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Analyst Frets Shrinking Entertainment Software Shelf Space

2 Nov, 2009 By: Erik Gruenwedel

The upcoming consumer electronics holiday shopping season should see an escalated price war for high-definition flat-screen televisions at Best Buy Co. and Wal-Mart Stores as the big box retailers shrink shelf space for entertainment software, including DVD movies, video games and music, according to an analyst.

Pali Capital analyst Stacey Widlitz, in a research note, said Best Buy continued to cut HDTV prices nearly 20% — a strategic move duplicated in large part by Wal-Mart.

Widlitz said the migration of entertainment software away from Best Buy is a major concern as the Minneapolis-based No. 1 CE retailer typically generates 50% of its holiday foot traffic through entertainment.

Indeed, Best Buy reported a 23.4% decline in entertainment software sales in the most recent fiscal quarter.

“With software becoming less important, how will Best Buy replace that driver?” Widlitz wrote in a note.

By comparison, Wal-Mart executives last week in an analyst presentation reiterated they would aggressively pursue taking CE sales away from the competition while maintaining the lowest prices on entertainment.

“This holiday, entertainment is very important, whether it’s flat-panel TVs or video games, we intend to be the price leader in the entertainment space,” chief merchandising officer John Fleming told analyst Oct. 21.

By the end of November, Wal-Mart will have completed remodels at more than 30% of its 3,538 stores. As previously reported, the improvements included expanding aisle space and reducing the number of displays, including new release DVD point-of-purchase displays.

“While we believe Wal-Mart is shrinking software space, obviously the store has other traffic drivers,” Widlitz said.

In addition, Wal-Mart this month has partnered with a third-party service to offer in-home CE and IT assistance on par with Best Buy’s popular Geek Squad.

By the end of fiscal year 2012, approximately 70% of U.S. stores, including newly constructed locations, are expected to be updated under the Project Impact initiative, according to Wal-Mart.

The remodeling of our existing store base is important because the investments are delivering strong sales performance, excellent customer response and higher returns,” said Eduardo Castro-Wright, vice chairman, Wal-Mart, in a statement.

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