Stores Look for a Niche as Gadgets Grow Up

By MICHAEL BARBARO

AT Wal-Mart Stores this fall, amid the $5 skirts and the two-for-$10 picture frames, the $7 detergent bottles and the $14 bookcases, some price tags hardly seem like rollbacks.

A Magnavox 42-inch widescreen high-definition plasma television is $2,000, a Canon 8.2-megapixel digital camera is $1,400, and a Sony Vaio laptop is $2,400 - not exactly a bargain for working-class consumers.

But if the prices are slightly out of reach for the average Wal-Mart shopper, that is fine by the company. In fact, it is by design. To borrow retail lingo, the electronic products are "aspirational," said Gary Severson, a senior vice president at Wal-Mart, responsible for electronics. That word is a euphemistic way of saying that the chain does not want its shoppers to wake up one morning, realize the price of a plasma TV has dropped into their income level, then dash to Best Buy or Circuit City to get one. Wal-Mart wants shoppers to aspire to own the electronics in its store, not somebody else's.

The Wal-Mart strategy is as good a window as any into the state of electronics retailing, where the lines between high end and low end - specialty retailer and general-merchandise store - are now blurred beyond recognition. Kohl's now carries portable DVD players, Walgreens sells laptops and Staples sells more electronic products than either Sony's retail stores or Apple's.

Electronics have become the new cosmetics, in demand across all income levels and available at every conceivable - or, as the case may be, inconceivable - price.

And while the ubiquity of consumer electronics has made it easier than ever to find a cheap digital camera, it has left retailers in a quandary. When 20 different chains sell the same MP3 player, how can a store find a niche?

A look at the latest ranking of electronics sellers, produced by the industry trade publication Twice magazine and the Stevenson Company, a market researcher, underscores how fast the competitive landscape has changed, and reflects the mixed signals that consumers send about what they are looking for.

Unsurprisingly, the big electronics chains Best Buy, Circuit City and Radio Shack remain on top, offering a combination of wide product selection (not just three plasma TV's but 15) and services like home installation of that plasma television.

But a few notches down on the list are two unexpected names: Costco and Sam's Club. Despite limited product selection and a customer service model that is decidedly hands-off, both warehouse club stores made the list of the Top 10 electronics sellers for 2004. Target and Sears, Roebuck & Company also among the Top 10, beat out the specialized electronics retailers CompUSA and Gateway Computer, while the online retailer Amazon.com (No. 20) sells more electronics than Kmart.

Confused? So are retailers.

The changes under way at Best Buy and Wal-Mart, which are both scrambling to become more specialized, are instructive. In many ways, the two chains offer significantly different shopping experiences. Best Buy emphasizes service; Wal-Mart emphasizes price. Wal-Mart's business model is everything under one roof, from carrots to computers. Best Buy focuses exclusively on electronics. But somehow, through these very different approaches, the two companies have become No. 1 (Best Buy) and No. 2 (Wal-Mart) in electronics retailing.

As they try to maintain that dominance, both are chasing overlooked shoppers already in their stores.

With Wal-Mart, the focus is on a higher-income shopper, who relies on the chain for cheap detergent and milk, but rarely wanders into the electronics department.

For years, Wal-Mart designed its electronics department as a bullpen, with a single entrance and exit. The store-within-a-store concept successfully deterred theft, its original goal, but it also discouraged law-abiding potential electronics consumers.

"It was an intimidating experience," Mr. Severson said, "especially for women with shopping carts and kids."

In new stores, the bullpen is gone, replaced by an open layout with 25 percent more room, much of it customer space (that is, not filled with products), a significant concession for Wal-Mart, which prides itself on cramming every available inch of the sale floor with merchandise.

Worried that electronically challenged salesclerks could turn off potential buyers, Wal-Mart has instituted more rigorous training. It now asks workers to sit through product education videos, broadcast over the company's television system, explaining the difference between, for example, a plasma television and a liquid-crystal-display one. "To say it's comprehensive would be overstating it," Mr. Severson said. "It's an introductory level training."

Kiosks with access to walmart.com are sprinkled across the electronics department so people can research products on their own, or when they can't find a salesclerk.

But the thrust is the products. Wal-Mart now ensures that there are three levels of electronics in just about every important product category: opening price point (think an Apex television), a step up (RCA) and top brands (Sony or Samsung).

"We didn't always represent the best," Mr. Severson said. "But we realize we can sell the best in a lot of our stores."

Best Buy has nicknamed groups of overlooked consumers. There is Buzz, the tech whiz; Jill, the well-paid working mother; and Ray, the family-oriented dad.

To woo the Jills, who are short on time and intimidated by the crush of gadgetry in a large electronics store, Best Buy has trained a designated group of employees to identify her in the store, chat with her and walk her through the sales process. Before, employees were most likely to wait for Jill to chase down a salesclerk, at which point her frustration level meant she was, in many cases, ready to leave the store.

Then there is the Geek Squad, a separate division of the company, whose tech problem solvers are within the store and also make house calls - another way to ensure that Jills have their questions answered and spend more money on electronics.

Mike Linton, chief marketing officer at Best Buy, said the dawn of the everyone-sells-everything era in electronics retailing meant the chain could not just offer a product. It must sell a product and its customized installation at home, or sell a product and a bundle of customized services that integrate it with a home theater.

"If we are trying to succeed selling DVD players, that is not a good story for us," Mr. Linton said.

Several years ago, the chain bought Magnolia, a high-end audio and video store that designs lavish home theaters, complete with stadium seating, if there is space. Best Buy is in the process of building mini-Magnolias inside its stores, another way it hopes to distance itself from Wal-Mart and even direct competitors like Circuit City.

But how long can the age of electronics everywhere go on? "As long as people buy them for more than it costs the store to sell them," said Craig Johnson, president of the retail consulting firm Customer Growth Partners. "Once the digital genie is out of the bottle, it's hard to put him back."

For some retailers, however, the boom has come too late. Department stores trimmed back on electronics ages ago, but now find themselves largely bereft of a top-selling category.

Macy's has an electronics department, far bigger online than in the store, where the selection is slim. The emphasis is on gifts, so there are nifty if not altogether useful gadgets like a motorized tie rack.

"Obviously we are not trying to be Best Buy," said Dan Leppo, Bloomingdale's vice president for men's dress furnishing and accessories. He said he looked for electronics that were "true fashion accessories," like a Canon digital camera with a custom-leather Coach bag.

"These retailers aren't serious about electronics," said Mr. Johnson, the retail consultant. "They just think they need to have something there."