What Happens When It's a Wal-Mart World?7 Apr, 2003 By: Stephanie Prange
Electronics retailers Circuit City and Best Buy reported financial woes last week and each blamed the war, the economy and various restructuring problems, namely Circuit City's exit of the appliance business and Best Buy's “discontinued operation” albatross Musicland, which it is trying to sell.
The problem for both wasn't revenue, but profit. Basically, the chains sold a lot but didn't make much on the sales. Why?
It's increasingly a Wal-Mart world.
David Campbell, retail analyst for Davenport & Co. in Richmond, Va., said pressure on gross margins has contributed to bringing down the chains' bottom line. Circuit City's CEO Alan McCollough said as much. That pressure is coming from discounters like Wal-Mart, who sell DVDs and hardware at below-cost prices to sell other stuff, like tires and lawn furniture.
This trend is disturbing for these DVD players. Having entered the disc business early on, Best Buy got a jump on the competition and reaped rewards for it; now it may have seen its best days in the business. Circuit City was a little late to the party, and may be suffering for it. Wal-Mart was also late to the DVD party, but the mass merchant jumped in with both feet — and with one simple message — low price.
No other retailer has such a simple message and that is why many have lost in competing with Wal-Mart. Bankrupt Kmart with its murky mission and not-so-low pricing is an example of what can happen to chains that don't pay heed to the Wal-Mart world.
Best Buy and Circuit City sell electronics in addition to DVD and other software — but so does Wal-Mart. The question is what do they have to offer the buying public that Wal-Mart doesn't? Selection, service and a more pleasant shopping atmosphere may give the chains a leg up. But can they really compete in an increasingly Wal-Mart world?