Wal-Mart Not Playing Around with Video Game Price Rollback
Independent and chain video game retailers in the U.S. are
finding out what merchants in other categories already know. When Wal-Mart
comes after consumers in your market, it’s playing for keeps.
The world’s
largest retailer announced that it was lowering prices 15 to 20 percent
on its top 25 titles and it will sell other popular games in its inventory
at $10 a piece through Christmas Eve. It also said it will give a $50 gift
card to every shopper who purchases a Wii game console through Dec. 12.
"We
have promised shoppers that through the holidays, even after last week, we
would continue to offer real savings on items we know are on shoppers’ minds,
and this offer is for anyone buying games as gifts or even for themselves,"
said Greg Hall, vice president media and services, Walmart Entertainment,
in a press release. "Regardless of whether you have a PS3, Xbox or Wii, these
savings will help anyone to build a gaming library with great new titles."
Discussion
Questions: What will Wal-Mart’s price rollback do to the video game market
for the rest of the holiday season and beyond? Do competitors have any option
other than to match Wal-Mart’s lowered prices?
Walmart’s actions will erode profits in the video game category, and will make it difficult for smaller retailers to compete. This will result in a lower number of smaller retailers surviving in the marketplace, providing Walmart with even more market dominance. How can this be seen as a good thing? Lack of choice is never a good thing, and Walmart continues to reduce the number of retailers that are able to compete against them.
Just because a company can dominate, doesn’t mean they should. Strong competition helps companies innovate, and create better shopping experiences. Walmart should be careful about how many of their competitors they want to eliminate.
My first instinct is to check allocation. After a quick walking tour of some local Walmarts (bear in mind Canada is a different animal than the US), I’m seeing a lot of onesies and twosies for really hot Wii, PS3 and XBOX titles. And as for consoles, they will be sold out well before Christmas with a $50 promo. My advice to smaller guys: sit tight. You will be the ones with inventory the last week before Christmas. Just make sure your immediate selling area knows you have stock! If you want Call of Duty in Richmond Hill, you have to go to EBGames. Big blue sold out a while ago.
I think this is a another wake up call for every small retailer out there–no matter what the category–to ask themselves two key questions:
1. What action would I take if Wal-Mart decided to open a store within a block of my location?
2. What action would I take if Wal-Mart decided they want to use my category to help build their brand and to position themselves as a price leader in my category.
Maybe this should be a question that is posed on RetailWire, looking at how to adapt to the above possibility.
Certainly consumers will appreciate the move and Walmart will continue to solidify its image of Low Prices Always. If, as previously stated, the number of titles in individual stores is low, then consumer frustration will occur which is not good for the image. If the number of titles available is low and Walmart is stating that this strategy helps extend the sale time so consumers do not have to line up for sales at a specific time, it only works if the items are still available. If the items are out-of-stock, the policy reinforces the idea that consumers need to line up when the sale begins.
Just about all non-perishable goods categories sold in the USA will be exploited to Walmart’s advantage anytime they choose. You could have circus monkeys, free popcorn and hot dogs in your video store, and still it will make little difference if Walmart wants [your category]. Besides, with on-demand TV, you can now order up a movie at home the same day it comes out on DVD, so that will also contribute to the demise of small stores.
From flat screens to mushroom soup, when the higher demand season is in, Walmart will destroy the competition on price every single time. Buckle up folks, because it is going to be a few more years until this horrible economy gets better, making it even better for the big stores.
This is not good news for independent video game retailers. With Walmart taking retails to essentially cost-plus on popular high-volume titles, it competitively strips independents and game specialists of margin dollars on those titles, leaving them only with the margin dollars on niche, specialty titles. Further, those niche, specialty titles are under pressure online, from Amazon.
It leaves these independents and game specialists with their customer experience as the primary competitive point of differentiation. Customers for these products do form a tight, discreet, highly identifiable market, but being able to create a compelling customer experience alone is not likely to be enough to offset the fact that they’re going to struggle to be price competitive.
When Wal-Mart focuses on a category like this, it defines pricing for the category. If you’re not Wal-Mart that’s really bad news.
I’ve said for a while now that the problem that will ultimately face Wal-Mart is not an absence of consumers willing to buy at rock-bottom prices. Rather it’s a diminishing number of vendors who are willing to sell at rock bottom prices.
In the end for most suppliers, Wal-Mart is great for volume but bad for business.
Wal-Mart is doing what it can, and the rest of the retail world needs to be prepared for their steps to change the video gaming model. Wal-Mart is a large player, and price is a key component of their product mix. Anyone who has been playing in the video game space is now on alert, and should be taking the proper steps to better manage their profit margins in light of Wal-Mart’s recent moves. This is now an adapt or perish situation!