CE dept. grows into a major player - consumer electronics, Wal-Mart - Company Profile

Discount Store News, June 20, 1994

The consumer electronics business at Wal-Mart just keeps growing. Over the past two years, the chain has assembled an enviable selection of hardware in various segments: televisions, computers, portable audio, video games, and business products such as personal copiers.

With the core firmly established, the company seems to have turned its attention to higher-margin peripherals, accessories and software.

In computers, the hardware selection includes Packard Bell, Acros and Apple computers.

The computer software department seems to be undergoing a transformation. The major endcap from distributor GT Software has been eliminated in favor of sell-through video, with GT's line of budget software now merged with higher-priced software. Sega and Nintendo games have also been moved onto the computer software run along with hardware.

Wal-Mart has expanded its private label push from food and H&BC to electronics with a large selection of non-branded media storage products supplementing the Napa Valley line of unfinished wood containers.

The company has also moved into low-profile CD holders, which in turn has made a massive increase in skus possible. Wal-Mart now carries at least twice as many skus as it did just six months ago, and it has greatly increased the breadth of its selection. For instance, in the Tampa market, the notoriously prudish retailer (it banned all music magazines, including the relatively mainstream Rolling Stone, back in 1986) now has a large selection of heavy metal CDs, including Danzig III's "Thrall: Demon Sweat Live."

In an indication of just how important retailers like Wal-Mart are to the music business, industry giant Geffen Records recently announced that it will airbrush out photos of a fetus and change the title of the song "Rape Me" to "Waif Me" on copies of Nirvana's In Utero album shipped to Wal-Mart and Kmart, which both had banned the CD.

Wal-Mart has also added two Listening Post fixtures to preview any top 100 CD, mimicking on a smaller scale the advances in specialty stores like Tower Records.

Wal-Mart as a whole is growing rapidly, but its electronics department has outstripped virtually all departments except food and snacks. In 1992, records, electronics and gifts accounted for 6% of total Wal-Mart sales; last year, that total rose to 8% of sales (something under a quarter of that total attributable to gifts). Year-to-year shifts of such magnitude are extremely rare, and WalMart is now a major player in those businesses nationally. Gross sales for records, tapes and electronics (excluding gifts) probably totalled $3.3 billion last year, up from about $2 billion in 1992, and $1.7 billion the year before.

According to research conducted by Leo J. Shapiro & Assoc. for Discount Store News, Wal-Mart has quickly become a major player in the Rochester, NY market, which it entered in 1991. Consumers were asked where they would go to purchase home electronics products, and about 8% named Wal-Mart first, a bit more than named Kmart, which has occupied the market for decades. Wal-Mart trailed only Lechmere, a dominant CE retailer in the Northeast, and Sears.

While impressive, Wal-Mart's Northeast performance pales beside the results from Stockton, Calif., a year earlier. Wal-Mart had entered that market only a year before, and more than 10% of consumers named Wal-Mart as a destination for home electronics, compared with Target and Kmart at 6% each. And in Stockton, Wal-Mart competes not only with Sears, but also with Circuit City, Montgomery Ward, The Good Guys, Costco, Radio Shack, Best Products and several strong regional department stores. Despite that competition, Wal-Mart finished fifth behind four specialty chains: Circuit, The Good Guys, Sears Brand Central and Ward's Electric Avenue.

The secret to Wal-Mart's success in CE is that it takes the category seriously. While Kmart and Target have tested computer hardware and peripherals in a half-hearted manner, Wal-Mart jumped into computing with both feet. The chain carries 8 skus, and while prices are sharp, the accent is not on the entry level machines that most of its competitors stock. Instead, each machine addresses a certain niche in home computing, from entry level to more advanced and powerful machines up to a full multi-media unit, all featuring top brand names like Apple and Packard Bell.

The focus on top brands is probably due to earlier tests with no-name hardware that turned into unmitigated disasters; Wal-Mart fails at times, but it learns from its failures. CPUs are supported with a variety of peripherals, including printers, personal copiers, CD-ROM upgrade kits, memory upgrades, and scanners. The company also carries a full line of accessories and about 100 software titles. In effect, it has managed to cram the best of CompUSA's home computing selection into 300 sq. ft.

By contrast, most discounters stock only one or two CPU skus, a printer or two, 50 pieces of software and a few reams of printer paper.

It appears that Wal-Mart is making similar commitments to the music and video categories, and greatly expanding presentations in videogames. If and when technologies like 3DO and CD-i catch on with the Wal-Mart customer, expect to see similar support.