How Wal-Mart’s TV Prices Crushed Rivals:
Last “Black Friday,” for its annual post-Thanksgiving sales blitz, Wal-Mart Stores (WMT) decided to slash the price of one of the hottest electronics items for the holidays — the 42-inch flat-panel TV — to $988. The world’s largest retailer had staked similarly audacious positions before, in numerous product categories, as part of its quest to remain U.S. retailing’s “low-price leader.” In turn, Wal-Mart’s move caused 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.
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The fallout is evident: After closing 70 stores in February, Circuit City Stores (CC) on Mar. 28 laid off 3,400 employees and put its 800 Canadian stores on the block. Tweeter Home Entertainment Group (TWTR), the high-end home entertainment store, is shuttering 49 of its 153 stores and dismissed 650 workers. Dallas-based CompUSA is closing 126 of its 229 stores, and regional retailer Rex Stores (RSC) is boarding up dozens of outlets, as well as selling 94 of its 211 stores. “The tube business and big-screen business just dropped off a cliff,” says Stuart Rose, chief executive officer of Dayton-based Rex Stores. “We expected a dropoff, but nowhere near the decline that we had.” Clearly, these retailers are taking such drastic measures because they don’t see any respite in sight.
Interestingly, it wss Wal-Mart’s small position in the flat-panel TV market that let it do so much damage without suffering much itself:
Despite its bold move last year, Wal-Mart currently is not the largest seller of flat-panel TVs. In fact, even though Wal-Mart set in motion the price drops, it has actually been a bit player in the high-definition TV segment. By most accounts, Wal-Mart had little to lose by dropping the price on the Panasonic TVs because it sold out its inventory nearly instantly.
When a firm has a near-monopoly on a market, it actually suffers disproportionately from lowering prices.