business news in context, analysis with attitude

We had a story last week referencing a Business Week 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…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.”

We commented: 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.”

MNB user George Butterfield responded:

One would have to venture a guess that Wal-Mart had a very good idea of Panasonics production capacity to enable the commoditization of a 42 inch flat screen TV. You have to give the buying management of Wal-Mart's electronics department kudos for being on top of their game on both the production and demand sides. Which only begs the question...what will it be this year?

MNB user Dan Graham wrote:

I largely agree with your point about being competitive, but there is an additional point of leverage that Wal-Mart enjoys, and that is the mix of goods they sell. I remember a conversation I had with a trusted supplier years ago when I was in the retail grocery industry. We were discussing Wal-Mart's then recent entry into the grocery business with Supercenters, and he mentioned that the folks in Bentonville were comfortable with making very little margin on food products due to the great boost in overall store sales that occurred when grocery was added to the traditional discount store mix. I remember thinking "well that is going to be a problem, because food is pretty much all we sell, and we depend on our food gross margin for our overall profitability." We obviously didn’t have the same mix, or profit dollars, from other areas in the store to offset low food margins. I suspect that this, along with the lack of a compelling reason for consumers to want to buy from them, is also a problem for the electronics retailers Wal-Mart is escorting down the road to bankruptcy.

MNB user Bob Savage wrote:

Could not agree with you more when you stated, “So rather than referring to this as “the Wal-Mart effect,” maybe it should be called “what happens when you aren’t competitive.” Wal-Mart is the head of the list in our society of the new “Dirty Dozen” which are those things that can be blamed for any perceived harm that comes to a corporation, community or its people. It is so much easier to point the finger at trans fats causing obesity, cow gas causing global warming or Wal-Mart “destroying” our local retailer than it is to look squarely in the mirror to see that these “Dirty Dozen” issues are not the cause, but rather the effect. All of these issues can be squarely traced back to taking the eye off of the preverbal ball. That ball can be my customer, my category, my company and even down to myself. Its time for us to suck it up and stop blaming our problems on everyone else and get back to the basic fundamentals of figuring out what, how and when our customers want to shop!

MNB user Andy Casey wrote:

I couldn't agree more. WM often uses its cost advantages like a hammer against competition for the benefit of consumers, but it is the inefficiencies at many retailers along with their inability to see past price to find other, more differentiated drivers for their business that allows this strategy to be successful. It has been said before and bears repeating: If you allow WM to dictate the basis of competition (i.e., price) you will lose.

MNB user Alan Smith chimed in:

God, I love capitalism. As a general rule, one gets what they pay for. Want good coffee....go to Starbucks, wanna see good to Buffalo, you get the point.

Maybe when Circuit City fired their top paid associates and replaced them with lesser-paid ones, it made perfect sense. Why pay an idiot $12/hr when another idiot can do it for $8?? That's been Wal-Mart's philosophy for years to control their payroll and benefits expense.

MNB user Rick Dana wrote:

I think that you can still call it "The Wal-Mart effect." Just define that as having Wal-Mart become an active competitor and your company unable to meet the low price point or have the ability to show a strong reason for the consumer to shop there.

Really simple, as you so aptly point out.

MNB user Angelo Kambanis wrote:

Or it could mean that HD televisions are becoming more of a commodity and many consumers have already educated themselves on the relative merits of brands/models prior to walking into the store.

We have seen this behaviour in car sales for a few years now, where the average car buyer is armed with more information than your average sales person and the visit to the dealership is less about education but an exercise in price negotiation.

The internet is truly the great equalizer.

Another MNB user offered:

You wrote about a Business Week article concerning flat screen TV’s and the Wal-Mart Effect. Business Week attributed the fold of Eagle in Illinois to Wal-Mart entering the grocery business. I question Business Week's assessment here. Living in the Chicago market, there are no Wal-Mart SuperCenters to speak of, in the city or in the suburbs. Eagle was based in the far western suburbs of Chicago and smaller towns in Northern Illinois. There could not have been more than a small handful of Eagles that had a SuperCenter within their trade area. Eagle folded because they were far inferior to Jewel and Dominick's, and even Cub for that matter. Their stores were in poor condition and poorly managed, and never staffed adequately.

Regarding the discussion about imported ingredients and the possible impact on the human food supply, MNB user Sue DeRemer wrote:

OK, per the FDA:

1. The hogs that ate the poisoned feed must be euthanized, since they are too dangerous to consume, but...

2. Several hundred hogs already made it into the food supply, but don’t worry because...

3. The ones that entered the food supply won't harm you.

I feel much better now...

Your tax dollars at work.

One MNB user, intrigued by our various descriptions of meals and beverages consumed during our travels, also expressed a concern:

As much wonderful food & wine as you enjoy, I am surprised you don't weigh 400 lbs.

We jog. In fact, we’re training for the 2008 Marine Corps Marathon. And yet, it is always a struggle.

But life’s too short not to consume great and unusual foods and drinks.

Finally, we were writing on Friday about our trip to Norway, and one comment prompted an MNB user to write:

Have you had any feedback on your comment about “you haven’t lived until you’ve seen a blonde Norwegian woman strolling along carrying a machine gun”? Sort of a milder version of Imus and the Rutgers Women's Basketball team…

You gotta be kidding.

The joke may have been juvenile, but we can’t imagine it offending anyone.

This is, however, what worries us about the current environment. That people won’t be able to say anything about anyone or any organization without being accused of crossing some uncrossable line.

Good punditry, we think, doesn’t just risk offending people…but actually seeks to offend (as well as enlighten and entertain) from time to time. Now, you have to be a little careful about who you offend, but some people and institutions deserve it.

That’s the fun of it.
KC's View: