Wal-Mart leads in computers - Special Supplement: Home Office Merchandising

Discount Store News, Nov 15, 1993 by Pete Hisey

Wal-Mart continues to build its lead in home office and computing products, leaving arch competitors Kmart and Target behind. Of course, the No. 2 and No. 3 retailers may prefer it that way, hanging back until the fluid computer business gels a bit more.

Wal-Mart is the only one of the Big Three that is really in the hardware business: Target carries two skus of Leading Edge 486 machines, but they appear to be there mainly for the benefit of that shopper who just can't wait one more minute for his or her very own computer.

While the office products aisle (near camera and film) has been renamed Computer Accessories and Software, very little else in Target's presentation has changed in the last year. The emphasis at Target is still on accessories, like diskettes and desk storage units, with the computers and one Epson printer apparently more a statement than a viable merchandising category.

Kmart got rid of hardware altogether, after abortive tests of IBM and IBM clone systems in several stores. The company has invested those inventory dollars (and the cost of inventory in a slow-turning product category was a major consideration in Kmart's decision to bail out of hardware, at least for now) in software and accessories, and its selection in these areas is slowly expanding. The company is facing a dilemmma, as most software categories are moving out of the consumer electronics department to the company's new music and video departments at the front of new stores. Computer software, however, has remained in CE, and it is missing the synergy created by the presence of other entertainment and family software (music and video).

By contrast, Wal-Mart's CE department is starting to look like a miniature CompUSA, with eight skus of personal computers (three each from Apple and Packard Bell; one each from IBM and Acer), five dot matrix, bubble jet and laser printers, personal copiers, and monitors, CD-ROM drives, soundboards, backup drives, a growing selection of accessories like Memorex glare screens, and a formidable library of software.

The nation's leading retailer has been testing computers for years (as far back as the early '80s, when it shared in the disastrous performance of early personal computers) and made a commitment to the category chainwide about 18 months ago. The tests really never worked out that well, one store manager said, but the industry changed so much that it rendered the test results moot. Still suspicious of the category, but convinced of its long-term viability, Wal-Mart cautiously entered the market on a national basis with a limited selection of no-name, low-cost computers from KLH and Wang, both of which quickly foundered in the new world of mass retail (KLH dissolved, and Wang came close).

But Wal-Mart kept trying, building allianes first with Packard Bell, the first major manufacturer to really attempt to understand the mass market, and later with Acer (whose president, Pete Jansen, came out of the retail world), IBM and, most recently, Apple. Wal-Mart had always preferred to carry the top brands in the field (as it has in virtually all departments), but until recently they were either overpriced or unavailable to mass marketers.

That phase is over, and Wal-Mart has moved rapidly to build up its computer products department, which now accounts for about 20% of its CE sales floor, counting video game systems.

With brand availability now a certainty, Wal-Mart has entered into its price point management mode. Wal-Mart shoppers are intensely price-sensitive, not only in comparative terms but in absolute ones as well. In any product category, there is a price above which they will not go, no matter how much value they'll receive for their money.

Consequently, there are no software titles above $49.96 at Wal-Mart; if a publisher can't bring a product in at well under $50, Wal-Mart is not interested. Simarly, the peak price in computer systems (all are sold with monitors) is $1,497 for a Packard Bell multimedia machine. The low and is about $1,100, which may reflect Wal-Mart's disastrous experience with entry level, sub-$1,000 pieces. The retialer has evidently identified $1,500 as the upward limit in this category.

Similarly, while it offers an Epson laser printer for $599, its printer price points are generally in the $300 range.

Unlike Kmart and Target, Wal-Mart has clearly leveraged its presence in prerecorded video and music to increase computer software's profile. The software is merchandised directly across from its CD selection, with video endcaps nearby. And a high-profile endcap of budget software is merchandised by Good Times, which is also one of Wal-Mart's leading prerecorded video suppliers. Like Good Times' video selection, the new computer software is basically generic product with great packaging and extremely sharp price points (nearly everything is under $10).

At the upper end of the price continuum are DOS-6 Update, Intuit's Quicken, an accounting package, some flight simulators, and a handful of CD-ROM titles. Wal-Mart's selection used to consist of two-thirds entertainment and home use and one-third business software. The business portion has shrunk to a handful of titles, includin some fonts, one or two accounting pieces, and Quicken. Virtually everything else is aimed at home entertainment or references, although entertainment by far makes up the majority of the product offering.