GLG News by Cathy Stauffer

Implications: I can think of more reasons why than why not.  I’m not saying Radio Shack should copy GameStop but they could clearly build on what they’ve done, and invent something even more interesting. Nintendo didn’t just take market share from Playstation and Xbox with the Wii, they expanded the market, making video games appealing to a whole new segment.  If they were really imaginative, Radio Shack could do the same with their stores.

Analysis: Why?
1.    After years of muddy and unrealistic positioning, Radio Shack could finally stake a claim against a market they could deliver against.
2.    Their store base and reach is uniquely well suited. Gamers are great at creating their own sense of community – Radio Shack could finally leverage their store base into a meaningful advantage with events and competitions that draw people in, creates loyalty and creates reasons to buy more. It’s rare, but when retail becomes entertainment it’s a powerful thing.
3.    Their store size and layout is uniquely well suited. A switch to Game Shack wouldn’t require significant store remodeling – compelling graphics and modern displays would do it – but they must be innovative and fresh.
4.    Easier time staffing with qualified and passionate employees. The idea of working in a store with the energy and cool factor of video games that pulls in steady traffic has to be significantly more interesting and attractive than recruiting for their current mix. (Which is what again?)
5.    Complimentary merchandising possibilities. Lots of opportunity to merchandise interesting and high margin impulse items around the core category that would appeal to the gamer base.
6.    Rentals.  Great for encouraging frequent visits, and the selection at Blockbuster and Hollywood just isn’t that good -  done correctly, it wouldn’t be hard to take share quickly.

So, why not?
1.    GameStop is firmly positioned with about 4000 U.S. stores, 20% market share and growing.
2.    It’s going to take a lot of work, and more importantly vision and commitment to reinvent itself that may not exist inside the company right now.


But GameShack has a certain ring to it that Radio Shack is sorely missing -  specifically meaning, and, a market.

Implications: Is the privilege of being one of the first to get a highly anticipated, highly coveted item worth paying a premium?  Going into it, many (most) would say yes. After the fact people get agitated. So Apple did something - offered an in-store credit – most would prefer cash - and even went so far as to apologize to customers. Didn’t have to do this but they did and it was the right and fitting thing for the situation.

Analysis: So what’s fair ?

Is it fair that I pay $1300 for a bad coach seat on United to NY and sit next to a guy that paid less than $300 because I booked mine a couple weeks later?
Is it fair that my neighbor paid $1000+ for a Wii on eBay last December vs. my other neighbor that stood in line at Target in January and got it for $249?

While many would say those examples are different, they really aren’t.
Second only to the hype around the highly anticipated iPhone release was the talk about how soon the prices would come down. Most bets were on Christmas ’07 – but it came three months earlier than anyone guessed. Alright –it was not if it was going to happen, but when it was going to happen.  

The people that bought early on are not getting the shaft. Value is in the eye of the beholder.  If it was worth to you to buy, you bought it and you’ve no doubt been experiencing near celebrity-like status (at least in your own mind) for two blissful months. Now it’s time for the people that didn’t buy early to get smug, not about being first but about being smart. So what? You will always be one of the first, and didn’t you know you were paying for that to begin with?

Apple and others clearly can’t make a habit of this( launching and reducing the price 30% within hardly 60 days), but Apple is surely smart enough to know that,  and in this unusual case people paid for the privilege to be first and knew it, whether they want to admit that or not now.


P.S. What is AT&T doing?  I don’t know – they have been strikingly quiet.  With the data plan required to support the iPhone features, the ARPU (Average Revenue Per User) associated with each iPhone should be significantly higher than average, so these should be particularly valued customers and Apple should be a valuable lead source, but they don’t seem to be compelled to step in with any sort of anything.  Too bad. Maybe a phone-less iPhone isn’t such a bad idea.

Implications: In Q2 the global GPS market more than doubled, and in the U.S. the mobile GPS market grew by almost 300%. As prices come down and portable GPS systems become less of a considered purchase and more of an impulse purchase, sales will continue to grow at an outstanding rate. On the flipside of this explosive growth has been returns as high as 20-30%.

Analysis: While lower ASP (average selling prices) are helping fuel demand in this category, it’s a great sign of health that it is not the super low price models that are dominating.  In a category where you clearly get what you pay for, Garmin’s best-in-class functionality and idiot-proof interface earned them 49% share of unit sales and 55% share of dollar sales in the U.S. in Q2, giving Garmin the enviable position of dominating the category, with more premium price points and features. As prices continue to come down and fuel demand, simplicity and ease of use will rule the day, both in the initial selection and in making the sale stick.

The darker side of this bright category has been returns.  Driven in part by the “free rentals” and in part by very legitimate frustrations with clunky and complicated interfaces, returns have traditionally been very high on portable GPS units.  Just like in the early days of other fun, new CE categories that everyone wants  –  digital cameras, camcorders, portable DVD players, even macbooks –  they can be really fun, impressive and useful for a short period of time, like a vacation  -- If I can buy it, use it and return it all within the allowed return policy – is that wrong?  Retailers have dealt with this by adding a restocking fee (generally 15%) to these categories, which now include GPS in most stores, so  least if they are rented, it’s for a more reasonable price. This deterrent combined with the more positive progress in the category of more accessible price points, and in Garmin’s case in particular, smarter and easier interfaces that work right out- of- the- box, are providing buyers with a great experience, and returns are coming down and sales are going up... A wonderful combination for everyone involved.

Implications: There can be. In the spirit of first things first, cleaning up their operations, processes and balance sheet is absolutely necessary. It’s key to creating a solid foundation to support their next step – injecting vision, creativity and badly needed brand personality into their small stores, and making them synonymous with quick, easy transactions for basic CE and related products you need in hurry.

Analysis: Now that they seemed to have gotten their back end in order, Radio Shack needs to build a brand that stands for something. Something they can uniquely and superbly deliver, and that will drive their top line and future.

Their ads today promise brand names - Panasonic and LG LCD TVs, Apple ipods, TomTom personal navigation devices and Yamaha surround sound systems. 

Their web site today promises expertise and knowledge.

But walk by or into a store today, and it’s not clear what they stand for. Certainly not savvy merchandising, expert help, or a consistent experience from store to store.   - Many of the hottest CE items and brands available in select stores only.

With over 6000 small locations, Radio Shack is not going to be the place for heavily considered big-ticket or highly complex CE purchases. But, there is a sweet spot within entry and mid-level price points they can play in.

Radio Shack is uniquely positioned to deliver a convenience based value prop.  A value prop no one else in the market is delivering, but one consumers want. Key item assortments, combined with plenty of higher profit, higher frequency small ticket items - such as blank media and other consumables – can position Radio Shack as the 7-11 of consumer electronics.

When it's too far, too late, too inconvenient, or just not worth going to a big box for what you need, Radio Shack should be the first place consumers think of and go to. And, Radio Shack should reward them by delivering a consistent, quality experience at every one of the their 6000+ locations. (And, locations that aren’t convenient should be closed.)

Cleaning up the back end is a good start, but only a start.

Implications: When a giant like Microsoft releases it’s biggest new product in over 5 years, you can’t deny it’s big. And, while many of the improvements are similar to what’s been available for some time on the Mac OS, it’s evolutionary, not revolutionary, but big. Vista to Mac ratio is 20:1. 

Analysis: Many, many consumers have heard of Vista, and many have delayed their PC purchase in anticipation of the release. Although promotions by retailers for “vista ready” and “free upgrades” have been running over the past several months, read anything and it’s very clear that this is not something you want to install yourself. But, although many of heard of Vista, and many are waiting for it, it’s interesting that very few understand exactly why they should buy it.

Over the next 6 moths, Microsoft is expected to spend hundreds of millions of dollars to market Vista telling consumers just that, and whether ultimately articulated by Microsoft or it’s many customers, over time the improvements will matter.

So, where’s the upside? A few obvious areas immediately:

•    An initial boost in PC sales to the benefit of many PC manufacturers and retailers. Many consumers have delayed their PC purchase in anticipation of Vista, and will be lining up for it’s release in a couple days.

•    In memory and more sophisticated graphics cards required for Vista to run at it’s best – without it you will get a painfully slow, and poor, user experience.

Over time the biggest upside may be in devices that will now be able to access PC based digital content – music, photos and videos - off Vista, but away from the PC, ultimately making it easier to use and enjoy all the stored digital content that has been steadily growing on consumer PCs over the past several years. For instance:

•    Digital photos: Connect digital picture frames wirelessly to your PC, via your home network, and display all those digital photos you have stored that nobody ever sees.  Microsoft promises that you’ll need to just turn on the frame and the PC will easily recognize it allowing you to easily display your digital photos in frames scattered around the house.

•    Distributed audio. Previously limited by copy protection that prevents music purchased on-line from being played on multiple devices, Vista’s Window Media 11 will let you stream copy protected content throughout the house, making products like the Sonos digital music system and others like it far more compelling and easy to use for more people.

•    Networking gear. Now that it’s going to be easier to move content stored on your PC to other devices in your home, the benefits of having a wireless home network will increase, and more consumers will be installing for the first time or upgrading and expanding their current network.

•    Services. To help those brave souls that decide to install Vista upgrade themselves, and to help consumers make everything work together.  Vista promises to make for easier networking and distribution of content off your PC, but easier is absolutely relative in this case. Service providers, like the Geek Squad, are going to be busy.

Bottom line, for something that has been as built up for as long as Vista has, it’s surprisingly unclear exactly what the upside market potential is for retailers and related products, but it will most certainly build over 2007 and well into 2008.

Implications: And they are. Whether it’s manufacturers opening retail stores or retailers getting into the manufacturing business, it’s happening, and it’s working. Apple, Sony, Nokia, and Bose retail stores; Sear’s Craftsman, Safeway’s Organics, Best Buy’s Insignia, Costco’s Kirkland brands are a few good examples of where it’s working.

Analysis: While there will always be barbs traded back and forth about creating competition with their best partners, the truth is manufacturers with storefronts are getting a greater appreciation for retail challenges and the value of their best retail partners, and retailers are becoming more savvy when it comes to product development, manufacturing and supply chain challenges.  Applied properly this knowledge and understanding can create better partnerships and shared success.

When a manufacturer opens an effective retail store they are creating incremental market awareness and buzz around their brand, which should be to the benefit of all the retailers that carry that brand. Equally as valuable, manufacturers can test designs and displays and use early results to adjust before taking to retailers for mass adoption, hopefully avoiding ill conceived, albeit well intentioned, displays or other requirement for retailers that end up wasting everybody a lot of time and money.

When a retailer with a strong brand creates a successful product brand, they create additional value and yet another reason to shop at their store. Insignia, and Kirkland brands generate significant volume and profits for Best Buy and Costco respectively, but also add to their value perception as a retailer, which results in bringing more traffic into their retail stores giving greater visibility and step-up selling opportunities to the other brands within the store. And, retailers become much more knowledgeable and a better partner in helping suppliers design better products that hit the right price points, and remove waste from the supply chain. After all retailers do have the inside scoop on what consumers are both asking for and complaining about – they should be applying that knowledge.

Bottom line, whether the retailers actually gets into the manufacturing business or uses the threat to apply pressure to their suppliers to design more compelling products, role reversal can help keep things honest, and help improve the partnership between retailers and their manufacturers. Done incorrectly it can be a disaster for brands and bottom lines.  

Implications: Retail ended strong in 2006. While the amount of increase was higher than the market might have expected, key trends were not terribly surprising, and should be used as an indicator of  what's to come in 2007.

Analysis:
On-line shopping will continue to grow.

Consumers clearly expressed their faith in both retailers and shippers to deliver for the holidays in 2006.  November 1 – December 26th on-line spending was up 26% over 2005. Higher ticket gift items like jewelry and watches, video game software and hardware and consumer electronics drove sales on Amazon.com, Walmart.com, Bestbuy.com and Gamespot.com.

Retailers with a clearly defined brand and market do the best.

Luxury, upscale retailers like Neiman Marcus, Nordstrom, Coach and Tiffany all had strong performance and will continue to outperform. Well-merchandised department stores should continue to enjoy moderate growth. Retailers not well defined, or catering to lower level income consumers (Kmart, Old Navy, Gap, Pier 1) will find sales growth a challenge. Walmart has work to do fixing what has recently been a schizophrenic approach to their marketing and focus.

Consumer Electronics is the “it” category.

Best Buy and Costco both did a superb job with electronics in December. Demand for CE is going to continue to grow, particularly in big-ticket flat panel and HD TV, as well as digital cameras, notebook computers, MP3 players and videogames. LCD TV experienced triple digit growth in December, the other categories  double digit, and, there’s all those gift cards that haven’t even been counted as retail sales yet.  Strong demand for CE will continue in 2007 to the tune of $155 billion.

Based on their popularity, flat panel LCD TVs have now become a staple for Walmart, Costco and Target, while non-traditional stores like Home Depot, Kohls and Toys R Us are also taking a stab at it. Toys R Us now has executives with strong CE experience and connections and could make a go of it particularly at the lower price points.

Incredible value drives incredible demand.

In flat panel (LCD and Plasma) TVs a combination of over supply, a host of new entrants on both the manufacturing and retailing side, and subsequent turf wars for share, the consumer was clearly the winner, and rewarded the LCD category with 109% increase in dollars and 124% in units in December. Holiday 2006 the ASP for a 32” LCD – the top selling size - was just $796 vs. $1354 in 2005. Even in an industry known for eating it’s young, quickly commoditizing technology in the name of holding share, this was an unprecedented and unexpected drop even by those involved. As supply tightens up in the first half prices should stabilize, with more rational year over year price decreases in 2007. But still outstanding value.

Demand for merchandise related to the home will be softer based on a softer housing market.

Hardware sales were down 1.1% in December. While overall retail results and consumer confidence indicate worries about a slumping housing market may be easing, major home improvement spending will lag the rest of retail in the near term. Home Depot and Loews will be working hard to be the ‘retailer of choice’ in their segments.


Bottom line, retail ended the year on a strong note, and consumer confidence is up in January.  There are showing signs of optimism that the Fed is on track to achieve a soft landing for the economy.  And, while no one is yet projecting a banner year for retail overall, the NRF (National Retail Federation) expects US retail sales to increase a very respectable 4.8% in 2007. Focused retailers with strong brands and a good buying experience will be the biggest winners.

Implications: While Amazon.com was the #1 retail site in dollars spent for the 2006 holiday season, Bestbuy.com was #1 in growth. Walmart.com was #2. According to the data firm ComScore, bricks-and-mortar retailers saw the highest percentage sales increases over 2005.

What’s driving their growth? Choice is a wonderful thing.  Multi-channel retailers that embrace and combine the strengths of their different channels, using them to complement each other rather than compete with each other, will outperform the others.

Analysis: #1 Free is always good.

According to a study of the 40 largest-volume e-tailers by ForeSee Results, free shipping without restrictions significantly impacts customer satisfaction and loyalty and is an effective tool for converting first-time buyers.

The Top 40 Online Retail Satisfaction Index found that 41 % of 10,000+ respondents cited free shipping as the primary factor in their holiday purchase decision-making. For 79 % of respondents, free shipping influenced them to choose one retail site over another.

Other key findings from the study included:
    * When offered with restrictions (e.g., tied to dollar value of purchase), free shipping does not significantly impact customer satisfaction and loyalty.
    * Retailers must offer free shipping to keep up with the competition, but it is no longer a competitive differentiator.
    * 63 percent of online holiday shoppers recalled free shipping offers, 24 percent said it wasn’t offered to them and 13 percent couldn’t remember if free shipping was offered.

#2 Leveraging the benefits of a physical store with the convenience of on-line shopping.

On-line orders that can be returned or exchanged in-store so you can avoid return shipping costs and hassles.  And, still in it's infancy but coming around, ordering on-line and picking up in-store is saving consumers the risk of out-of-stocks on things like hot models and titles and combines the convenience of on-line shopping with the immediate gratification of bricks-and-mortar.

Both win-win situations for the consumer and the retailer - lower cost of transacting for the retailers, higher satisfaction for the consumer.


Blockbuster/Netflix case study:
With around 6 million subscribers, Netflix is the market leader in online rental companies, but Blockbuster appears to have finally figured out how to leverage their physical stores to build their web business. In November, Blockbuster rolled out "Total Access" – a program that allows and rewards on-line members to return movies to one of it’s approximately 5,000 physical stores rather than by mail. Those who return movies to the stores get a free rental on the spot, and Blockbuster still sends out the next movie in your queue.

It makes good sense for both Blockbuster and their customers and for now, is something that Netflix can’t directly respond to. And, it appears to be working.  Blockbuster announced this week that it now has 2.2 million online subscribers. Of those, almost 25% joined in the fourth quarter, when Total Access was introduced.


Brick-and-mortar stores building on-line usage and loyalty. On-line channels building brick-and-mortar traffic.

Brick-and-mortar stores made stronger by the convenience offered by their on-line channel. On-line channels exploding because of the added convenience of the bricks-and-mortar stores.

After years of debate inside retailers on which channel will prevail, it’s finally becoming obvious – together they can be much more powerful and effective than alone.

Implications: Big box retailers are training consumers to shop early or shop late with no really compelling reasons to shop in between. The increasingly promotional activities before Thanksgiving, lead by Wal-Mart this year, followed up by unprecedented pricing on Black Friday created a tough first half of December for retailers, and a nerve racking final days of the pre-Christmas shopping period. 

Analysis: In consumer electronics in particular, a category that is enjoying tremendous demand, competitive practices, not consumer appetite, is undermining recent retail results. Irrational pricing, and, with just a very few exceptions, abundant product availability has created an environment for consumers where there is no real down side to waiting until the last minute to buy, and more than likely they will actually be rewarded with lower prices if they do.

The amount and degree of discounting and promotion on Black Friday clearly projected to the market just how aggressive retailers are willing to get, and signaled to many consumers that they should wait until the last possible moment to shop again before Christmas as retailers will get increasingly aggressive as it closes in on Christmas day, rewarding those who wait with special offers and lower prices.

While many retailers reported very robust black Friday traffic and sales, retail results are showing that consumers made almost surgical strikes - coming in to buy exactly what they were after -the $349 laptop computers and $999 plasma TVs - and leaving without buying much more.  As retailers get more sophisticated about their Black Friday execution with practice drills for the sales teams and fully developed processes and SOPs to ensure a smooth operation on the big day, consumers are also getting more savvy, getting in and getting out with what they specifically came in for, and avoiding getting caught up in a larger buying frenzy.

Try as they might to spread holiday shopping more evenly over the weeks between Thanksgiving and Christmas, retailers are actually training consumers to shop early or shop late with very little in between. As the final weekend before Christmas approaches traffic is now building again. This weekend and the week after Christmas will be the biggest shopping period of the season for the big box retailers.

Implications: The point and shoot digital camera category is still growing, but maturing. The SLR digital camera category is a relatively new category  - just now emerging in the mass market channel - representing dramatically higher ASPs and accessory add-on opportunities for retailers and manufacturers.

Analysis: Digital SLR cameras really came into their own on Black Friday weekend this year, expanding from their specialty channel status to a mass-market category.

The NPD Group reported that for the Black Friday weekend, camera sales overall were up 14% in units with a 26% increase in dollars.  Point and shoot cameras experienced a 24% increase in units, but just an 8% increase in dollars over last year. With an ASP of $825 (for comparison the category’s overall ASP was just $163) digital SLRs are clearly one of the highest priced items sold in consumer electronics today and represent a significantly higher ticket than point-and–shoot models.

Digital SLRs are attracting film enthusiasts and last of the digital camera holdouts as well as second, third and even fourth time digital camera buyers looking for a better picture taking experience - both in the picture quality and in the camera features, including manual controls and much faser response times on shooting pictures And, digital SLRs are important to the digital camera category – representing dramatically higher ASPs as well as significant opportunities for attaching add-on accessories for increased sales and margin in the category.

Traditional camera enthusiast brands – Canon, Nikon, Olympus and to some extent Sony – are best positioned to profit from the growing interest in the digital SLR space.

Brands that got into the camera act primarily through small and simple point and shoot designs – like Pentax, Panasonic, Samsung, Sony, Kodak, and Casio will need to work hard to carve out a profitable place in the changing digital camera landscape.

Thanks to the rapidly declining prices, sleek new designs and ultra-convenient form factors, point-and-shoot digital cameras will continue to experience double-digit unit growth, but manufactures and retailers will need to sell a whole lot more anniversary sales volumes. Which is why the majority of ad space in big box retailers’ inserts is still largely dedicated to the point and shoot category – with 7 mega pixel cameras now $399 or less, the value is absolutely superb compared just a year ago, and is a good driver of traffic for the category. Once in-stores customers are getting exposed to the benefits of the digital SLRs and many are choosing to buy up, but it's still very early for the category. High price points along with the more sophisticated features and physical size, is still not for everyone.

As far as what happens after Christmas, digital cameras are a seasonal category, peaking during the holidays and then again in later spring driven by new model introductions and Mother’s Day, Graduation and Father’s Day buying periods. Absolute volumes will come down after the holidays, but growth rates and ratios between SLRs and point and shoot should continue in the same direction the market is seeing now.

Implications: The current drama in marketing is just another distraction from the really big job at hand for Wal-Mart: positioning their brand for health now and in the future. Recently their marketing approach has been schizophrenic, flailing about with one approach and then another, wasting money and confusing the market in the process.

Wal-Mart must find the sweet spot of their market opportunity and then execute against that with tenacious focus and consistency. Hopefully the benefit of this recent drama will be clarity of what they really need to do next.

Analysis: The departure of Julie Roehm, SVP Marketing Communications and Sean Womak, VP Communication Architecture from  Wal-Mart is likely a result of poor decisions in their agency review approach and ‘fit’ (or lack thereof) within the Wal-Mart culture.

After a long agency review for their $570 million U.S. ad account, the business was awarded to DraftFCB in October. Yesterday it was un-awarded and announced that the account would go back into review, with DraftFCB not eligible to participate.

Clearly there was a problem, and the problem got personal. Putting an account back into review after the executive in-charge of awarding the business leaves is not surprising – it makes sense. But to preclude the agency that won the business from even participating in the re-review clearly signals Wal-Mart executives took great exception to a variety of tactics used during and after the review process.

There are now stories of “lavish” dinners and “gratuitous gifts” that changed hands during the review process – considered standard to many in the ad business but serious violations of Wal-Mart’s very strict, and very well known, policy about not accepting gifts, food and drinks from potential suppliers. Then, right after DraftFCB won the account they ran a full-page advertisement showing two lions mating with the headline “It’s good to be on top”. Sources say this was not well received within Wal-Mart, and caused executives to further question and scrutinize Roehm’s judgment and actions in the review process.

No single event was probably big enough for Roehm’s dismissal, but together they proved fatal.

Now what?  The Wal-Mart business is back in play, and no doubt the company will try to make the review as efficient as possible this time.  Going forward, Wal-Mart has clearly signaled that price leadership is going to be a pillar of their positioning again as they have returned to their low price message roots this fall. But they are also committed to doing a better job of attracting shoppers for bigger ticket items like consumer electronics, as well as clothing and groceries to increase their share of wallet among existing Wal-Mart shoppers.

The challenge for a new agency and marketing team is to take Wal-Mart’s price leadership position and build on it making Wal-Mart a place people want to shop. This can be done, but it will take a marketing team and agency that can strike the appropriate balance of respecting and leveraging Wal-Mart’s heritage while building their future into something even bigger and brighter.  

Implications: While not groundbreaking in it’s design, graphics or games, the Wii is groundbreaking in something that may prove out to be much more important over the long term, growing the market for video games, bringing the game console into the living room for social entertainment with friends and family.

Analysis: Due to very limited initial availability, sales numbers won’t give a clear picture of demand until sometime into the first quarter when supply improves on both of these gaming systems. Long term, both the PS3 and Wii are positioned to succeed, but in different ways.

Unlike the Game Cube and PlayStation that competed for many of the same customers, the Wii and the PS3 are very different platforms with very distinct target audiences. There will be some overlap of course, but it will be in appealing to some of the same customers for different reasons and different applications, which, for them, will mean owning both systems rather than choosing.

Serious gamers and status conscious gamers want the PS3 – it’s the slickest, most technologically advanced system today, that includes a hard disk, networking port, wi-fi wireless network and plays back CDs and DVDs including the next generation HD blu-ray disk.

The Wii is going to be a sleeper, gaining popularity over time. It will appeal to many serious gamers AFTER they get their PS3, as a novelty.  It will appeal to casual gamers and new gamers – including older adults and younger children - as a form of social and family entertainment, which is groundbreaking.

The PS3 is serious. The Wii is goofy. The PS3 is $600.  The Wii is $250. Yes, the Wii lacks a hard disk, a networking port and the ability to play DVDs or CDs, and it can’t produce high definition video, but it’s easy to set up and use. It’s lighthearted fun and entertainment.

Just watching someone play the Wii is entertaining, which will fuel the social phenomenon. You don’t sit on a couch, you stand. You get a work out. You look silly and you laugh. Those consumers, which includes many parents, previously not supportive of, or interested in video games because they saw them as mindless, isolating wastes of time, will become intrigued by this new concept of gaming that is both a physical and social.
 
The real competition for the PS3 will not be with the Wii, but with the Xbox 360 as they both duke it out for the sophisticated and serious gamer market. Sony will no doubt be the market leader there, but watch the Wii. Provided Nintendo engages smart game developers to fully leverage the full capabilities of the Wii controller, the Wii is in a unique position to capture share of the existing video game market while increasing the market size as they make video games appealing to a whole new audience.

As much as Sony Entertainment wants to own the living room, it’s the Wii that’s more likely to see the light of day of the social rooms of the house. The PS3, with it’s more serious games and audiences, will most likely be relegated to a darker room somewhere free of distractions and family traffic.

Implications: Black Friday is about capturing the minds and hearts of holiday shoppers. Share of voice drives share of mind. Share of mind drives share of wallet. Share of wallet drives market share. Bottom line, big box or big ticket items - Black Friday is very important, way beyond Black Friday.

Analysis: Why are Best Buy and Wal Mart, the undisputed leaders in their retail segments going to such pains to win Black Friday? These are retailers that have turned merchandising, pricing and analyzing return on investment into a science.  You can bet they know  exactly how important Black Friday is. The more volume you do, and the margin you lose on Black Friday has a very high correlation to the volume and profits you’ll make in the holiday season.

While industry numbers show that overall Black Friday is not one of the top 5 holiday sales volume days, for big box and big ticket retailers, Black Friday is more than  a big shopping day. It is a  major marketing message about their brand.

Black Friday establishes share of mind for the critical month of shopping that follows.

Black Friday tells the market just how savvy, how creative and how aggressive a retailer is.

Black Friday shows whether you have your vendors in your corner or not.

Black Friday shows if you’re a leader or a follower.

Black Friday shows if you’re an innovator or yesterday’s news.

Black Friday can win retailers the respect of consumers, manufacturers and competitors.

Black Friday is a badge of honor or a show of weakness.

The typical 5:00 A.M. Black Friday shopper is NOT your typical shopper. They are the extreme. As are the offers made for Black Friday.

For rabid customers, Black Friday is about the thrill of the retail hunt and being part of the social aspect of the Black Friday 'scene'.

For the retailer it's about the thrill of retail one-upmanship and making news.

For the market it’s about seeing who’s hot and who’s not.

Implications: Why choose when you can have both and and get more? Merchant or customer, having both choices adds up to more.

Cyber Monday is not a real event.The first Monday after Thanksgiving was recently given this name by the industry to create a sense of an event. The real event is the increasing focus retailers are putting on positioning and promoting their online channel to complement their physical stores, and how well that is resonating with consumers.

Analysis: Multi channel is important. Multichannel retailers know customers that shop both channels – online and in-store - spend significantly more. Target, Best Buy, Circuit City are all savvy multichannel retailers that are positioning themselves to do significantly more business through their online channel this holiday season.

Online shopping is a major convenience factor for many shoppers, as well as an important resource in researching bigger ticket items – over 85% of consumer electronics purchases are researched online first, including the retailers site. And, online buying is driven by many of the same principles as in-store buying. Compelling assortments, smartly merchandised sites, special offers, limited time promotions, good customer service policies and consistent communication of their offers to customers and potential customers.

One of the best synergies to come out of multi channel retailing is the ability to shop online, transact on line, and then pick up the merchandise at your local store. Specialty retailers Circuit City and Borders have been offering this for some time. Great for the retailer because they are able to transact with the customer via a very efficient check out channel that captures a wealth of buyer information that retail sales clerks often aren’t asked to capture or can’t.  Great for the retailer because they don’t have to deal with the cost or complexity of shipping, and they get a second opportunity with that customer when they come into the store to pick up – that’s an opportunity for impulse and add-on buying that they wouldn't have had if the product was shipped directly to the customers home.

The customer loves it because they get to transact on their own time on their own terms, avoiding often confusingly merchandised stores, long waits for assistance and check out. They also avoid the potential of a wasted trip to find out what they really want is out-of-stock, particularly for very specific titles in entertainment software, books and key consumer electronics models. And after they transact online on their time,  they get the immediate gratification of receiving the merchandise that day with no shipping fees and no worry about missing the UPS man.

Another important synergy is being able to purchase online and return at your local store. While online merchants have made the return process far easier with prepaid mailing labels and ready to return packaging, many consumers are much less comfortable returning though the mail than receiving through the mail. The convenience of being able to return to a local store and receive a credit instantly provides an important emotional benefit to the customer. For the retailer with poor systems it can create issues, but smart retailers would far rather have another opportunity to get the customer in their store for a sales opportunity than not. The cost of handling a return transaction in-store is a fraction of what retailers spend on marketing to drive customers into their stores.

Smart retailers don't make their customer choose between being an online customer or an in store customer - they say yes to both and are rewarded with a greater share of wallet as a result.

Implications: Toys R Us drove their customers away. Huge boxes poorly merchandised with mediocre assortments, ineffective supply chain management, and dirty, dingy stores. Wal-Mart and Target really didn’t have to do much to take share. Provide clean, well lighted departments with key item assortments supported by dependable inventory and pricing management and solid, in-stock positions.  Now, Toys R Us has a leadership team that knows how to lead and win – it's going to be seriously fun to watch them shake up and wake up the toy industry.

Analysis: Mr. Storch has a sterling background, most recently as vice-chairman at Target. During his 12+ years at Target he was instrumental in developing and defining their growth and success strategies including the internet channel, guest relationship management and market research. His second in-charge, EVP and U.S. President Ron Boire was EVP/GMM at Best Buy for the last 3 years and prior to that President of Sony CE Sales Corporation.

These two men know what good looks like. They know how to lead, they know how to manage and execute and they know how to partner - both internally to build a cohesive, constructive management team, and externally to get the manufacturers’ support and partnership. And they know how to optimize the supply chain for profits.  Combined they have a unique depth and breadth of experience that is highly complementary and a shared discipline that can reshape Toys R Us into a fierce competitor, and more importantly, a market leader. And the toy market needs a leader.

Near term expect Mr. Stroch and Mr. Boire to leverage their track record of building growth businesses and experience in creating win/win partner relationships to persuade key manufacturers to provide Toys R Us with more exclusive toy lines. I would also expect Mr. Boire to use his deep connections in consumer electronics and entertainment software to meaningfully expand Toys R Us position in entertainment electronics and software.

Longer term, seizing the leadership role, they have the opportunity to broaden and redefine the current definition of the toy category. This will allow Toys R Us to significantly increase their relevancy – expanding their total available market, increasing ASPs, increasing frequency of visits, and energizing the store environment.

Bottom line, the new Toys R Us leadership has the vision and experience to both see and execute what’s needed to succeed, and the interest of an industry that needs and wants them to succeed. 

Implications: Is it good business to explore additional and complementary revenue sources? 
Does it stand to reason that home electronics and home improvement should be very complementary businesses?
Are CE manufacturers alarmed about their increasingly concentrated volume with a shrinking set of retailers, like Best Buy and Wal-Mart?

Yes. Yes and Yes.

Will the introduction of consumer electronics help offset negative affects of the housing slowdown for Home Depot?  Is Home Depot so strong in their core business they can now successfully introduce a new category of high ticket, high touch, items like Plasma and HDTVs? 

Hmmm…

Analysis: Incremental, complementary categories can work well when a retail operation is executing well. Strong assortments, smartly merchandised stores, efficient, helpful assistance and a solid relationship of trust and confidence with their customers are hallmarks of a retailer executing well. In Home Depot’s case they not quite there yet.

So, what's Home Depot's motivation?

•    Impulse buys to build the average sale?  For ‘grab and go’ priced DVD players, and other lower priced items, maybe.  But Plasma TVs are different – expensive TVs that often require high quality in-home installation support. Right now Home Depot still struggles with credibility for delivering dependable service in the store with their core products.

•    Building ASPs? Big ticket CE items can certainly contribute to increasing Home Depot’s $50-60 average ticket, but first you need to know how to present and sell them.  This will take time and investment.

•    Incremental traffic? Hard to drive traffic if your pricing, marketing and assortment is not remarkable, which it’s not, yet. At this point Home Depot appears to be focused on going deeper with two CE brands- Panasonic and Philips – two solid brands willing to experiment with Home Depot, and most likely willing to share some risk in getting started.

What’s the CE manufacturer’s motivation?

•    Panasonic’s lead in Plasma TVs hasn’t translated to the same success in their other CE categories like home theater systems and digital cameras. It appears Home Depot agreed to offer their entire line (via HomeDepot.com) as part of this test. Full line support is very important to Panasonic right now.

•    Philips, #1 TV brand in Europe, has not been able to capture significant share in the U.S.  With their U.S. headquarters based in Atlanta near Home Depot, it make sense that they would eventually get together and try something.

•    Most importantly, with industry consolidation, both brands are very uncomfortable with their increasing dependency on fewer retailers. Home Depot, an established $82 billion dollar retailer with over 2000 stores is very compelling.

Now, what about the consumer – what is their motivation for buying a new Plasma or HDTV at Home Depot rather than Best Buy, Circuit City or even Costco?

Brands are respectable, but not remarkable. Merchandising and assortment is unremarkable, and so is their pricing. They could get aggressive with pricing, but the idea of taking a new, high-ticket, category with relatively low margins to lower margins doesn’t sound smart.  Nor is positioning yourself as a disruptive force while you’re still trying to cultivate relationships with top tier brands in a new category. Perhaps Home Depot will experiment with the second and third tier brand next to see what kind of volume they can get at lower price points than with the top tier brands.
 
For today it may appeal to:
•    Consumers who have Home Depot credit cards, and are not interested in comparing a lot of different models or brands.
•    Consumers who live near a Home Depot, but not a Best Buy or Circuit City.
•    Consumers who are loyal customers of Home Depot, (and not BBY or CC) trust them to stand behind what they sell, and who don’t need any kind of installation or technical support, maybe.

Bottom line: Don’t expect this to have a meaningful impact on Home Depot’s performance in the near future, but, the test makes sense on a variety of levels and Home Depot and their partner manufacturers stand to learn a lot in what should be a relatively low risk environment.

Implications: After rolling back prices on toys last month, Wal-Mart has now earmarked nearly 100 CE products for "price rollbacks", and announced that this is just the second set in a series of planned price cuts on thousand of key holiday items.

How aggressive are the price cuts? Last week Wal-Mart reduced a current model Panasonic Plasma TV (TH-42PX6U) from a street price of $1799 to $1249.  While it's not clear how many they had to sell at this price (they are now sold out at Wal-Mart.com) symbolically this sends a very aggressive message to the market that they are returning to their discount roots after trying to reposition away from the price rollback promotions of the past.

Analysis: Wal-Mart's SVP/GMM for electronics was quoted as saying " We've lowered prices so that families can afford to get and give more of the best brands and technology in electronics this season."   More than moving up holiday shopping or diluting Black Friday, these kinds of promotions in the consumer electronics category in particular,  will most likely allow Wal-Mart to succeed in stealing some share right now in the last couple weeks leading up to Thanksgiving. What happens after Thanksgiving? Well, they have clearly signaled to their competitors how aggressive they are going to be with enough time for the bet competitors to sharpen their Black Friday promotions to ensure they are equally competitive, if not more so, with their door busters and special "burst" buys.

Another dynamic is at play: Wal-Mart and other large retailers have taken big inventory positions based on the strength of consumer electronics, HDTV in particular,  in the first half of this year. Any softening in demand they might experience will be met with more promotion to ensure inventory levels are in-line by the end of the year. In comparing TV prices to Best Buy and Circuit City, Wal-Mart seems to have focused their most significant price cuts on the larger screen sizes and price points,  historically a weak are for Wal-Mart. Wether they are trying to gain share at the higher end, or just use this segment as a fodder to make a big impact and reduce very expensive inventory levels, time will tell.

One way best Buy and Circuit City has and will continue to react to Wal-Mart's price reductions is by using  value added promotions like No Interest/No Payments Financing and instant savings when you add-on; for example at Best Buy you can save $400 instantly when you buy an HD DirecTV receiver or installation services with your HDTV.  By promoting and discounting this way, they get to advertise big savings claims while building the average ticket and total gross margin - critical with the rapid decline in ASPs(average selling prices) on HDTVs this year, and play a promotional game Wal-Mart can't match.

All in all: it's a great time to be in the market for an HD, Plasma, or LCD TV!

Implications: Using Geek Squad as the model, Firedog has the potential to become a billion dollar business without taking any share from Best Buy.

Geek Squad is projected to generate one billion dollars in revenue in 2007. That's just 5% of the $20 billion small business and home services market vs. a 17% share in merchandise. If Best Buy is able to capture roughly the same share in services as with products, Geek Squad should be a 3 million dollar business for them. Circuit City is about the third of Best Buy's size;  all things staying equal, that gives Firedog a billion dollar market potential without trading any share between Firedog and Geek Squad, and still leaving over 75% of the services market available. Add to that the potential upside to the TAM (total available market) in this underserved category, combined with incremental hardware sales that the services can pull along and the opportunity could be closer to $2 billion.

Yes there are differences between Firedog and Geek Squad:
Firedog is new, Geek Squad is almost 4 years old.
Firedog promises to support home theater and computer needs.  Geek Squad focuses on the PC and related support needs.
Firedog has 3000 associates; Geek Squad is approaching 12,000.

But they share a common and important vision: Best Buy's Geek Squad and Circuit City's Firedog want to do for small business and home services what they did for consumer electronics over the past 20+ years. Take a largely fragmented industry, (in this case the $20 billion small business and home services market) build in efficiency, scale and operational excellence to superserve the mass market, exploding the market and growth potential of the category.

Analysis: Why are services so important to the CE big box retailers now? Besides the incremental sales and profit from the services sales, services are key to supporting the sale of more fully featured and technologically advanced products (which also represent higher tickets and margins), lowering returns, building loyalty with customers and building differentiation from the discounters, most specifically Wal Mart, that are quickly commoditizing the hardware.

As prices for technology become more and more affordable and accessible, consumers are buying, replacing and upgrading in record numbers.  But, as they celebrate the accessibility of all this great technology, they lament the difficulties of the proper setup to get maximum performance and to get everything working together.  PCs have long been associated with setup woes, but now even TVs have become a daunting challenge:

With the government mandated  conversion to HDTV just a couple yeas away, a TV is now one of the most confusing purchases a consumer can make, as there are at least 6 display technologies available, 5 screen resolutions, 9 different forms of video input connections and 18 different broadcast formats approved by the FCC for HDTV broadcasting.

So what's a consumer to do? Find someone they trust to help them make sense of it all and make sure they get it properly installed.  What's the retailer to do? Figure out a way to be that trusted source, offering both qualified guidance on the hardware purchase and then in-home support to make sure everything is working perfectly, hopefully to the delight of the customer, gaining their loyalty, repurchase and word-of-mouth recommendations.

Best Buy and Circuit City are testing and learning. What is the best marketing approach? What are the magic price points? With declining ASPs for the hardware, it's a challenge to keep pricing for supporting services in line. Retailers need to make sure their services don't cost more that the hardware itself. In an attempt at cross merchandising in this weekends newspaper insert, Circuit City advertised Firedog on their LCD TV page, offering under cabinet installation of any LCD TV under 26" for $369.  $369 to install? With the most popular under-counter screen sizes of 13" -15", top tier name brand models are available from $199- $299;  $369 for the installation just doesn't sound compelling or competitive.  Compare this to Best Buy's ad this weekend for a Geek Squad agent to "setup and secure your wireless network" for just $119, and that INCLUDES the router hardware.

Circuit City is getting a later start, but they have become a much nimbler organization than in the past, and I would expect them to adjust and learn quickly. And when they do? The market will reward them with business.

Bottom line: CE and PC support services is a real market.  Geek Squad has a head start on Firedog, but the category is wide open with plenty of growth potential for both, without needing to steal share directly from each other. (But, that doesn't mean it will stop them from trying!)  Estimated as a $20 billion dollar market today, there may be significantly more upside as these services are priced and productized for the masses, providing a new accessibility in a category that has been traditionally underserved, undermarketed and just plain too confusing and expensive.  If Circuit City and Best Buy can extend their winning formula for hardware and software retailing to services, this can be a win win for both them and the consumer, leaving the mom and pop shops and custom installers at risk.

Implications: Wider assortments, good in-stock position and ability to shop from the convenience of your own chair on your own schedule are three great benefits for anxious, time strapped holiday shoppers. Recent strides in allowing on-line orders for in-store pick up can sweeten the experience significantly.

Analysis: If you can browse and price compare on-line during stolen moments from your busy days or during quiet evening hours, pay on-line and then have the items delivered to your home or business, or if you prefer, run in and pick up your prepaid item in-store, all the while bypassing crowds, confusingly merchandized stores and potential out-of-stock worries, that is VERY appealing to many for key holiday gift items like electronics, entertainment software - DVDs and video games - and books.

To help make sure, this year many on-line retailers are doing away with the less popular promotional offers tried in the past and going right to what works best and what on-line shoppers want most -  free or upgraded shipping on their orders.

And, national retailers are finally leveraging their multi-channel status, offering in-store pick up of on-line orders. This not only saves shipping time and expense for both the consumer and the retailer, it also allows the customer to get the immediate gratification of bricks and mortar shopping combined with the convenience of on-line shopping and allows the retailer the lower cost transaction via the web plus an impulse opportunity with the customer when they are in their store to pick up. Last year Circuit City stores with their "ready in 24 minutes or you get a $24 gift card" guarantee, did over 10%, or roughly $1 billion, of their sales on-line with 50% of those sales picked up in-store. Solid proof this model resonates with consumers. Multi-channel retailers should be racing to make this model as efficient as possible for them and their customers as fast as possible.

Bottom line: on-line shopping has become much easier and more widely accepted, making things a whole lot more manageable and efficient for both consumers and the retailers, particularly around the holidays, so yes, I'd say this estimate seems very reasonable.

Implications: Consumers are ready to do their part to make for a happy holiday, and this year brilliant gift giving sounds like a nice antidote for all the recent bad news. Brilliant will not be defined by one or two stand out items,  but by a variety of smart, thoughtful and useful gifts purchased from retailers that offer great value AND a respectful, feel good shopping experience.

Analysis: The CEA (Consumer Electronics Association) announced yesterday a forecasted 27% sales increase for the consumer electronics category for holiday 2006. 27%?! While this number may be wildly optimistic, the truth is CE products are a great value that provide everyday enjoyment and entertainment. What a great gift! Even if you cut the CEA forecast in half you still have a whopping 13-14% increase forecast for consumer electronics vs. the 5-6% forecast for overall holiday spending.

So, as consumer electronics become the gift of choice for more and more people on the holiday shopping list - children, husbands, wives, friends, parents, grandparents and for the shopper him or herself - department stores are having to work harder than ever to keep share of mind and share of wallet for holiday shoppers.

So who's positioned how in the department store and discount space?

WalMart is struggling. Struggling to define itself to both their old and new target market. Have they abandoned what made them so successful, for something that is not well defined except perhaps in their newest stores? They will certainly do okay this holiday season , but how okay depends on how and what they choose to message in their marketing for the holidays.

Target and Kohl's continue to epitomize strong, consistent merchandising and marketing and will clearly be holiday shopping destinations, gaining market share from others with less consistent or clear offerings.

Penny's has been working hard to reinvent their brand personality and reinvigorate their assortment and in-store experience,  and so far it seems much of their target market is responding. Holiday 2006 results will show if they have solidified a new position for themselves as a destination for smart, reasonably priced clothing and accessories.

Federated's Macy's brand is in a unique and interesting position as the holidays coincide with an increased marketing spend to announce and promote the Macy's brand nationally. While having the Macy's name is new to many markets in the U.S. this holiday season, the name is not new, in fact to so many it is best known and associated with the holidays - specifically the Thanksgiving Day Parade and Miracle on 34th Street. What a unique opportunity they have this year to position themselves as a holiday shopping destination and leverage their increased promotional spending associated with the national rollout of the Macys' name, giving  them a terrific ROI opportunity.  Longer term, from an operations and efficiency standpoint they can find much leverage in their national brand approach. From an execution and market relevancy standpoint, their in-store, in-stock and assortment management over the holidays will set the tone not only for Q4 results, but for how they will be perceived in 2007.

Moving more upscale, Nordstrom continues to differentiate through a solid, reliable, albeit edited,  assortment - we don't carry everything, we carry what you want. That combined with their easy in-store experience and return policies, position them well as a low stress, low risk store for gift shopping.

And then there's Neiman Marcus - a luxury brand that is also very savvy at offering accessible price points on holiday gift items, particulary in accessories, cosmetics and fragrances that allows them to appeal beyond their core, designer faithful  customer, and capture share that might otherwise go to a more mainstream department store - how good it feels to be able to give, and receive, a holiday gift from Neiman Marcus, even if it might also be available at Macy's.

In summary, with or without consumer electronics, clear market position combined with knowing your customer and delivering against what they want will be common traits of successful retailers for holidays in 2006, just as they are all year long.