Seeking Alpha
Hedge fund manager, long/short equity, value
Profile| Send Message|
( followers)  
In a previous post I commented that "'when you think 'cheap,' you think Wal-Mart Stores, Inc. (NYSE:WMT); when you think 'value,' you think Target (NYSE:TGT)." Wal-Mart seems to be taking an interesting and to date, very effective path to altering that image: electronics.

In the last two years, Wal-Mart has added Apple (OTC:APPL) iPods, Dell (NASDAQ:DELL) computers, Toshiba laptops, Samsung TV's and Verizon (VZE) wireless phones to it shelves. The results has been a $1.5 billion increase in electronics sales fronm 2005 to 2006 and an expected 10% to 12% this year, which is well ahead of the 7% the industry as a whole is expected to grow. These gains, it should be noted are coming at the expense of competitors like Best Buy (NYSE:BBY), Radioshack (NYSE:RSH) and Circuit City (CC).

What is happening out there is Wal-Mart is now being recognized as a seller of "quality electronics at great prices." That is a powerful combination. Personally, I do not care where I get my Dell laptop from; it is the price I care about. Same thing for my iPod or any other electronic device.

Now, studies have proven time after time that once I go to Wal-Mart to get my electronics, I will invariably pick up additional items. If Wal-Mart begins to draw people to its stores (clearly it is) ancillary sales will also increase (CD, DVD etc.).

Another very important point. The "quality image" is a weird thing. It is an illusion of quality, not necessarily the reality that is most important. Many designer clothes have the illusion of quality even though the reality may be very different. Now, if Wal-Mart can get that image to stick to it and can get it to transfer to it's apparel, watch out. It was a brilliant move to start with electronics because the brands there are the most easily recognizable by the widest audience of people and the acceptance there, unlike apparel, is instant. When people begin to go to Wal-Mart because of their "quality" electronics or tools or sporting goods then it is only a matter of time until that shopping trip extends to clothing by association.

I have said it before and still believe it. Wal-Mart only needs to make their clothing "good" in order to be hugely successful and these other moves they are making will dramatically help.

Disclosure: Author has no position in WMT.

Source: Wal-Mart: Going For Quality