Wal-Mart Stores Inc., the world's largest retailer, may very well want to become the world's largest home electronics service company. But how does a retailer of such immense scale -- with limited experience in service, let alone in a niche as technical as electronics -- accomplish this?
That was
the question raised earlier this month when Gary Severson, Wal-Mart senior vice president for entertainment and electronics, told MarketWatch that the company is "looking at different options" for moving into electronics installation and services. Asked for details, a company spokeswoman just reiterated that Wal-Mart "will consider different options and listen to our customers to understand how Wal-Mart can best serve their needs before we make plans to enter into this arena."
In recent years Wal-Mart has pushed hard into sales of high-definition TVs, computers and other electronic gear, armed mainly with its pricing power. According to a Banc of America Securities LLC report cited in This Week in Consumer Electronics, Wal-Mart
continued to build share in the first quarter of 2008, largely at the expense of Circuit City Stores Inc. and Costco Wholesale Corp.
Best Buy Co., however, pretty much held its own. A key differentiator for Best Buy is Geek Squad, which it bought in 2002 when it was a Minneapolis-based computer service provider and went on to use as a platform for a buildup in HDTV installation and other services. Best Buy's service segment recorded a 3.9% comparable-store sales gain for the fourth quarter ended March 1, surpassing the company's overall 0.2% same-store sales increase. The high-margin services business also does wonders to provide some relief to the margin-squeezed world of electronics sales.
Wal-Mart has already tested the waters in service. According to another report in June of 2007, its Sam's Club division was
experimenting with in-store HDTV specialists from its entertainment rack jobber, Anderson Merchandisers. The article also reported that Wal-Mart was offering electronic-based training to employees.
But that was a year ago, and Wal-Mart is still exploring its options. So is there an acquisition or a partnership that would move it ahead faster? Or will Wal-Mart have to build its own service operation? Based on conversations with several people in the highly localized electronics services arena, Wal-Mart will probably have to build -- and it won't be easy.
"There are not many audio-video [service] companies that exist on a national scale," said Utz Baldwin, president of the Indianapolis-based Custom Electronic Design & Installation Association. Shawn DuBravac, economist with Arlington, Va.-based Consumer Electronics Association, concurred, saying, "I can't think of a large national service provider [Wal-Mart could partner with]."
Brian Pavlick, chief operating officer of Washington-based Custom Builders USA LLC, a management company that aggregates local builders to purchase building materials and services, could think of one, but only one, potential partner: Builder AV Corp., owned by Buffalo, N.Y.-based Stampede Presentation Products Inc. Builder AV aggregates audio and video products and services for the homebuilder community.
Wal-Mart's options are limited because of the fragmentation of lower-end electronics service, Pavlick said. "They are probably better off trying to hire out qualified staff and build it themselves," he said.
That's the path that Circuit City chose. In late 2006 it launched its in-house services business. Branded Firedog, the offering has been a slightly brighter spot in an otherwise bleak picture for Circuit City. The service recorded a 29% year-over-year sales gain for fiscal 2008 ended Feb. 29, to roughly $269 million. In contrast, Circuit City's overall sales for the year were down 5.8%, to about $11.74 billion. Still, Firedog fell short of expectations. Circuit City in its fiscal 2007 earnings statement projected fiscal 2008 sales to double to more than $400 million.
For Wal-Mart, building a program in-house could pose its own set of obstacles. Baldwin said, "For a large retailer like that, it would take a huge commitment to ensure that an adequate training program is in place." This is, after all, a company with more than 7,000 stores. Baldwin added that proper training is especially important for a service staff that would operate outside of the confines of Wal-Mart's locations. "It is a controlled reputation that Wal-Mart has -- it's not as easy to control that reputation outside of the stores."
Indeed, building an in-house service operation could prove so expensive that it offsets the higher margins associated with the service business, at least in the near term. But service margins might not be as important to Wal-Mart as they are to Best Buy. In the end, its move into services may be a tactic that supports a larger strategy, one that's familiar to anyone who has competed with Wal-Mart: winning on price and market share.
- Michael Rudnick
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You know your in trouble when you tab a company called Anderson Merchandisers to be responsible for services. I'm sure they are good with magazines but not controlling a national network of on-site service techs.