Watch CBSN Live

How Best Buy Beat Walmart in Round One of the Tech Wars

Beginning late last year, Walmart (WMT) and Best Buy (BBY) banged away at each other over consumer electronics sales. And Best Buy won.

Count on Walmart to come out strong in subsequent rematches, however.

Besides pure competitive fever, the aggressiveness of the struggle between the two retailers arose from the recognition that they both had a one-time chance to grab the customers who no longer could shop at the defunct Circuit City chain.

Both retailers snagged former Circuit City customers, according to market research firm NPD Group, grabbing two-thirds of them. Employee expertise, customer service and a technologically-advanced product line still meant something to core electronics shoppers, and Best Buy made greater gains in the key categories tracked.

In the March to December 2009 period, which begins with the end of Circuit City:

  • In notebook computers, Best Buy boosted dollar share by 5.5 percent while Walmart gained something over two percent.
  • In desktop PCs, Best Buy's share advanced by almost five percent Walmart's was less than one-half-of-one percent.
  • In digital cameras, the specialist gained 5.5 percent in share while the generalist advanced almost three percent.
In an interesting observation, Stephen Baker, NPD's vice president of industry analysis for consumer electronics, noted that Walmart has helped to bring consumers to the technology market. It did so at some cost to itself, as the deflation in electronics prices that it helped to create hurt its comparable store sales, the critical measure of locations open for a least a year.

The competitive fire that it lit, which targeted Amazon (AMZN) as well as Best Buy, may have helped its rivals to become more aggressive. As a result, they picked up share points that might otherwise drifted to other, smaller retailers.

For the rest of 2010, NPD expects that retailers will focus on new technology. Yet, something else should be considered. By driving down prices and expanding into areas such as home-delivered entertainment, Walmart is staking out a bigger territory for itself. It also is focusing on technology that is a little closer to the cutting edge. Inevitably, then, Walmart will bring more price pressure to bear on more of the consumer electronics market -- thus making things increasingly difficult for competitors in that space.

Best Buy better be ready.

View CBS News In