Big Box Stores Finally Figured Out How To Make Money Selling Video - Can Mom & Pop Keep Up?

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It never ceases to amaze me to see people carting off 65-inch Vizio, Samsung or Panasonic HDTV sets on their Costco carts as they pick up a 100 pack of Duracell batteries, a slate of 32 diet cokes and a bottle of Grey Goose so big that it comes with an Alcoholics Anonymous warning on the side. Vizio should be credited with pioneering these new market opportunities and exploiting them (that's the good meaning of the word exploit) to their advantage. Along with Samsung, Vizio has stolen the HDTV market share that was once owned by the likes of Sony and Pioneer, but today the Irvine-based video company is boasting multi-billion dollar sales. Like a hedge fund, they found a market arbitrage opportunity and they jumped on it with enthusiasm and in ways that have changed the specialty AV business forever.

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Selling HDTVs in retailers as mainstream as Wal-mart, Costco and Target has opened up millions of consumers to being able to buy flat HDTVs, so much so that televisions are now truly commodity products complete with a computer-like price drop in the past 10 years. You've heard of Moore's law (roughly defined as: twice the speed in computers every 18 months) - now there should be Vizio's Law (twice the HDTV for half the money every 18 months), because a 50 inch, 720p plasma HDTV used to cost $20,000. Today it costs well under $1,000 and the set is 1080p to boot. Depending on the size and cost - it might even be packing 3D. You never know in today's market.

With all of the price drops and the new markets opened - the profit margin on video went from respectfully bad 10 years ago to downright meaningless for retailers who can't move HDTVs by the thousands per week. Ask former executives from Tweeter, Circuit City, The Good Guys and/or the hundreds of custom installers and traditional brick and mortar dealers no longer in the game if they can keep the doors open selling HDTVs and making $100 per set? Hint - they can't. Now the big box and high volume retailers have a new trick up their sleeve, which is selling HDTV sets specifically designed to sell movie and content feeds that pay them back for each download.

You gotta give these big players some credit as they have found a way to do what no traditional AV retailer could do (unless they sold Runco), which is - make money selling video. Consumers know extended warranties are somewhat of a sham. Video calibration is worth the money, but the Target crowd isn't calling in ISF calibrators to spend $300 calibrating color temperature. That's for nut job videophiles (like me) to do. So selling video by the download is a creative new solution that adds both value to the consumer and makes an HDTV sale an evergreen profit center.

The question asked by those who love high end home theater is - how will traditional retailers and custom installers respond? Will they push Netflix, Amazon VOD or Blockbuster to their consumers? Will they push Blu-ray over downloads for the improvement that Blu-ray offers in terms of audio and video? Time will tell, but the pinch is on. The big box stores want the specialty stores gone. They want everything home theater sold by someone in a blue shirt and they are willing to up the ante to make it hard for mainstream consumers to resist the lure of low prices, specialized technologies and more at the big box stores. Specialty retailers need to respond with more value, higher performance systems, free calibrations, better warranties, better educated salespeople, better demo material, better demo systems and more. In order to get the bigger sale at higher dollars - you have to show the consumers a lot more value. Best Buy, Target, Wal-mart and Costco are throwing down the gauntlet. It's time to step up and offer a better AV shopping experience than what you get under the sodium lights.


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