There's an interesting twist to this Business Week article on the chaos Wal-Mart sparked in the consumer electronics industry when they began dropping their prices on flat-screen TVs. "Circuit City shares have fallen 24%, to $18.76, since the end of November," reports Business Week, "when the price war started. In the same period, Tweeter's shares declined 32%, to $1.72, near a 52-week low, and Best Buy's stock is down 9%, to $48.73. Shares of Rex Stores have been flat, down 0.7%, to $16.98."'
It's a standard tale, so mundane that it even has a cute descriptor: "The Wal-Mart effect." What's surprising about this particular version of the story is how the threat of Wal-Mart's full-bore entrance into a market allows them to dictate the standards without exposing themselves to the very pressures they've set in motion. "Despite its bold move last year, Wal-Mart currently is not the largest seller of flat-panel TVs. In fact, even though Wal-Mart set in motion the price drops, it has actually been a bit player in the high-definition TV segment. By most accounts, Wal-Mart had little to lose by dropping the price on the Panasonic TVs because it sold out its inventory nearly instantly."
Not so for the stores that specialize in consumer electronics, like Circuit City. "The Richmond (Va.) company lost $12.2 million in its fiscal fourth quarter ended Feb. 28, compared to a net income of $141.4 million in the same period last year. At Tweeter, where flat-panel TVs make up more than 51% of sales, the price declines hurt badly. Sales in its fiscal second quarter ended Mar. 31 declined 12%, to $139 million." They have to compete with Wal-Mart, even as Wal-Mart feels no particular need to compete with them.
Now, nothing Wal-Mart is doing here is wrong, illegal, or even unethical. They decided to slash prices on a product, and their competitors responded. But the company's sheer size means that relatively minor decisions in Bentonville can transform whole sectors of the economy. Wal-Mart sold out of their cheap Panasonics fairly quickly -- that ended it for them. But Circuit City laid off 3,400 workers and Tweeter is still reeling. And it's like that at every level, in every sector, of retailing now. Wal-Mart is almost a de facto central planning vehicle; not because that's their ambition, but because that's their size.
