Discount Retailers Attempt to Take a Big Bite Out of CE Sales

Discount retailers are arguably profiting more, in some sense, from the downturn in the economy as shoppers flock to those stores known to always offer great "deals". So it comes as no surprise that many discount shops are attempting, more so than ever, to take a big bite out of the consumer electronics market this holiday season.

This weekend, I was surprised at the number of Wal-Mart commercials that aired (during my favourite primetime programs!) centred around flat-panel TVs, home theatre, and even Blu-ray. I'm used to seeing plenty of TV marketing dollars from the mammoth retailer, but of all product segments, I wouldn't peg Wal-Mart to be spending so much to plug things like Blu-ray and flat-panels. Kid's toys, home decor items, clothing, DVDs and CDs, yes. But big-ticket CE items? I'm genuinely surprised that so much of the marketing budget went toward this category. The move is a clear indication of one of two things: Wal-Mart is making its mark known as a CE retailer; and/or the retailer is responding to the prospect that home theatre is going to take over as the main activity of choice during these sad, economic times. And of course it goes without saying that one should

Aside from that, pricing is also mind-boggling. Right now, a name-brand 42" 1080p LCD is $950, and an up-converting DVD player is $50. (Interestingly, no Blu-ray players are featured on the Wal-Mart Canada Website, although Blu-ray discs are in abundance). At Costco, a 42" plasma is $860, and a Blu-ray player is $270. At retailers like Tiger Direct, pricing is relatively the same. A colleague told me this morning of a friend who just bought a 46" TV (name brand) for $800 over the weekend! If you can spare the cash and are in the market, now is certainly the time to buy a new TV!

But from a retailer perspective, what happens when these pricing wars continue? The same thing that has been happening for the entire year, even before the recession came into play: other retailers are forced to lower their prices; if not to be in line with discount stores, at least to be close. Products are sold off at almost no margin just so smaller companies can sustain themselves and make it through the storm. And more focus is placed on "added value" services, like free delivery, after-sales service, installation, and product expertise (certainly not a bad thing).

Still, it's an incredible observation overall knowing that just a few years ago, a plasma or LCD could not be had for less than a few grand. To put this in perspective, I searched for some old news stories on our sister Website, http://www.marketnews.ca/, and cam across this 2002 announcement from LG Electronics about the company's brand new plasma displays: the cheapest was $8,500, and the most expensive 60" model was a whopping $26,000: the price of a new car! My, how things have changed...

[Photo: Screen shot at http://www.walmart.ca/]

Black Friday Update

A correspondent in Chicago reports to us that Black Friday line-ups in the downtown area are relatively thin. Photos above from the Northbrook Mall, taken shortly after opening at 8 a.m., show a moderate crowd in the Apple Store, but nothing to write home about. This is what an Apple Store in Toronto looks like on a normal day!

As for the "deals", we're told that, quote, "the marketing of the sale is better than the sale itself." Keep in mind that this might not hold true for every retailer in every U.S. city. But in this particular case, Black Friday "crowds" are a bit disappointing.

We're getting mixed messages from other sources: some stores appear flooded with shoppers trampling over one another...literally. In one Wal-Mart store in NYC, an unfortunate employee reportedly died due to the pushy crowds! (Though Wal-Mart only confirms that a "medical emergency" caused the retailer to close that store's doors). Some are claiming that it is in fact the bad economy that has forced them to come out and weather the crowds today: getting a "deal" might not have been so necessary before; but now, shoppers are willing to wait in long line-ups just to save a few bucks.

But other reports claim that retailers are cautious about how things will inevitably turn out. Even in shops with big crowds, people tend to be looking for that one fantastic deal, snagging it, and heading home versus prior years where they might have picked up a few extra items on the way to the check out.

Stay tuned for more information as it becomes available...

Plasma Reaches Less Than $600

Vizio is offering a 32", 720p plasma TV through U.S. Wal-Mart stores for less than US$600, further proving just how competitive the flat-panel TV arena has become. Additionally, the manufacturer is selling a larger, 42" model for just $200 more.

Has the $600 pricing decision been made because of the stronghold that LCD technology has on the 32" flat-panel HDTV market? After all, in Q1 2008, research firm DisplaySearch reported that 32" LCDs dominate the market, representing more than 40% of total LCD TVs shipped. Indeed, it looks this way since Vizio is also launching new LCD TVs for more reasonable pricing: $1,499.99 for a 42" 1080p model and $1,899.99 for a 47" model. If Vizio is looking to help plasma increase marketshare in the 32" category, these aggressive pricing can surely help.

It's mind-baffling to think of a company essentially "blowing out" plasma TVs. How will this bode for the category as a whole? DisplaySearch indicated for Q1 2008 that, although worldwide plasma shipments grew 53% year-over-year (Y/Y) to reach more than three million units, they have shown a quarter-over-quarter (Q/Q) drop of 19%. Interestingly, 32" plasma panels actually rose 4% in the first quarter of this year to account for 15% of the market. Will Vizio's new sub-$600 plasma, which is already available in all 3,400 U.S. Wal-Mart stores, take a huge bite out of LCDs 32" pie?

Indeed pricing in the plasma category (and arguably LCD) has been dropping to meet both consumer demand and the increasingly competitive landscape. There's no doubt that a $600 plasma from Wal-Mart won't do anything to help the price erosion crisis.

And to think that just a few years ago, plasma TVs were products for just the elite of society, costing in the thousands and thousands of dollars...

Don't Forget Lights Out for Earth Hour!

Don't forget that tomorrow at 8 p.m., it's "lights out" for Earth Hour, a global initiative organized by the World Wildlife Federation. If you're at home, perhaps rather than turn off all the lights and sit in darkness, you can take a well-needed breather from all of your electronic devices. Turn off the TV, the radio, the laptop/desktop computer, and mobile phone, and relax for 60 minutes. A colleague of mine suggested a nice, candlelit dinner.

"Earth Hour is an opportunity for all individuals, households and businesses to send a very powerful message," said Steve Matyas, President at Staples Business Depot, which plans to participate in the initiative.

Other technology companies have announced their support for Earth Hour, which is meant to "take action against climate change," including Best Buy, Sears Canada, Wal-Mart, and Telus Mobility. All stores will remain open although things like signgage will be turned off, and lights dimmed.

Of course what's a global initiative without a party? At 7:30 p.m. in Nathan Philips Square in Toronto, Canadian music artist Nelly Furtado will perform a free concert, complements of Virgin Mobile and WWF. The event will be low-power and carbon-neutral, with renewable energy supplied by Bullfrog Power.

Sir Richard Branson, Chairman of the Virgin Group, called it a "party with a purpose". Indeed it is.

What will you be doing at 8 p.m. on Saturday night to help conserve energy?

Falling CD Sales, P2P Sites Still Plague Music Industry

A new study conducted by The NPD Group confirms that CD sales continue to fall, and peer-to-peer download Websites remain a problem for the music industry's profitability and sustainability. According to the research group, U.S. consumers acquired 6% more music in 2007, but music spending overall was down by 10%, from US$44 per capita to US$40.

Why? Even though the number of Internet users that engage in P2P downloading remained flat at 19%, the number of files each person downloaded went up. What's more, the habit is becoming increasingly popular among the teen and "tween" crowd.

Making the situation even worse, NPD says that approx. one million customers completely stayed away from buying physical CDs in 2007. Almost half (48%) of teenagers said they did not buy one CD throughout the entire year!

Despite the grim outlook, there is a small silver lining. NPD reports that legal music downloads were up 5% when compared to 2006, representing 10% of music sold in 2007, with 29 million U.S. customers having obtained their digital tunes legally. Not surprisingly, Apple's iTunes service led the pack. But what is somewhat surprising is that iTunes was the second most popular spot to obtain music overall, overcome by only Wal-Mart!

If that isn't a clear indication of the direction the market is going, I don't know what is. The world's largest retailer sold the most music, which makes perfect sense. But to say that a digital download service rather than a traditional retailer came in second is an incredible achievement.

Now that the mistake-that-is DRM restrictions is slowly fading to oblivion, we might see interest in legal download sites rise this year. If the industry stops trying to find bundles and wonky subscription rates/plans and just focuses on giving customers tunes they want for a set price (either individually or by album), this would be a good start. Buying music digitally should be just as easy as it is to buy a physical CD. I just want to buy good quality tunes that I can play anywhere I want. No bells, no whistles, and no restrictions.

Music World to Succumb to Digital Downloading

Sadly, Music World is the latest music retailer to succumb to the growing popularity in digital music downloading. According to a report from the Globe & Mail, the company has filed for bankruptcy. Earlier this year, Sam The Record Man closed the doors to its iconic downtown Toronto Yonge St. location, leaving many a nostalgic baby boomer teary-eyed.

Although it's sad to see the effects that digital downloading is having on traditional music retailers, there's also a positive side to this story. Remember, it isn't that consumers are no longer purchasing music; it's that they're purchasing it in a whole new way. Through digital download Websites like iTunes and Puretracks. Through mobile carrier services that let you download a song straight to your mobile phone. Through custom-made CDs that are played back on a home theatre system and streamed throughout the home. Through satellite radio. Through streaming Internet radio. Through portable devices like the Sonos music system. The list goes on and on, and the opportunities at both retail and the manufacturing level are endless. We're not losing interest in music: it's just the platform for which we access and purchase it that's changing.

It is unfortunate that retailers like Music World and Sam The Record Man are feeling the brunt of this change. But there are others who manage to persevere through the storm, mainly by not focusing solely on music. Like HMV, which has managed to remain strong by expanding its offerings to include things like video games and consoles, and a massive selection of movies at varying (and often attractive) price packages. In August of this year, the retailer dropped the price of some CDs by as much as 33%!

Others have made bold moves to keep music sales up: Wal-Mart, for example, offers CDs like the new number-one Eagles album Long Road Out of Eden, at price parity with the U.S. Even non-traditional music outlets, like Starbucks, are managing to remain in the music game. Coffee house Starbucks has built digital music download stations in some U.S. stores where customers can listen to tracks, and create and purchase a custom CD while they're sipping a latte.

There is a way to stay alive in traditional music retailing: it just takes some really creative thinking outside of the box, and an entirely new business plan.

Music World stores are said to close by early next year. As of today, the company's Website simply brings up a Music World logo, but no content. It's a shame, because I did find the store a great destination for tough-to-find DVDs.

In the words of popular rock band Queen, another one bites the dust...

Canadian Retail Sales Up, Says Stats-Can

Statistics Canada reports that retail sales in Canada rose 0.7% during the month of August, reaching approx. $34.5 billion. Surprisingly, sales from new car dealers took top ranks with 3% growth.

But home furnishing and electronic stores also showed strong growth at 1.5%, representing the second consecutive increase over 1% in the category. This category also rose 10.5% when compared to August 2006! The consistent rise was reported to be due, in large part, to home electronics and appliances specifically, which rose a whopping 3.7% in sales: the most drastic rise seen since February 2005. When compared to the same period last year, the category rose an impressive 15.7%. More good news for the industry: sales in the furniture, home furnishings, and electronics stores sector have not dropped since spring last year.

The strongest sales growths were found in P.E.I. (2.5%) and Ontario (2%), fueled mainly by new car dealer sales. Provinces that experienced a decline in retail sales included Alberta (0.5%); Nova Scotia (0.7%); Manitoba (0.2%); and Northwest Territories (1.7%).

This holiday shopping season will prove a critical one for the retail landscape in Canada. Retailers like Wal-Mart have already made announcements that they'll be dropping prices in the wake of the strong Canadian dollar. Wal-Mart Canada President & CEO Mario Pilozzi presented a letter to the company's suppliers in attempt to negotiate lower prices. Meanwhile, Hudson's Bay Co. also announced that it would slash prices at all 298 Zellers outlets across Canada, due in large part to the rising Canadian buck.

One thing's for sure: the 2007 holiday shopping season will certainly work in the consumer's favour. If there's ever a time to get the best value for your money, this is it. Happy shopping!

Wal-Mart Canada Sets Precedent By Offering Halo 3 at U.S. Price

In a move that can be considered both strategic and smart, Wal-Mart Canada has decided to offer the highly-anticipated Xbox 360 video game Halo 3 at the same price that it will be offered in the U.S.: $59.83. This will be about $10 cheaper than other Canadian retailers will be charging: both Future Shop and EB Games are currently advertising the game for $69.99 (the limited edition for $79.99).

This move makes sense for any retailer given the current strength of the Canadian dollar (it's virtually on par with the U.S.!), but especially for Wal-Mart, which prides itself on always offering the lowest prices.

Wal-Mart says it will offer Halo 3, which is officially released tomorrow (Sept. 26), at that price for an "extended period".

"We've been negotiating with suppliers for more than one year, based on the belief that a high dollar and favourable business conditions should translate into lower prices for our customers," said Jim Thompson, Senior Vice President of Merchandise at Wal-Mart Canada.

Don't think that other retailers have just been standing by, though. Future Shop will be opening 103 of its 127 stores at midnight tonight in celebration of the game's launch so customers can "get it first", as the company's slogan goes.

Hmm...that's a tough one when it comes to hard-core gamers. Do they want to "get it first" or get it cheapest? My presumption is that the tried and true gamers will be hauling their butts to Future Shop tonight to grab the game before anyone else; while the budget-conscious parents and students (17 and older, of course, since the game is rated M for Mature), will stroll over to Wal-Mart at a later date for the cost savings.

Going forward, only time and sales will tell. But if our dollar keeps up, it will be interesting to see how pricing of CE/IT product changes, or fails to change, in Canada.

Tim Hortons Stores Now in Wal-Mart

We’ve seen some really powerful business partnerships form between Canadian companies, but imagine the “world’s biggest” retailer offering Canada’s signature coffee brand? This idea has now become a reality, as Wal-Mart will soon be incorporating Tim Hortons stores into all of its Supercentres across Canada. Lethbridge and Edmonton, AB and Brockville, ON will see the first outlets erected.

This brings the concept of Wal-Mart being a “one-stop shop” to a whole new level: now I don’t even have to swing through a drive-thru after shopping to grab my coffee – I can grab it on the way out the door!

“We’re in the business of helping Wal-Mart customers check as many items as possible off their shopping lists,” said Ross Thompson, Director of Licensee Operations for Wal-Mart Canada Corp. “You don’t have to look too far down Canadian to-do lists to find ‘a stop at Tim Hortons’. We pride ourselves on having the brands our customers want on our shelves and under one roof; and we’re adding a true icon.”

Does this mean U.S. Wal-Mart stores will follow suit and add Starbucks stores-within-stores?

Blockbuster Backs Blu-ray

The high-definition DVD format war persists, with no clear winner in sight (of course, this is depending on who you ask!) But we’re finally seeing retailers put their foot down, and choose one format over the other. In the case of Blockbuster, it has decided to put all of its eggs in the Blu-ray basket.

Well, not entirely: the movie/video game rental chain says it will still carry HD DVD in its U.S. stores, but will only rent movies in the Blu-ray format. According to BBC News, Blockbuster observed that its customers chose Blu-ray over HD DVD in stores where both formats were available. No exact figures were cited, but it's obvious by Blockbuster's choice to go Blu-ray all the way that it was by a significant enough margin.

This could be attributed to many factors: more choice in Blu-ray movies is one. Blu-ray has the support of seven of the eight major studios; whereas HD DVD only has three. However, the HD DVD format has support from many in the PC arena, like Microsoft, HP, and Intel.

Blu-ray has also had better luck with recent releases: the two huge blockbuster titles (no pun intended) as of late, Spiderman (Sony Pictures) and Casino Royale (MGM), are only available in HD in the Blu-ray format.

PlayStation 3 might also play a significant role: I wonder how many of those rented Blockbuster movies are being played back on a family PS3, and not a dedicated Blu-ray player? (Then again, the competing Xbox 360 console also has an HD DVD add-on option, so this might be a moot point).

On the HD DVD side, retail giant Wal-Mart said back in April that it would introduce “low-cost” HD DVD players to its U.S. stores by the end of the year, which led many to assume that Wal-Mart had made its choice. (A representative from Wal-Mart Canada confirmed that the retailer woud continue to carry both formats in Canada).

What do I think? When it comes down to it, it’s the movie titles that matter. Who wants a fantastic, high-definition player if you can’t use it to watch the movies you want? However, on the flip side, another important factor is price, and Blu-ray players have been much more expensive than HD DVD players; in many cases, by a significant margin. With “low-cost” players being introduced in Wal-Mart, a whole new ballgame could begin.

Who will win the format war? Some say it’s too soon to make a choice between the two. After all, they haven’t been on store shelves for that long. But on the other hand, how long can they co-exist without frustrating customers to no end? Only time will tell.

Update: Wal-Mart Steps Up CE Presence

We've been told by spokesperson Christi Gallagher at Wal-Mart Canada that the announcement mentioned below is specific to U.S. Wal-Mart stores. However, Wal-Mart Canada has been remodeling its existing stores and opening new Super Centres over the past year, all of which employ a new format for the electronics department. In the case of new stores, this represents about 7,000 sq. ft. of space dedicated to consumer electronics: about double what was previously offered! All stores also feature a new, more open-concept design that allows customers to walk freely through the aisles instead of entering a dedicated CE area.

Gallagher says the changes were made based on research conducted with its Super Centre stores. Not surprisingly, she says iPods and HDTVs are two of Wal-Mart's "hottest selling items right now". The retailer has even added a Connection Centre kiosk in new stores that features things like mobile phones, satellite radio receivers, and GPS devices. Although Wal-Mart Canada hasn't taken on the Skype products like its counterpart in the U.S., the retail giant has been offering Vonage VoIP service since January of this year.

In a way, this is also good news for other CE retailers: if the biggest retailer in the world is ramping up its technology offerings, this means that interest in CE products is as healthy as ever.

Wal-Mart Steps Up CE Presence

According to several reports, U.S. retail giant Wal-Mart is stepping up its consumer electronics offerings, adding more flat-panel TVs from brands like Philips, Sony, and Samsung; and bringing on VoIP products from Skype, including calling cards. I was unable to confirm just yet if the additional SKUs will be available north of the border as well (stay tuned). Either way, this is big news for fellow CE giants, not to mention independents, both of which have been finding it hard to compete with Wal-Mart’s massive price cuts.

Let’s put things in perspective: right now at Future Shop, a brand-name 32-inch widescreen, high-definition LCD can be purchased for just shy of about $1,200. A no-name model is available for $700. A year ago, the same product would have been about double that!

Last month, Wal-Mart Canada added the Prive brand of LCD TVs to its roster: budget-conscious consumers can grab a 32-inch model for a measly $470. The CEO of Prive’s parent company, SOYO, commented at that time that the company was “happy” to be part of Wal-Mart’s “aggressive plan to build its consumer electronics division.” Aggressive is an understatement.

At this rate, we’re bound to see a “buy one, get one free” sale on HDTVs by Christmas. The mere thought deserves a chuckle, but this is a serious issue. A breaking point is going to be reached at some point in the near future. It’s already begun to happen: Circuit City announced a massive restructuring plan in February, closing a whole whack of stores in both the U.S. and Canada. And the retailer wasn’t shy about the reason, citing “intensified gross margin pressures” experienced with flat-panels TVs in the third quarter.

Of course it can be argued that customers won’t get the same level of product knowledge and customer service through Wal-Mart than they would a specialized, independent retailer; or even a CE-targeted big-box one. But it appears that Wal-Mart is ramping up its staff product knowledge as well: reports online claim that U.S. employees have been put through extensive product and customer service training within the consumer electronics department.

Wal-Mart obviously means business in this area. How will this bode for traditional CE retailers, not to mention the rapidly dropping prices of product like HDTVs? We’d love to hear your comments.