Mass merchandise retailer Target has announced it will offer extended service agreements on most of its consumer electronics. According to Target, this comes in response to customer demand, particularly in regard to large-screen digital televisions. The four different service plans will vary in price depending upon the cost of the electronics item in question, and will each provide three years of coverage—a $19 plan will cover items priced under $200, a $29 plan will be offered for products priced $200–$500, a $59 plan will apply to products priced $500–$1,000, and $79 will cover items priced over $1,000. However, Target’s press release did not detail exactly what each plan entails.

Current Analysis takes a positive stance on Target’s move to emphasize service. The move is necessary if the retailer wants to sell pricier electronic goods, especially digital televisions. For some time now, critics have attacked the lack of high-quality service and knowledgeable staff in consumer electronics chain stores. They allege that old-fashioned mom-and-pop attributes have been sacrificed in order to lower prices on goods. Now, we are seeing a return to service as a way to differentiate retailers, improve margins, make ancillary sales, and build branding.

Other retailers, such as Best Buy, Circuit City and Costco, are trying to pad their revenue through service offerings, as well as provide a “full solution” in the consumer electronics world. Costco is piloting a delivery and installation service for digital TVs, and Best Buy and Circuit City both advertised home theater installation this weekend, as shown below. Eventually, Target will need to expand its services to offer installation as well.

Besides television, computing is another important service category. Best Buy’s Geek Squad and Circuit City’s Firedog services are aimed at this category, but Target has no real presence in the PC market. Although consumers can order PCs on its Web site, Target doesn’t offer any models for immediate pickup.

Therefore, this move to increase service is really about Target’s digital TV business; further support comes from Current Analysis retail shelf share data. Target has been moving away from smaller, more economical digital TVs and towards the bigger ones – ones for which consumers are more likely to need service and are also more likely to worry about the risk associated with such a big purchase. In October 2005, Current Analysis shelf share data showed 17 different LCD TVs on Target store shelves, with an average price of $740, and the biggest of these was a single 32-inch model. A year later, in October 2006, the average LCD TV price had risen to $822 (see chart), and seven of Target’s 19 models were 32-inch models or larger.

The increase in the average price demonstrates that Target isn’t reflecting industry trends, but is actually climbing up the LCD TV food chain. In addition, Target now carries three rear projection digital televisions, which were completely absent from its shelves in 2005.

Target has steadily maintained extremely competitive pricing in the LCD TV category, as shown in the accompanying chart showing retailer competitiveness for October 2006. Retailer competitiveness measures each retailer’s prices on “like” (similar) products featured in each store chain’s assortment. Prices for “non-like” products, meaning LCD TV SKUs that are unique to a single reseller, are not included in the competitiveness calculations.

Target’s LCD TV pricing in October was 2.45% lower than the industry average price for “like” products. Only BJ’s Wholesale Club offered lower pricing for LCD TVs, with prices 3.56% below industry average.

Vendor Importance: High. Digital television is the flagship category and the biggest driver of revenue in today’s consumer electronics landscape. Anything that indicates that a retailer is enhancing its efforts in this category is therefore very important.

Market Impact: Moderate. Target is considered an upscale mass merchandiser—by hitting a choosier demographic in combination with its pre-existing retail muscle (its stores are both large and numerous, with 1,494 at last count), this chain is a threat to competitors in the digital TV market.

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