story by Kim Souza
ksouza@thecitywire.com
The entertainment category at Walmart U.S., which consists largely of consumer electronics, has been challenged in recent years by a decline in innovative products and shrinking margins resulting from downward pressure on pricing. The company hopes to boost its entertainment business by offering a new video game service.
Duncan Mac Naughton, chief merchandising and marketing officer for Walmart U.S., told the media Monday (March 17) that pre-owned video gaming is a $2 billion market that Walmart will now enter. The retail giant is launching a video game trade-in service in 3,100 Walmart Stores and Sam’s Clubs starting March 26. Mac Naughton said there are 880 million video games sitting in homes today collecting dust. This buy-back program is fashioned after similar deals offered for iphones, smartphones and tablets which began in September 2013.
Consumers can bring in their used video games for various platforms – Sony Playstation, X-Box, Nintendo Wii, etc. – and trade them for gift cards. Walmart will pay market value for the games based on its partnership with C.E. Exchange. The average payout is expected to be around $35, but the game popularity, age and condition are considered.
“We expect our payouts to be competitive,” Mac Naughton said during the call. “When we disrupt markets and compete, our customer wins. They’ll save money on video games and have the flexibility to spend it however they want.”
The trade-in games will be sent to C.E. Exchange, refurbished and sold back to Walmart for resale in their stores and online. Mac Naughton said the certified pre-owned games should start showing up in stores by this summer.
“While new releases will remain the focus of our gaming business, we’re glad to give our customers the option to buy pre-owned games,” he said.
Walmart said their customers have asked for this service for several years, and while the company piloted a similar program back in 2009, they hadn’t found the right partner. C.E. Exchange also refurbishes iPhones, tablets and other items for Walmart.
Jason Long, CEO of St. Louis-based Shift Marketing Group, applauded the move by Walmart.
“This program sounds similar to that of Game-Stop. As a parent of a kid who plays video games, we love Game-stop because you never have to worry about getting a dud as you can return it. Also, if the game is too violent, etc., it's easy to return. These games are often $50 or more, so (they are) not cheap,” Long said.
ATTRACTING MILLENIALS
Walmart said it would not align trade-ins to a set loyalty program, but it expects the payout will be competitive and the resale prices to be low. This service is aimed at attracting new gamers to the market who might have been prohibited because of high entry-level prices.
Long said the service could attract more Millennial consumers to Walmart and Sam’s Club because the demographic is known for being gamers. He said video games are expensive and a trade-in service lowers the risk of purchasing a “lemon.” Lastly he said it should help to drive footsteps into the store to return video games that will also lead to incremental sales as consumers use their credit for merchandise.
“As long as the price paid is competitive to Game-Stop, I think this will be a winner for Walmart,” Long said.
Mac Naughton said new game releases drive heavy traffic into the store, and the buyback program will allow more gamers to trade-up over time and increase the overall size of the $2 billion market.
“Wal-Mart has led the way in forging entertainment exclusives, bringing streaming services and other intangibles into its portfolio and it makes sense to continue exploring these (service) options,” said Carol Spieckerman, CEO of NewMarketBuilders in Bentonville.
ELECTRONICS CONUNDRUM
The consumer electronics category has been a stinker for most retailers in recent years. There have been spurts of growth in mobile phones and services, as well as as tablets early on, but the category overall is in decline.
NPD Group reports that gaming sales were down 17% over the recent holiday period, typically a busy time for the category. In the recent quarter that includes holiday sales, Walmart U.S. reported negative comparable sales (mid single digit) in its entertainment category, which includes toys. Wal-mart noted in the recent earnings call that it was pleased with its marketshare performance, but it continued to face challenges related to ongoing entertainment industry contraction.
One of the main items in decline – big screen televisions – also gobbles up the most store space. This continues to present questions about how long mega TVs will be sold in physical stores and what Wal-Mart might do with all that space should they move TV sales online, like their chief competitor Amazon.
“In consumer electronics, determining which space-hog SKUs such as televisions to keep in-store and which can be moved online is an ongoing conundrum, particularly given the low margins,” Spieckerman said. “Even though consumers increasingly think nothing of buying large items, I don’t see Wal-Mart clearing out the back of the store just yet.”
But what if they did?
POSSIBLE APPLIANCE PUSH?
Retailers Best Buy and h.h. gregg have already pondered whether to dedicate more consumer electronic space to large home appliances. Spieckerman said h.h. gregg has made a concerted effort to reduce its reliance on consumer electronics in favor of home goods.
Wal-Mart already has the supplier relationships with top appliance brands through Sam’s Club. Given its buying power, Spieckerman said Wal-Mart could negotiate competitive prices against Home Depot, Lowe’s Home Improvement and Sears — the major players in kitchen appliance sales.
There are also add-on service fees for home delivery and set-up which could pad overall margins in this category. As more Millennials seek to set up new households, it would also be an opportunity to cater to those needs.
“For Wal-Mart, it would represent a new business that shoppers aren’t used to seeing in its stores. At this point, Wal-Mart would have a difficult time completely removing these units from stores, particularly given its new focus on tethering small formats to more well-stocked supercenters,” Spieckerman said.
She adds that the television walls create a visual “pull” to the back of the store without compromising the sight lines where large appliances would shut them down.
“I can definitely see how Wal-Mart could compete aggressively in large appliances as part of its overall technology portfolio, particularly given smart home technologies and ‘internet of things’ concepts that are set to gain traction,” said Spieckerman. “Given its rapid acceleration and expansion of product delivery options, site-to-store connectivity and its growing marketplace of online-unique items, Wal-Mart should be looking at ways to showcase expanded product offerings in its stores without dedicating space to inventory or even representative samples. Rather than making trade-offs between categories, this is the real opportunity, particularly as Wal-Mart accelerates its small format rollout. Out of sight, out of mind.”