business news in context, analysis with attitude

Business Week has an interesting piece about how Wal-Mart decided to cut the price of a Panasonic 42-inch flat screen television to $988 during the holiday shopping season during late 2006, causing “a freefall in prices of flat-panel televisions at hundreds of retailers - to the glee of many people who were then able to afford their first big-screen plasma or liquid-crystal-display model.

“Now, it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months.” Circuit City, Tweeter and CompUSA are among the retailers that are shutting down stores in the wake of sales declines.

“The carnage has one phrase written all over it: the ‘Wal-Mart effect,’” Business Week writes. “For many electronics competitors, the experience with flat panels has been a replay of what happened in other businesses over the past two decades as Wal-Mart's business stature grew dramatically. The Bentonville (Ark.) juggernaut's entry into the grocery business in the late 1980s and its ability to offer deep discounts led to the bankrupting of dozens of regional supermarkets over the next 15 years, including Florida-based Winn-Dixie Stores, Eagle Foods from Illinois, and Penn Traffic in Pennsylvania.”
KC's View:
We paid a little more for our 42-inch flat screen, but we did it after going to Wal-Mart and being unable to find anyone in the electronics department who knew anything about flat screen televisions. (One guy was surprised to find out that Sony made flat screen HD televisions, which really tore it for us.)

The one-store independent retailer from which we purchased our TV used knowledge and service as its differential advantage. That won’t matter for every customer, but it will matter to some (like us…because we are insecure enough about our knowledge that we were looking for a security blanket).

The problem for Circuit City and CompUSA, it seems to us, is that there wasn’t enough special about their stores to make going there worth it. Wal-Mart exploited those flaws, but it didn’t create them.

So rather than referring to this as “the Wal-Mart effect,” maybe it should be called “what happens when you aren’t competitive.”