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Walmart Hammers on Holidays To Drive Electronics Business Home

Walmart (WMT) has launched more holiday electronics initiatives, focusing on the Nintendo (NTDOY) Wii systems now and high-definition televisions for Christmas, but with a longer-term strategic purpose.

Walmart has targeted electronics for growth. The company has assumed a marketing position that promotes its operation as the low-cost provider of basic and mainstream electronics. Of course, the timing is right, with Circuit City going away. Not only that but the evolution of the market has increasingly pushed the software involved into commodity territory. Sure, new DVD releases can be 20 or 30 bucks, but many retailers discount new titles as soon as they come out. Then, just months after they first appear, the prices of those DVDs frequently fall to $9.99. Low-priced commodities are hard for most retailers to sell at a profit. However, Walmart, with its ability to command volume discounts and distribute efficiently, is better at making money with them than are most other retailers. And shoppers coming in for DVDs can be enticed with a good price on a Blu-ray player.

To more firmly establish its electronics credentials in the holidays, Walmart challenged Amazon (AMZN) on DVDs, and pulled Target (TGT) into the fray as well. And it went farther, challenging Best Buy (BBY) on computer prices with a $298 laptop. Best Buy responded with its own low-priced computer.

The latest electronics initiative, which Walmart launched Saturday, offers a $50 Walmart Gift Card with the purchase of a $199 Wii console in stores through Dec. 12. As with many promotions this holiday season, the time and amount of sales merchandise is limited. However, in order to sustain interest in electronics through the holidays, Walmart also offers 15 to 20 percent off on 25 top video game titles, including games for kids, families and extreme gamers, in stores through Dec. 24.

On Dec. 12, Walmart will begin providing a range of food so that customers can put together a Christmas dinner that feeds eight people for less than $30, but it is coupling that deal with promotion that includes a 32-inch Vizio 1080p LCD television for $398. The promotional effort also includes a Magnavox Blu-ray Disc Player for $78, which, the retailer pointed out, is the same price the product sold for in its Day-After-Thanksgiving -- a.k.a. Black Friday -- sales event. Recall, too, Walmart paired food and electronics in a pre-Thanksgiving deal that offered a turkey dinner for eight at $20 and, in addition to the Blu-ray player, its Best Buy-challenging $298 laptop.

The temporary nature of these promotions actually suits Walmart's strategic purposes. One way the electronics industry in general has moved its wares has been to constantly add new items, upgrade existing gadgets, repackage products with new software or peripherals and reprice existing merchandise once a next-generation product launches. By doing so, the industry maintains a never-ending pitch for consumers to trade up to the latest and greatest.

Walmart isn't going to get the upper-end, deep-pocket electronics fan on the cutting edge of that process. Yet, most electronics-conscious consumers don't have the discretionary income to pay top dollar for every new product that seems interesting. A lot of folks out there watch and wait for the electronics they want to hit prices that they feel justify their purchases. Those are the consumer Walmart is targeting by demonstrating that it will drive technology prices down to broadly affordable levels faster than its competition.

Walmart has used its holiday promotions to drive home the marketing message it wants consumers to absorb, and that's smart. Since the back to school season, when it first promoted an under-$300 computer, the company has constantly reiterated a better-price message. It has done so into the traditional holiday shopping season and across a part of the year when it would be advertising electronics as gifts anyway and through a period when consumers would be attuned to messages about bargains. So, rather than developing a separate marketing and merchandising campaign, Walmart has used its seasonal promotions to extend awareness of its electronics operations among consumers even as it got them excited about holiday deals, effectively killing two birds with one check.

In the Nintendo case, on top of everything else, Walmart is offering a gift card rather than a straight price discount, so the savings have to be spent in its own stores, and why not buy some discounted video games? Remember, Walmart already offered a $100 gift card as part of an Xbox promotion, another example of a deal that keeps a purchaser linked to the retailer and, through games purchases, the electronics department.

This spring, Walmart's vice chairman Eduardo Castro-Wright, at an analyst conference, said the company's growth in electronics was outpacing that of its major competitor by five percent. Walmart declined to identify that company, but by taking on Best Buy, Amazon and Target in the holidays, the retailer has done its best to keep electronics growing at the expense of its key rivals.

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