Mass Merchants Building Critical Mass In CE

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While many consumer electronics specialty retailers are still finding their footing in this recovering economy, the top full-line mass merchants — namely Wal-Mart, Sears and Target — are flying full throttle into the CE merchandising maelstrom.

Over the past year, while Kmart emerged from bankruptcy, shut a third of its stores and set aside plans to move beyond commodity CE, each has dramatically expanded and/or refined its electronics assortment. Witness Wal-Mart adding HDTV and plasma display panels to the mix, while Sears has doubled its in-store flat-panel display offering to 22 SKUs and became the retail launch pad for Cablevision's new HD-intensive Voom satellite service. Meanwhile, Target continues to cash in on its designer cachet with its Disney and exclusive Sony Liv and Eddie Bauer licensed electronics lines.

Although CE specialists continue to be the venue of choice for many A/V aficionados, the mass class is looking to close the technology gap, and quickly. What follows is a chain-by-chain synopsis of the channel's Big Three electronics contenders, along with the latest developments inside the CE departments of each.

Wal-Mart

The world's largest retailer, long content to conduct a super-high-volume business in commodity CE, shocked specialty A/V dealers late last year with word of a 1,500-store test of HDTV along with pockets of plasma display panels.

Since then, the low-price leviathan has upped its high-def quotient by variously offering as many as 11 SKUs of rear-projection and direct-view HDTV monitors from Apex, Philips, Pioneer, RCA and Sanyo at retails ranging from $698 to $1,492. The company now also carries a pair of PDPs — a low-res Sampo model for $3,000 and an HD-ready unit from Sanyo that retails for $4,464 — that are both available on Walmart.com.

Wal-Mart has made no bones about its intentions to rule the electronics roost. In its 2003 annual report, the $245 billion company cited CE as a category that can help it maintain its double-digit growth through improved merchandising and the addition of new product lines.

"Our product-development team, working with Wal-Mart buyers, is driving significant improvement in key product categories such as … electronics," noted president/CEO Lee Scott.

Tom Coughlin, recently named executive VP/vice chairman of Wal-Mart Stores Inc. (USA), also stressed CE in his remarks and promised to raise the retailer's high-tech quotient. "We will … continue to feature new technology in our electronics department," he wrote. "With DVD players, we entered the market at an early point and did very well. Now we're doing the same with flat-screen TVs and new advances in wireless technology."

Executive VP/general merchandise Don Harris underscored the significance of the shift in strategy. "This represents a change," he observed. "We once thought we wouldn't sell certain products until they reached certain price points. We no longer think that way, but that doesn't mean we're taking riskier positions now. It's a simple matter of merchandising to where we know the consumer is going."

CE was also highlighted at Wal-Mart's annual shareholders meeting last June. According to attendee Aram Rubinson, a retail analyst with Banc of America Securities, electronics was "the most talked about category" in hardlines, as the company displayed a dump bin featuring $5.88 DVDs and trumpeted its first line of Sony-branded TVs.

More recently, CE and Sony were again the topics of discussion at Wal-Mart's annual analysts' meeting, held earlier this fall in Bentonville, Ark. There, Coughlin expounded on Wal-Mart's expanded relationship with Sony, which calls for the discount store and Sam's Club divisions to huddle together with the supplier in strategic planning sessions aimed at getting both businesses on the same CE page and ahead of the technology curve.

At the same time, the company heralded a larger and more sophisticated CE assortment at Walmart.com. The e-commerce site has also launched a new Buying Guide feature to help walk consumers through some of the newly proffered technologies and to compensate for the dearth of knowledgeable sales help in stores.

Sears

A recent series of bold electronics moves appears to be paying off for the retail icon, whose CE business has begun turning the corner following an extended run of consecutive double-digit declines in category comps.

This past August, Sears completed the rollout of its expanded Thin-TV shop concept, which effectively doubled its in-store assortment of flat panel displays to 22 models and established the chain as the leading retail destination for plasma and LCD TVs.

"It's the fastest growing segment of the CE business," a spokesman said, "and has such stopping power. As prices have dropped 50 percent over the last year, we want to be thought of as the place where you go for these products."

Indeed, the dramatic decline in flat panel pricing is critical to the success of Sears' strategy. As CEO Alan Lacy recently told TWICE, "Our business is comprised mostly of big-ticket products with big price points, compared to the larger assortment of smaller transactional items carried by electronics retailers like Best Buy." Higher price point products are meeting consumer resistance due to the "difficult economy and high unemployment," he said, and Sears' assortment woes have also been compounded by the "shift to secondary brands. People won't pay a premium [for CE products] anymore," he noted.

But flat-panel TV, where Sears chose to make both a stand and a statement, is now "hitting price points that will lead to more widespread acceptance," Lacy noted.

Supporting Sears' flat-panel ploy, and its efforts to be regarded as a CE destination store, is an exclusive launch deal with Rainbow DBS, the satellite TV arm of major cable TV MSO Cablevision Systems, for its new national HDTV-centric satellite service called Voom.

Riding herd over Sears' CE resurgence are two new managers. John Schlenner recently succeeded Ray Brown to become divisional merchandise manager of consumer electronics, while Sears veteran Dan Laughlin was last month named to the newly created position of senior VP/general merchandise manager of majaps and electronics.

Sears' CE business will also likely benefit from the September 30 re-launch of Sears.com, which features enhanced navigation, clearer product presentation, and better research and comparison tools, while its new off-the-mall concept store, Sears Grand, features a better than 10 percent increase in CE selling space.

Target

Rather than go head-to-head with Sears and Wal-Mart in the high technology stakes, the Minneapolis mass merchant is carefully picking its CE shots. In lieu of HD-ready projection or flat-panel TVs, Target has zeroed in on digital imaging, music and movie software, and assorted accessories ranging from digital media to batteries as core categories around which to build its electronics franchise.

But the company's true ace-in-the-hole is its discount designer franchise, which it has successfully carried over to the CE department thanks to licensing deals and exclusive product development partnerships with vendors. Indeed, whether in apparel, home fashions or hardlines, the chain relies on comprehensive, Target-specific programs with unique packaging and merchandising to distinguish it in a crowded marketplace.

Examples in electronics include the landmark Liv line of small electrics, which represents the first and only time that Sony has developed a unique collection for one retailer. Target also has the inside track on Eddie Bauer-licensed mobile video products, including portable DVD and video cassette players and camera and camcorder bags, and has experimented with a signature lipstick red Sphere collection of phones, clocks and other desktop items by Memcorp/Memorex. The latter, like Liv, specifically targeted the untapped female CE shopper with fashion forward colors and unconventional ergonomics.

And rather than knock heads in the price-imploding DVD player segment, Target has opted into Disney Electronics' limited distribution children's line, also produced by Memcorp, featuring colorful, cartoon-like A/V products — including a basic DVD player, albeit with detachable shoes, for $100.

All told, the strategy has landed Target in fifth place on TWICE's Top 100 CE Retailers list with nearly $4.8 billion in electronics sales last year. That's ahead of Sears, which ranks ninth at $2.7 billion, and behind No. 2 CE retailer Wal-Mart, which pulled in $14.1 billion in CE sales in 2002.

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