Target and Walmart Bet on Smart TVs, But Apple's iPad Might Outmode Them
Target (TGT) has just announced plans to expand its electronics department, adding more space for video games and televisions. Rival retailer Walmart (WMT) announced a similar revamp earlier this month, and also said it may sell Apple's (AAPL) iPad later this year. Are retailers expecting a boom in electronics sales?
It's tempting to think that both companies are just after Best Buy (BBY), a category leader that outsold both Target and Walmart in consumer electronics last year, pulling in $45 billion in revenue. But Target's press materials suggest the company is betting on a wave of new electronics devices that simply need more floor space than conventional TVs ever have:
An improved TV wall will offer a more realistic in-home presentation and a better way for guests to compare picture quality across brands.... Target is also expanding their selection of larger screen sizes and introducing new products such as super-slim LED TV's and internet-connectable TV's that allow guests to enjoy video on-demand and surf the internet.Both retailers are also expanding their video game selections, but video games aren't the driver here. In fact, video game sales have suffered a precipitous drop in 2010, plunging 26% year-over-year. This move is all about TVs; everything else is ancillary. Walmart has been positioning itself this way since at least February, when it purchased streaming movie startup Vudu, which can play movies on several manufacturers' televisions.
The impetus is the advent of the "smart TV." Just this morning VentureBeat reported that Sony (SNE) would soon announce a partnership with Google (GOOG) and Intel (INTC), which are rumored to be collaborating on development of a smart TV platform based on Google's embedded operating systems. The new TVs, which would run about ten times as much software code as a typical flat-screen television, will likely allow for streaming video from services like Netflix (NFLX) and also sport social network widgets for Facebook and Twitter.
Sony, Google and Intel -- and by extension, Wal-Mart and Target -- seem to be confident betting that consumers would prefer to use their televisions for certain Internet activities, rather than their laptops. And indeed, the last few years have witnessed the booming success of non-computer Internet devices (i.e., smartphones). But the impulse to ditch the computer might not carry over to televisions.
The iPad makes a good test case. Some analysts predicted it would cannibalize sales of low-end Macintosh computers, or that tablets (more generally) would cut into sales of netbooks. But at least so far, this hasn't been the case. In fact, Apple posted a sizable increase in Mac sales, even with the announcement of the iPad; it was the iPod sales that dropped. As Piper Jaffray's Gene Munster said:
We believe in the long run Mac cannibalization will exist, but will be minimal. Apple has successfully limited the iPad functionality to primarily content consumption vs. content creation on a Mac. And relative to the iPod, the physical size of an iPad provides a meaningfully different value proposition (portability vs. screen size).It's not always worth putting credence in analysts, Munster in particular. But his suggestion that "consumption vs. creation" is the crux of the issue is sound. It also means that smart TVs are competing with the iPad, and whatever tablet competitors it engenders. And as Munster also points out, tablets have the advantage of portability -- and intimacy. Not all of us would be comfortable putting our entire Facebook inbox or Twitter DM inbox on their living room TV.
Intel CEO Paul Otellini has said smart TV will be the biggest improvement in television since color. But some cable providers (like Verizon (VZ)) have already begun offering social networking functionality via set-top boxes, which might render a smart TV redundant for many buyers. It's also worth noting that recent tech trends -- check out the big hits at SXSW, for example, or Google and Apple's spate of recent acquisitions -- have been all been superintended by portability, personalization and location-awareness. Consumers might not be willing to pay a premium for a device they can't take with them.