvy consumers who require no handholding.

The club's CE departments are vast — following only food and apparel in sheer square footage — while their importance in the overall merchandise mix is made clear by their prominent placement by the stores' single entranceways.

A typical club devotes one extended aisle each to computers, including Dell, Gateway, Sony Vaio, HP and Compaq desktops and notebooks; PC software; printers; cordless phones; HTiBs; film and flash memory; and DVD players. End caps are set aside for DISH satellite subscriptions and digital cameras and camcorders, while video games and pre-recorded music and movies get their own dedicated aisles in the center of the stores.

But Costco truly shines in its TV assortment. Unrestrained by space considerations, the stores devote a block-length facing to rear-projection HDTVs, a second to direct-view analog and DTVs, and a third to flat-panel displays. On a recent visit, RPTVs included an end-of-cycle 50W-inch Samsung DLP TV ($2,799.99), a 61W-inch RCA DLP ($2,899.99), and an $899 42W-inch Akai CRT made by Samsung.

In plasma, offerings included a 42W-inch EDTV from Panasonic ($2,499.99), a 43W-inch HD set from Pioneer ($3,999.99), and a 50W-inch HD Philips for $5,299.99).

Costco has also stepped up its major appliance offering. Long content to carry re-badged Whirlpool white goods under its Kirkland private label brand, the chain now features Whirlpool's signature Duet laundry pair ($949.99 for the washer, $767.99 for the dryer) and Samsung's 25-cubic-foot stainless steel side-by-side refrigerator ($1,099.99), among other high-end offerings.