New York — Discounters like Wal-Mart and Costco are proving to be “increasingly formidable competitors” for CE specialty chains like Best Buy and Circuit City, according to a recent report on broadline and hardline retailing from David Strasser, an analyst at Bank of America’s Equity Research division.
Strasser’s findings are based on market share data from the second quarter of 2007 that “shows the discount channel making strong gains led by Wal-Mart and Costco,” said the report. It also said that Best Buy’s results were “mixed” and that “Circuit City lost share in most every category.”
The report called on these specialty CE chains to “differentiate (via services) to drive value.”
Wal-Mart and Costco respectively gained 2.9 and 3.1 percent market share in the larger flat-panel (40-inch to 60-inch models) category and the retailers saw gains of 6.1 percent and 3.2 percent in smaller (39-inches and below) flat-panel TVs. Meanwhile, Best Buy and Circuit City lost 3.5 percent and 3.7 percent market share respectively in the larger category and lost 6 and 5.8 percent share each in the smaller flat-panel category.
Strasser’s report attributed Best Buy’s losses in the larger flat-panel category to “heightened seasonality effects driven by the selling focus of 1080p coupled with consumers’ expectations of lower prices during the holiday selling season, thereby postponing demand.” Strasser added that “while Q2 data is uninspiring, it sets up the back half for a possible rebound for which Best Buy will be well positioned.”
In the smaller flat-panel category, Strasser’s report said “we believe Wal-Mart in particular, is flexing its muscle in this commoditized group, a group in which they can drive profitability through volume and velocity.”
Wal-Mart also took the lead in the iPod category, with gains of 6.2 percentage points; Best Buy also gained 1.2 percent share. Circuit City lost 1.4 percent market share.
Strasser’s report commented “we believe iPods will be an important category in the back half for Best Buy as strong double digit comps last year could pose downside risk in Q3 and Q4.”
Discounter Target was noted as a “standout” in the video game category with 2.6 percent market share gains for the quarter, attributed to the company’s efforts to improve its CE offerings. On the flip side, both Wal-Mart and Best Buy saw 1 percent losses in the category, which the report said was due to “quarter [to] quarter seasonal swings.” The report also noted that Circuit Cit lost 0.2 percent in the category.
In notebook computers, Best Buy saw a 2.3 percent rise in market share which the report said was most likely due to “the strength of Vista which we also believe is helping leverage Geek Squad.” The report also noted that Apple’s 1.2 percent gain in the quarter “should benefit Best Buy in [the second half of the year] as they ramp up the Apple partnership.”
Finally, in the major appliance category the report noted that Sears Holdings lost 2.7 percent market share “almost exclusively” to Home Depot and Best Buy which respectively saw growth of 1.6 and 1 percent share in the category.
Strasser’s report is based on Traqline data from the Stevenson Company, the same market research firm that provides data for TWICE’s annual Top 100 Retailers report.