New York — Wal-Mart has fired the first volley of Holiday 2005, setting the stage for what could be a bruising promotional season for CE dealers.
The world’s largest retailer got a jump start on the period by breaking a 32-page circular on Oct. 30 under its new seasonal theme, "Home for the Holidays." The first third of the insert was devoted to electronics, and the featured front page item was a 51-inch CRT rear-projection integrated HDTV from Philips’ Magnavox line carrying an $897 price point.
"We know from last year," observed Wal-Mart’s chief marketing officer John Fleming, "that our competitors aren’t waiting until after Thanksgiving to drop prices."
Two days later, on Nov. 1, Wal-Mart broke what Fleming described as "the earliest and most aggressive holiday launch in our history." The campaign carries the "Home for the Holidays" tag across all media channels, including TV, radio, print, online and in-store signage, and features such celebrity endorsers as
Garth Brooks, Destiny’s Child, Martina McBride, Jesse McCartney and Queen Latifah.
"We want to establish Wal-Mart as the destination for holiday shoppers," Fleming said — while getting consumers into stores ahead of the first home heating bills.
Given its size, influence and standing as the No. 2 electronics seller, Wal-Mart’s actions reverberate throughout the CE marketplace as specialty leaders Best Buy and Circuit City respond to the discounter’s price and merchandising moves.
This season promises to be especially confrontational as Wal-Mart makes up for the mistakes of November 2004, when it sharply narrowed its promotional mix in pursuit of improved profitability. The result was flat sales for the month. (The company was also responding to criticism for the prior year’s playthings price war that ultimately sent KB Toys into bankruptcy and resulted in the sale of Toys "R" Us to an investor group.)
Wal-Mart tipped its hand on its holiday strategy in September when CEO Lee Scott told analysts at a Prudential investor conference that "We were extraordinarily aggressive [in back-to-school pricing]. I think it sets the tone for what the holiday is going to be like. We are going to be very aggressive."
Wal-Mart Adds In-Store Warranty Plans
Bentonville, Ark. — As part of Wal-Mart’s effort to beef up its CE business, it has begun offering extended service plans (ESPs) at its flagship stores.
Also raising the holiday stakes is Wal-Mart’s selection of CE as one of three stake-in-the-ground categories (including home fashions and apparel) that it is re-merchandising with better quality goods in order to draw more affluent shoppers. The strategy taps into Target’s successful "mass with class" formula, and is designed to diversify Wal-Mart’s traditional low-income customer base, which it expects will be hardest hit by high fuel costs this season.
Indeed, Wal-Mart has already been seeing sharp declines in discretionary spending at the end of each month, as tapped out consumers await their next paycheck, Scott said. And, as chief financial officer Tom Schoewe acknowledged at a separate analyst conference, "We’re not as well represented at mid- and high price points."
To that end, the initiative has led to such premium CE additions as the iPod nano; Motorola’s ROKR iTunes-compatible handset; the 1-inch, cube-shaped, $130 mobiBLU 1GB digital audio player; and flat-panel LCD and plasma TVs from Panasonic, along with its first in-store warranty programs to protect them.
To move those products, Wal-Mart is hoping to siphon off shoppers from higher-end competitors, including Best Buy. "We want to increase cross-store shopping with our customers," Fleming told investors at Wal-Mart’s 12th annual analysts’ meeting last month. "Eleven percent of Wal-Mart’s shoppers also shop at Best Buy, but 62 percent of Best Buy’s shoppers also go to Wal-Mart," he said. "There’s significant opportunity here to increase sales."
For their part, Best Buy and Circuit City seem prepared to go toe-to-toe with the boys from Bentonville to protect their market share. "We’ll be competitive. We will be at the right price … and we will emphasize the word ‘Best’ in our name," executive VP/general merchandise manager Ron Boire promised analysts at a Best Buy investor conference last month.
Chief financial officer Darren Jackson said Best Buy will remain both competitive and profitable through better in-store execution under its consumer segmentation initiative, its expanded offering of high-profit services through its Geek Squad IT team and Magnolia custom installers, and price optimization through improved supply chain efficiencies and direct sourcing.
The latter, said Boire, has helped build a 500-item portfolio of high margin, private label CE, IT, furniture and storage bag products under the Insignia, Init, Geek Squad and Dynex house brands.
Circuit City too has indicated its intention to protect its turf in key categories, including advanced TV, where it had recently been offering 27-month, interest-free financing promotions on TVs priced $499 and up.
"Circuit City, similar to last quarter, is determined to drive traffic using promotions," observed Banc of America Securities analyst David Strasser. "The 27 months is pretty aggressive, and Circuit City is determined to drive the TV business at the expense of margin … leading us to conclude that the holidays are going to get very aggressive."