Watch Out, Best Buy and Circuit City (In Walmart's Gunsights!)

Business Week ^ | 11/9/05 | Robert Berner

[voletti]

Wal-Mart is attacking the business model of the two largest U.S. consumer-electronics chains by offering lower-cost extended warranties. This holiday season, Wal-Mart Stores (WMT ) has made no secret that it's gunning for the nation's two largest consumer-electronics chains, Best Buy (BBY ) and Circuit City Stores (CC ). Wal-Mart has spiffed up the interiors of many of its electronics departments and added a slew of high-end products, from Sony (SNE ) liquid-crystal-display televisions and Toshiba (TOSBF ) laptops to Apple (AAPL ) iPods. It's backing the changes with an aggressive holiday marketing campaign and a big day-after-Thanksgiving sale. But here's what really has Best Buy and Circuit City worried: Wal-Mart has entered their most profitable line of business, extended warranties, and it aims to turn that business on its head.

Although they don't disclose it in their financial filings, the real earnings engine at Best Buy and Circuit City is not the sale of gadgets themselves but the sale of warranties. Those are the high-priced, multiyear protection plans on TVs, computers, and other items that are hawked by the retailers' salespeople at the close of each purchase. This fiscal year analysts estimate warranty sales will account for more than a third of Best Buy's operating profit and all of Circuit City's. On Oct. 27, Bentonville (Ark.)-based Wal-Mart attacked that profit source by launching extended warranties on TVs and computers at prices that average 50% below Best Buy's and Circuit City's, says Jane J. Thompson, head of Wal-Mart's financial services.

[D-fendr]

I would think the way to attack Best Buy would be on service - it's lousy. But then that's not WalMart's strength either.

[Terpfen]

Not with the junk Wal-Mart passes off as quality electronics. Best Buy has them beat there.

[HitmanLV]

The best the average Circuit City or Best Buy person can do is read off the list of features on the card next to the price.

The best salespeople in NYC in my experience are at J&R Music World and Willoughbys Camera (is it even there anymore?).

The worst, bar none, are at CompUSA.

[Rca2000]

No matter. After finding what wal-mart is up to now(selling Wicca and other pagan-type stuff, and NOW-- banning the sale of anything that has that EVIL, SICK, IMMORAL WORD in it--"CHRISTMAS", ) I, nor my family will be going there much.

[There You Go Again]

Ooops, WalMart should not do this. Some of the economic imbeciles here on Free Republic (the non free traders) will complain that WalMart is being too competitive. "People at BestBuy are losing their jobs because WalMart is selling flat screen TV's for only $25...that isn't right...we need more government regulation!!!" "I thought you were against government regulation?" "Well normally I am, but I am so stupid when it comes to economics, that I am for it in these cases." AND THUS, THAT IS HOW RINOS ARE BORN....Eg. SEN. SNOWE

[Graybeard58]

I bought what I thought was a new computer from Best Buy but when I tried to collect the rebate I learned that someone had already collected it on that computer. They sold me a used comp. for new. When I raised hell they gave me a new replacement.

Never again.

[Phantom Lord]

I will bet you my entire life savings that I can go to a Wal-Mart right now and find many products with the word "Christmas" in the title on the product itself or on the Wal-Mart sale sign.

Wanna take me up on it?

[TaxRelief]

If it wasn't for Walmart, I don't know how we'd stay on a budget!

[Terpfen]

All retail PCs are junk. I'm sorry to hear you got a refurb passed off as new.

[PJammers]

Where on GOD's green earth did you come up with that one?

Wal-Mart haters are truly amazing!

Geesh.

[upchuck]

From the article:

Not all analysts are convinced Wal-Mart's move will cut into Best Buy's and Circuit's earnings. Colin McGranahan, of Sanford C. Bernstein & Co., notes that it's the sale of the gadgets themselves that drives warranty sales. He believes consumers will put Best Buy's and Circuit's greater choice before the price of a warranty.

But of course, most buyers still don't realize how much more expensive their warranties are than Wal-Mart's. The test comes when they find out. Eric Arnum, editor of the online trade publication Warranty Week, predicts this outcome: "[Wal-Mart] is killing the goose that lays the golden egg."

Wally kills the goose that has been laying the golden egg for Best Buy & Circuit City. Gotta love it.

Besides, I've never heard any expert I trust hype these warranties. In fact, I've heard just the opposite - that they are next to worthless.

Which is why, I'm sure, the salespeople at BB and CC push them so aggressively.

On a slightly different topic, if I was a shareholder of Circuit City I'd be damned nervous to hear 100% of the company's operating profit comes from these warranties.

Yes, I'm an unabashed Wally booster. Feel free to flame the brick wall :)

[TaxRelief]

Walmart has 7,970 items with the word "Christmas" in the description on their website. Did Costco send you an email saying otherwise?

http://www.walmart.com/catalog/search-ng.gsp?search_redirect=false&dept=0&search_query=christmas

[Gabz]

Go WalMart.

[gcruse]

I noticed my local Super Center started putting up big screen projection TV a month or two ago. They have the screens on shelving maybe eight feet off the floor so that if you are standing in front of the screens, you can't see a damn thing. They haven't figured out how critical eye level is to the LCD and plasma stuff yet. Can't imagine they'll sell many until they get their act together.

[Gabz]

Good Grief - you have no idea what you are talking about.

7,900 + items for Christmas and you claim WalMart is banning the word? Please do a bit more research.

[Gabz]

Amen.

[SamAdams76]

Well I'm in the electronics business and I can honestly tell you that the "extended warranties" are a consumer rip-off and nothing but a profit center for retailers. In fact, salespeople at many of these retail stores only get a significant commission if they sell an extended warranty with the product. That's why you always get the hard sell when you go into these places.

For those who think the extended warranties are "peace-of-mind", consider how many electronic devices you have purchased over the years and how many have gone bad for you. I can guarantee that the extended warranties would have costed significantly more in the long run even the cost of replacing what, if any, electronic devices failed for you over the years.

Basically if the product is a lemon, it will fail while it is still under the manufacturer's warranty. If it gets through the first 90 days, it's pretty likely it will give you years of reliable service after that.

[Gabz]

OOPS - I should have read further into the thread.

But these ill/un-informed knee-jerk WalMart bashers, while giving me hours of amusement, still drive me nuts :)

[Porterville]

Invest in agressive WalMart

[TaxRelief]

I guess it can't be said enough times.

[Rca2000]

I got the idea......

here

http://www.freerepublic.com/focus/f-news/1519287/posts

[Phantom Lord]

Ever think of doing some independent research?

[Larry Lucido]

Shhhh! All those folks buying extended warranties allows me to keep purchasing my appliances at razor-thin markups.

I notice that the sales people act really bewildered when I routinely decline those warranties. ("Like, dude, what if, like an, an earthquake breaks your TV in half? You'll be sorry then!")

[SamAdams76]

Yeah, that's the ticket. I was walking into a Wal-Mart the other day and they had this huge banner across the front of the store saying "We hate Christians and we want them all to die." When I got in the store, the greeter was dressed up like Alice Cooper and he handed me a pentagram. Yeah, that's the ticket. A pentagram.

Inside the store, they were playing this spooky Goth music and I heard all kind of howling and screeches and screams. It was also very dark. I was in there to get some Christmas lights but there wasn't anything at all to do with Christmas in there. Well they did have a sign that said "We don't do Christmas here. We hate Christamas...Christmas sux."

All the other shoppers were witches and goblins and other sorts of freaks. They kept looking at me like I had nine heads. Then I saw somebody that looked like Hillary Clinton and I ran for my life. I don't think I'm ever going to go back to Wal-Mart again. Yeah, that's the ticket.

[PAR35]

You actually fell for that Urban Legend?

This link should go to a page with the word "Christmas" in large letters at the top:

http://www.walmart.com/catalog/product_listing.gsp?cat=435596&path=0%3A5428%3A440989%3A435596

I clicked on a link labeled "Christmas Trees" to find it.

Or search for "Christmas cards" and get this response:

"96 items found for “Christmas cards”"

[Larry Lucido]

Now, come on. Where in the Bible does it say you can't spread false witness? Oh, wait....

[There You Go Again]

Yea, I used to work for GE Appliances. In the old days, we could go to the mom and pop stores and say, "Here is our microwave and this is how much it is...screw you!" Then Wal Mart comes along and says, "Hey GE Appliances, you WILL make a microwave that WILL have these 10 features...and you WILL sell it for this $X amount of dollars....if you choose not to do this...you WILL NOT have any microwaves on our store shelves...." Needless to say, big bad GE Appliances listened to the bigger and badder Wal Mart. What stupid people don't understand is, Wal Mart is one of the biggest consumer advocates out there....far better "consumer advocate" than these $250,000 a year hacks who head up these bogus "consumer advocate" groups....I still wonder where they get their money....unlike WalMart, I am sure some how the taxpayer is paying for these anti-free market "consumer advocate" groups.

[Proud_USA_Republican]

I'll invest in target instead. The best retailer of the bunch for the near term.

[Larry Lucido]

Let me know when they hire Elvira as a greeter.

[Rca2000]

Ok, so it is not true, then? Enough sarcasm already!!

AND-- BTW-- I am not a wal-mart hater. I have done a LOT of shopping there, in the past.

If it is not true, then where do these rumors get started?

[KarlInOhio]

I was talked into buying one of those extended warranties at Best Buy once. It was on a VCR and it included cleanings, and the warranty only cost about as much as a couple of cleanings. I dropped my VCR off at Best Buy and they said they would call me when it was cleaned in a couple of days. 5 days later it still wasn't done. After a little bit of shouting about how worthless their crappy warranty was (all in front of customers), they cleaned the VCR right there, gave me my money back for the warranty and let me keep the warranty anyway just to get me to shut up and get away from their other suckers customers.

I will never waste my money on one of those again.

[edwin hubble]

Get the extended warranty on a laptop.

But not on any other electronics.

[Porterville]

WalMart hired targets marketing team.

[papasmurf]

Walmart has gone up on prices in the last year. I can beat their deals on most items very easily.
Believe it or not, we like their grocery dept., but really don't like anything else they have.

Really do like Costco and BJ's whoesale.

[proudCArepublican]

I will go to the one who wishes me A MERRY CHRISTMAS INSTEAD OF HAPPY HOLIDAYS

[PJammers]

Yea..and the meat is actually dead babies that were used as human sacrifices. That's the ticket!

hehe

[Labyrinthos]

This link should go to a page with the word "Christmas" in large letters at the top.

After going to the Walmart website, don't forget to scan your computer for adware and spyware.

[ChildOfThe60s]

Long ago I decided that "sales" people at these stores were useful for one thing. To give you directions to the location of the item you want.

Like much of our self serve discount economy, you have to educate yourself well before going shopping.

I go to ACE Hardware and pay 10-15% more because A) they always have the parts I need & B) Most of the sales people have been in the hardware business for a long time and know more about the products than Wally-World employees. I don't have to park at the far end of a huge parking lot, and walk through a 2 block long store, only to discover that the thing I need is either not sold there, out of stock, or moved to an unknown location in the dead of night. And most of the checkout people don't look like Carnies.

I can't speak for Wal-Marts in other cities, but here the stores are just plain annoying. Not worth the prices most of the time.

[Loud Mime]

When I sold electronic equipment the warranties are what really paid us. I could converse in RMS Powers, slew rates, THD's and other specs with the best of them. It resulted in my selling loads of higher-end gear with good commissions; but the warranties paid far more.

Stereo = 4-6% commission
Warranty = 25-40% commission

Figure it out yourself. You sold on fear...what a disgusting business.

[Salvation]

BTTT!

[Gabz]

This is very true.

[Gabz]

I figured as much..............but it also seems you didn't read the thread.

[Salvation]

Where is the source for your suppositions about Christmas?

[ChildOfThe60s]

Against my advice, a buddy got a great deal ($200) on a 17" LCD monitor......and then bought a $180 extended warranty on it.

[Salvation]

Good to know!

[Gabz]

You went shopping in walMart on Halloween.............do I win a prize :)

[Salvation]

But did you read the second sentence there?

**But Wal-Mart tells WorldNetDaily it has "absolutely not" banned Christmas, but is just "trying to serve all our customers for the holiday season."**

[Gabz]

Can't argue with your logic.

The problem is WalMart does sell GE appliances....of course it is all just cheap-made-in-china-crap-because-that-is-all-WalMart-sells...........or that is according to the talking points of the WlMart haters.

[Salvation]

I will not step one foot inside TARGET because they refuse to let the Salvation Army bell-ringers stand outsidie their stores.

If anyone is anti-Christmas and anti-Christian -- it is Target!