Best Buy Takes iPhone Fight to Wal-Mart

Best Buy isn't going to let Wal-Mart grab its iPhone business without a fight as the two ratchet up a struggle for dominance in popular consumer electronics.

Only a week after word came out that Wal-Mart would offer two popular iPhone at a $2 discount to the usual price set by Apple, Best Buy announced that it is providing refurbished models for $50 less. At $149 for the eight-gigabyte and $249 for the 16-gig iPhone 3Gs, Best Buy is providing an alternative for bargain hunters in tough economic times. In its announcement, Best Buy took pains to point out that the iPhones had been returned during their 30-day trial periods and "refreshed" to manufacturer standards. The refurbished phones roll to 350 stores immediately and to all Best Buy locations that offer ATT mobiles by January's end.

In announcing its new program, Best Buy vice president of marketing Scott Moore touched on another critical point, the availability of ancillary products and services surrounding the iPhone. Best Buy is offering a two-year protection plan for the refurbished iPhones that covers them beyond standard warranties. When Wal-Mart began offering iPhones, it immediately paired them with cases and other accessory items. Clearly, Best Buy and Wal-Mart see the iPhone not just as a hot item but also as the cornerstone of its own little industry, and they're willing to duel to get the biggest chunk.

The hot item consideration still is important in the broader battle over which retailer is going to be the prime destination for consumers who want to purchase the most coveted consumer electronics. For Wal-Mart, the fight is over a lucrative piece of business that expands on its successful operations in CDs, DVDs and other entertainment products. DVD players and flat screen televisions were a big push in that direction. The iPhone initiative elevated Wal-Mart's profile in the smart phone business and, as a consequence, helped set the retailer up as a prime destination for the latest and greatest in another consumer electronics category.

For Best Buy, the fight with Wal-Mart over iPhones comes just as it had whittled away its specialty store competition and emerged as the place to go for new consumer electronics. Now, Wal-Mart is challenging it in high-volume popular products. If it starts to lose that business, Best Buy could find itself pushed into specializing in high-tech, high-price, low-volume items. With big stores developed to make money by serving a lot of customers, Best Buy couldn't sustain itself in those reduced circumstances.