Im not sure that I buy this completely with all of the blame falling on one product line being responsible for the livelyhood of an entire store let alone a chain but thats the jist of the story.
http://articles.moneycentral.msn.com/Investing/Extra/WalMartEffectStrikesAgain.aspx
The 'Wal-Mart effect' strikes again
By slashing prices on flat-panel TVs, the retail giant has clobbered another sector -- this time, consumer-electronics stores.
Latest Market Update
April 26, 2007 -- 10:00 ET [BRIEFING.COM] Early gains have been short lived as a market viewed by some as ripe for a pullback succumbs to early profit taking. That's not overly surprising since the Dow has climbed virtually unabated over the last last six months, reaching the... More
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E-mail to a friendTools IndexPrint-friendly versionSite MapDiscuss in a Message BoardArticle IndexBy BusinessWeek
Last "Black Friday," for its annual post-Thanksgiving sales blitz, Wal-Mart Stores (WMT, news, msgs) decided to slash the price of one of the hottest electronics items for the holidays, the 42-inch flat-panel TV, to $988. The world's largest retailer had staked similarly audacious positions before, in numerous product categories, as part of its quest to remain U.S. retailing's "low-price leader."
In turn, Wal-Mart's move caused a free fall in prices of flat-panel televisions at hundreds of retailers -- to the glee of many people who were able to afford their first big-screen plasma or liquid-crystal-display (LCD) model.
Now, it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months.
Get free, real-time stock quotes on MSN Money
The fallout is evident: After closing 70 stores in February, Circuit City Stores (CC, news, msgs) on March 28 laid off 3,400 employees and put its 800 Canadian stores on the block. Tweeter Home Entertainment Group (TWTR, news, msgs), a high-end home entertainment store, is shuttering 49 of its 153 stores and dismissed 650 workers. CompUSA is closing 126 of its 229 stores, and regional retailer Rex Stores (RSC, news, msgs) is boarding up dozens of outlets, as well as selling 94 of its 211 stores.
"The tube business and big-screen business just dropped off a cliff," says Stuart Rose, chief executive officer of Rex Stores. "We expected a drop-off, but nowhere near the decline that we had."
Clearly, these retailers are taking such drastic measures because they don't see any respite in sight.
Since early February, when the companies first started closing stores and announcing layoffs, most of their stock prices also have been battered. Circuit City shares have fallen 24%, to $18.76, since the end of November, when the price war started. In the same period, Tweeter's shares declined 32%, to $1.72, near a 52-week low, and Best Buy's (BBY, news, msgs) stock is down 9%, to $48.73. Shares of Rex Stores have been flat, down 0.7%, to $16.98.
The carnage has one phrase written all over it: the "Wal-Mart effect." For many electronics competitors, the experience with flat panels has been a replay of what happened in other sectors over the past two decades as Wal-Mart's business stature grew dramatically.
More from MSN Money and BusinessWeek
Wal-Mart's $1 billion problem
Wal-Mart's growing pains
In praise of Wal-Mart
Stop the bullying, Wal-Mart
Is Home Depot shafting shoppers?
Costco: The 'anti-Wal-Mart'
Competitors caught off guard
The Bentonville, Ark., juggernaut's entry into the grocery business in the late 1980s and its ability to offer deep discounts led to the bankrupting of dozens of regional supermarkets over the next 15 years, including Florida-based Winn-Dixie Stores, Eagle Foods from Illinois and Penn Traffic in Pennsylvania.
And Wal-Mart's discounting of popular toys sent FAO Schwartz and KB Toys into bankruptcy.
Now, Wal-Mart has clearly turned its attention to electronics. "We recommitted to our customers that we would be their low-price leader, especially on those products that were rising in popularity, such as flat-screen and high-definition TVs," says Kevin O'Connor, Wal-Mart vice president and general merchandise manager.
None in the industry doubted that flat-panel television prices would fall or that Wal-Mart would offer heavy promotions. But most expected the promotions to be limited to lesser-known brands like the Viore TV that Wal-Mart was selling at $988.
Video on MSN Money
Flat panels, thin margins
Syntax-Brillian, the maker of the Olevia brand of high-definition televisions, seeks to capitalize on the new dynamics of TV manufacturing in the age of globalization.What caught competitors off guard was that Wal-Mart also cut the price of a top brand name -- the 42-inch Panasonic high-definition TV -- by $500, to $1,294. That sent dozens of retailers across the country scrambling, and many rushed to match prices: Circuit City offered the same Panasonic TV at $1,299, while Best Buy sold a Westinghouse 42-inch LCD for $999. Others tried to lure customers to larger TVs -- CompUSA gave a $500 rebate on its 50-inch Panasonic plasma for $2,499.
Panasonic executives are still smarting from Wal-Mart's decision to drop the price on its 42-inch model, although company officials won't discuss the issue. "I'm not going to comment on what Wal-Mart did," says Andrew Nelkin, president of Panasonic Professional Display in Secaucus, N.J.
'It's Econ 101'
Along with Wal-Mart's determination to lower prices, two other factors played key roles in last winter's 40%-to-50% flat-panel price drop and the ensuing turmoil.
For one, many more retailers such as Sears Holdings (SHLD, news, msgs) and CompUSA were starting to stock a wider selection of flat-panel TVs after seeing demand soar over the previous two years.
Also, manufacturers like Samsung, Sony (SNE, news, msgs), Panasonic and Westinghouse had ramped up production last year with new factories in Asia and the United States. They began flooding the market with new TVs in the latter half of 2006.
All these forces combined to make a commodity of what just six months earlier had been a solidly high-end, high-margin entertainment product.
Get free, real-time stock quotes on MSN Money
"It's Econ 101: Best Buy and Circuit City had seen fat margins from flat-panel TVs for a while, and as it happens with any product, eventually the margins come down and the music stops," says David Abella, a portfolio manager at Rochdale Investment Management, which has assets of $2 billion.
Wal-Mart is the second-largest electronics retailer today, behind Best Buy, which has fared relatively well compared to many of its rivals. But, as CEO Brad Anderson admits, Best Buy has done so by imitating some of Wal-Mart's best practices, most notably an efficient supply chain. It also has more diversified merchandise than other specialty-electronics retailers.
Despite its bold move last year, Wal-Mart currently is not the largest seller of flat-panel TVs. In fact, even though Wal-Mart set in motion the price drops, it has actually been a bit player in the high-definition TV segment. By most accounts, Wal-Mart had little to lose by dropping the price on the Panasonic TVs because it sold out its inventory nearly instantly.
More from MSN Money and BusinessWeek
Wal-Mart's $1 billion problem
Wal-Mart's growing pains
In praise of Wal-Mart
Stop the bullying, Wal-Mart
Is Home Depot shafting shoppers?
Costco: The 'anti-Wal-Mart'
Couldn't be more uncertain
However, for Circuit City, which was in the midst of a turnaround and sells thousands more flat-panel televisions than Wal-Mart, the new price landscape represented a massive hit to its margins. The Richmond, Va., company lost $12.2 million in its fiscal fourth quarter ended Feb. 28, compared with a net income of $141.4 million in the same period last year. At Tweeter, where flat-panel TVs make up more than 51% of sales, the price declines hurt badly. Sales in its fiscal second quarter ended March 31 declined 12%, to $139 million. The Canton, Mass., company plans to release earnings on May 10.
"We desperately hope that sanity reigns and that the lessons of the past holiday season are not lost on anybody in the industry," says Tweeter CEO Joe McGuire.
Despite shoppers paying lower prices, Circuit City CEO Phil Schoonover is hoping customers will continue to want their TVs installed and therefore will use the company's Firedog service, a competitor to Best Buy's Geek Squad. Sales at Firedog grew 80% to $200 million last year, and Schoonover says he expects them to double this year. He admits, however, that the environment couldn't be more uncertain.
"I'm not here to say that we're sure what the second half looks like because we have 96 suppliers of flat-panel TVs who market their products in the U.S.," he says. "With production facilities all over the world and brands from China, we don't know what their real marketing strategies are. We think it's going to be a competitive marketplace for the flat-panel TV business."
As new technology emerges and as LCD TVs with crisper images hit the market this May, some retailers are hoping to lure the technophiles. However, if consumer-electronics purveyors are hoping to maintain sky-high prices on new products, they'd better not count on it. After all, they have no idea what Wal-Mart has in mind.
This article was reported and written by Pallavi Gogoi for BusinessWeek.
http://articles.moneycentral.msn.com/Investing/Extra/WalMartEffectStrikesAgain.aspx
The 'Wal-Mart effect' strikes again
By slashing prices on flat-panel TVs, the retail giant has clobbered another sector -- this time, consumer-electronics stores.
Latest Market Update
April 26, 2007 -- 10:00 ET [BRIEFING.COM] Early gains have been short lived as a market viewed by some as ripe for a pullback succumbs to early profit taking. That's not overly surprising since the Dow has climbed virtually unabated over the last last six months, reaching the... More
advertisement
Article Tools
E-mail to a friendTools IndexPrint-friendly versionSite MapDiscuss in a Message BoardArticle IndexBy BusinessWeek
Last "Black Friday," for its annual post-Thanksgiving sales blitz, Wal-Mart Stores (WMT, news, msgs) decided to slash the price of one of the hottest electronics items for the holidays, the 42-inch flat-panel TV, to $988. The world's largest retailer had staked similarly audacious positions before, in numerous product categories, as part of its quest to remain U.S. retailing's "low-price leader."
In turn, Wal-Mart's move caused a free fall in prices of flat-panel televisions at hundreds of retailers -- to the glee of many people who were able to afford their first big-screen plasma or liquid-crystal-display (LCD) model.
Now, it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months.
Get free, real-time stock quotes on MSN Money
The fallout is evident: After closing 70 stores in February, Circuit City Stores (CC, news, msgs) on March 28 laid off 3,400 employees and put its 800 Canadian stores on the block. Tweeter Home Entertainment Group (TWTR, news, msgs), a high-end home entertainment store, is shuttering 49 of its 153 stores and dismissed 650 workers. CompUSA is closing 126 of its 229 stores, and regional retailer Rex Stores (RSC, news, msgs) is boarding up dozens of outlets, as well as selling 94 of its 211 stores.
"The tube business and big-screen business just dropped off a cliff," says Stuart Rose, chief executive officer of Rex Stores. "We expected a drop-off, but nowhere near the decline that we had."
Clearly, these retailers are taking such drastic measures because they don't see any respite in sight.
Since early February, when the companies first started closing stores and announcing layoffs, most of their stock prices also have been battered. Circuit City shares have fallen 24%, to $18.76, since the end of November, when the price war started. In the same period, Tweeter's shares declined 32%, to $1.72, near a 52-week low, and Best Buy's (BBY, news, msgs) stock is down 9%, to $48.73. Shares of Rex Stores have been flat, down 0.7%, to $16.98.
The carnage has one phrase written all over it: the "Wal-Mart effect." For many electronics competitors, the experience with flat panels has been a replay of what happened in other sectors over the past two decades as Wal-Mart's business stature grew dramatically.
More from MSN Money and BusinessWeek
Wal-Mart's $1 billion problem
Wal-Mart's growing pains
In praise of Wal-Mart
Stop the bullying, Wal-Mart
Is Home Depot shafting shoppers?
Costco: The 'anti-Wal-Mart'
Competitors caught off guard
The Bentonville, Ark., juggernaut's entry into the grocery business in the late 1980s and its ability to offer deep discounts led to the bankrupting of dozens of regional supermarkets over the next 15 years, including Florida-based Winn-Dixie Stores, Eagle Foods from Illinois and Penn Traffic in Pennsylvania.
And Wal-Mart's discounting of popular toys sent FAO Schwartz and KB Toys into bankruptcy.
Now, Wal-Mart has clearly turned its attention to electronics. "We recommitted to our customers that we would be their low-price leader, especially on those products that were rising in popularity, such as flat-screen and high-definition TVs," says Kevin O'Connor, Wal-Mart vice president and general merchandise manager.
None in the industry doubted that flat-panel television prices would fall or that Wal-Mart would offer heavy promotions. But most expected the promotions to be limited to lesser-known brands like the Viore TV that Wal-Mart was selling at $988.
Video on MSN Money
Flat panels, thin margins
Syntax-Brillian, the maker of the Olevia brand of high-definition televisions, seeks to capitalize on the new dynamics of TV manufacturing in the age of globalization.What caught competitors off guard was that Wal-Mart also cut the price of a top brand name -- the 42-inch Panasonic high-definition TV -- by $500, to $1,294. That sent dozens of retailers across the country scrambling, and many rushed to match prices: Circuit City offered the same Panasonic TV at $1,299, while Best Buy sold a Westinghouse 42-inch LCD for $999. Others tried to lure customers to larger TVs -- CompUSA gave a $500 rebate on its 50-inch Panasonic plasma for $2,499.
Panasonic executives are still smarting from Wal-Mart's decision to drop the price on its 42-inch model, although company officials won't discuss the issue. "I'm not going to comment on what Wal-Mart did," says Andrew Nelkin, president of Panasonic Professional Display in Secaucus, N.J.
'It's Econ 101'
Along with Wal-Mart's determination to lower prices, two other factors played key roles in last winter's 40%-to-50% flat-panel price drop and the ensuing turmoil.
For one, many more retailers such as Sears Holdings (SHLD, news, msgs) and CompUSA were starting to stock a wider selection of flat-panel TVs after seeing demand soar over the previous two years.
Also, manufacturers like Samsung, Sony (SNE, news, msgs), Panasonic and Westinghouse had ramped up production last year with new factories in Asia and the United States. They began flooding the market with new TVs in the latter half of 2006.
All these forces combined to make a commodity of what just six months earlier had been a solidly high-end, high-margin entertainment product.
Get free, real-time stock quotes on MSN Money
"It's Econ 101: Best Buy and Circuit City had seen fat margins from flat-panel TVs for a while, and as it happens with any product, eventually the margins come down and the music stops," says David Abella, a portfolio manager at Rochdale Investment Management, which has assets of $2 billion.
Wal-Mart is the second-largest electronics retailer today, behind Best Buy, which has fared relatively well compared to many of its rivals. But, as CEO Brad Anderson admits, Best Buy has done so by imitating some of Wal-Mart's best practices, most notably an efficient supply chain. It also has more diversified merchandise than other specialty-electronics retailers.
Despite its bold move last year, Wal-Mart currently is not the largest seller of flat-panel TVs. In fact, even though Wal-Mart set in motion the price drops, it has actually been a bit player in the high-definition TV segment. By most accounts, Wal-Mart had little to lose by dropping the price on the Panasonic TVs because it sold out its inventory nearly instantly.
More from MSN Money and BusinessWeek
Wal-Mart's $1 billion problem
Wal-Mart's growing pains
In praise of Wal-Mart
Stop the bullying, Wal-Mart
Is Home Depot shafting shoppers?
Costco: The 'anti-Wal-Mart'
Couldn't be more uncertain
However, for Circuit City, which was in the midst of a turnaround and sells thousands more flat-panel televisions than Wal-Mart, the new price landscape represented a massive hit to its margins. The Richmond, Va., company lost $12.2 million in its fiscal fourth quarter ended Feb. 28, compared with a net income of $141.4 million in the same period last year. At Tweeter, where flat-panel TVs make up more than 51% of sales, the price declines hurt badly. Sales in its fiscal second quarter ended March 31 declined 12%, to $139 million. The Canton, Mass., company plans to release earnings on May 10.
"We desperately hope that sanity reigns and that the lessons of the past holiday season are not lost on anybody in the industry," says Tweeter CEO Joe McGuire.
Despite shoppers paying lower prices, Circuit City CEO Phil Schoonover is hoping customers will continue to want their TVs installed and therefore will use the company's Firedog service, a competitor to Best Buy's Geek Squad. Sales at Firedog grew 80% to $200 million last year, and Schoonover says he expects them to double this year. He admits, however, that the environment couldn't be more uncertain.
"I'm not here to say that we're sure what the second half looks like because we have 96 suppliers of flat-panel TVs who market their products in the U.S.," he says. "With production facilities all over the world and brands from China, we don't know what their real marketing strategies are. We think it's going to be a competitive marketplace for the flat-panel TV business."
As new technology emerges and as LCD TVs with crisper images hit the market this May, some retailers are hoping to lure the technophiles. However, if consumer-electronics purveyors are hoping to maintain sky-high prices on new products, they'd better not count on it. After all, they have no idea what Wal-Mart has in mind.
This article was reported and written by Pallavi Gogoi for BusinessWeek.
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