How Independent Dealers Fight the New Price War

Retailers face even more pricing pressure from Walmart, Best Buy, Amazon and more

November 24, 2009 By Janet Pinkerton

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Regardless of philosophy or business model, every consumer electronics retailer, from the nationals to the independent dealer, is in an all-out price war. While some retailers say current pricing and margin pressure is nothing new, others say they’ve never seen anything like it. The trick now, they all agree, is to become engaged without getting killed.

The fact is the CE industry constellation now revolves around Walmart and Best Buy. They compete head-to-head in CE, constantly making extremely price-centric pitches to the cash-strapped consumer. “The biggest question for 2009 is ‘How do we react to this new environment where we have two retailers with 30, 40, 50 percent of the dollars?’” asked Stephen Baker, vice president of industry analysis at NPD Group.

Walmart has upped its bid for electronics sales with its Project Impact Stores (see sidebar), and last month began offering CE installation services with N.E.W. Corp. Meanwhile, Best Buy is maneuvering to meet Walmart head on, with price, service, and financing (“No-interest payments on all home theater, HDTVs and Geek Squad Purchases totaling $999 and up if paid in full within three years”). The moves not only put pressure on product pricing, but they squeeze service pricing.

Meanwhile, Sears keeps running weekend 15 to 25 percent off appliance sales, and Amazon.com nips at everyone’s heels with low prices, lots of information, wide selection and service, such as TV and PC installation through Dell’s Solution Station and appliance installation through reseller shipping partners. “Amazon is the wild card,” Baker said. “They have the potential to beat up both Best Buy and Walmart.”

Extreme connectivity is another overriding characteristic of this year’s competitive landscape. Thanks to the Internet, consumer technology manufacturers, distributors, retailers and consumers all have the ability to know what products and services are selling for what price and where on a practically a minute-by-minute basis. This further expedites vendor and retail battles for market share (especially in flat-panel TV), and consumers’ quest for lowest price. “It’s a very confused landscape right now,” says Bob Cole, president of Bob & Ron’s World Wide Stereo in Hatfield, Pa. “There’s an absence of consistency; everything is reactionary.”

Amid the ongoing recession, getting a low price is now the consumer badge of honor. Beyond the ultra high-end, the luxury sale is, for the moment, toast. So is customer loyalty to retail and product brands. Furthermore, it is hard to define a product’s feature/benefit value amid price wars and commoditization. “It isn’t fighting Best Buy and Walmart,” NPD’s Baker said. “It’s fighting consumers’ notion that this year’s product does pretty much the same thing as last year’s or the year’s before.”