Wal-Mart Stores, eyeing potentially huge profits in electronics, is hoping that customers who come in for a 12-pack of tube socks will leave with a tubeless TV as well.
The retailer--which has sold traditional consumer electronics including stereos, PCs and cathode ray tube (CRT) TVs for years--has begun a new effort to sell sought-after trendy gear such as digital music players and high-end TVs. It's launched a new house consumer electronics brand, dubbed iLo, and is dedicating more floor space to electronics.
"Wal-Mart is having trouble generating solid year-over-year growth numbers," said Steve Baker, an analyst with The NPD Group. "One of the ways they can start generating a lot of growth is to expand into categories where they haven't been, especially in high (dollar) value products. Flat-panel TVs is one."
News.context What's new:
Wal-Mart is seeking to expand its reach to trendy electronics items such as flat-panel TVs and DVD recorders.
The retailer's efforts to expand consumer electronics sales could be limited by the customers it serves and its reputation as a low-price merchandiser. But lower prices may make Wal-Mart competitive in the lucrative electronics market.
More stories on consumer electronics sales
Wal-Mart isn't the only big name to launch its own electronics brand or pay more attention the lucrative space in recent months. Best Buy launched Insignia, a house brand for televisions, PCs and devices such as portable DVD players this fall. PC makers Dell, Gateway and Hewlett-Packard have also all mounted efforts to tap the consumer electronics market this holiday season with their own flat-screen televisions and music players.
Although Wal-Mart isn't attempting to replace the brand-name products it already carries, it is positioning iLo as a lower-priced alternative. It's also willing to offer some types of electronics, such as DVD recorders, that companies such as Dell haven't been interested in.
Wal-Mart enjoys a fairly unique position as an electronics supplier. It caters to a broad audience of consumers with more than 3,000 stores in the United States and maintains tight relationships with Asian electronics manufacturers, which it can use to turn out its iLo gear.
But Wal-Mart, which carries well-known consumer electronics brands including Panasonic, Sanyo and Sony, aims to use iLo to plug gaps in product availability or pricing in its selection, said Karen Burke, a Wal-Mart spokeswoman.
Filling in the spaces with reasonably priced gear could be a boon for the retailer, Baker said, as more consumers seek to acquire the latest gear and Wal-Mart, in many cases, can make it more affordable.
Despite its fledgling effort, the retailer got off to a slow start this holiday shopping season, a development analysts blame on the retailer's lack of aggressive pricing. The misstep amplifies the need for attention-grabbing gear, they said.
Wal-Mart's first iLo-branded product, a 42-inch plasma-screen television, went on sale in about 1,300 stores in May. With a price tag of less than $2,000, it is up to $1,000 less expensive than similar-size, enhanced-definition plasma-screen sets from names such as Panasonic, Samsung and Zenith sold by other retailers.
Similarly, Wal-Mart's iLo DVD recorder DVDRO4 sells for about $150, meaning it costs between about $50 and $100 less than similar player offered by other brands. Another DVD recorder, DVDRHO4, which comes with an 80GB hard drive, costs about $280, about $90 less than a similar Toshiba model found on Wal-Mart's Web site. For its part, the iLo music player, with 256MB of memory and FM radio tuner, sells for about $80, around $30 to $60 less than other like devices.
Got it at Wal-Mart
But Wal-Mart's efforts to expand its consumer electronics sales could be limited by the customers it serves and its reputation as a low-price merchandiser.
Compared with customers of electronics-specialist Best Buy, for example, Wal-Mart customers tend to have less buying power, demographic data shows.
Demographics from The NPD Group show that 52.5 percent of Wal-Mart's electronics customers had household incomes of less than
$44,999 per year, versus the 29.2 percent of Best Buy customers. The bulk of Best Buy's customers, 44.4 percent, made between $45,000 and $99,999, versus 37 percent of Wal-Mart customers. Only 8.9 percent of Wal-Mart customers made over $100,000, while 25.2 percent of Best Buy customers eclipsed that mark.
Demographics aside, it might take time before consumers in the market for a plasma TV think of Wal-Mart. But the store has some advantages as it tackles the new terrain. One is its huge reach as people shop for clothes, groceries, toys and even pharmaceuticals at its stores.
Wal-Mart wants to be "the place to go to shop--that means not just selling food and clothing," Baker said.
Anecdotal evidence suggests that Wal-Mart's focus on low prices has caught the attention of bargain enthusiasts. One iLo DVD recorder thread on an enthusiast site called VideoHelp.com has reached more than a dozen pages as posters have begun trading information on the iLo recorders.
"Nothing magic, but affordable," EvilWizardGlick wrote. "It does its job. If anyone wants more, feel free to spend the extra dollars."
The pricing may be attractive, but Wal-Mart isn't taking a huge risk with iLo. It began offering the brand in May, but never made an official announcement about it. Although it offers everything but the 42-inch plasma-screen TV online via its Walmart.com site, the retailer isn't stocking iLo items at all stores.
Thus it's only playing in areas where it feels it can sell iLo gear, including stores with expanded space for electronics products or where potential competitors may be fewer, Bakers theorized.
Competition will be tough, nonetheless. But time may be on Wal-Mart's side--it has became the top-seller of music and movies in the United States--as today's high-end electronics gear, such as hard drive-equipped DVD recorders, comes down in price.
Noted Baker, "It's not a big leap to go from No. 1 in selling (music and movies) to the devices they play on."