Yesterday, VIZIO (Irvine, CA; www.vizio.com) announced that four new VIZIO LCD-HDTV models were arriving in Wal-Mart stores. The TVs, which have all-black cabinets are in 26-inch (Model VW26LHDTV), 32-inch (Model VW32LHDTV), 37-inch (Model VW37LHDTV) and 42-inch (Model VW42LHDTV) sizes. In January, VIZIO Chief Engineer Ken Lowe told Insight Media that these would be special-for-Wal-Mart models. Prices start at $448.

Ken Werner
Senior Analyst and Editor

VIZIO has been a very successful third-tier TV manufacturer, combining good-enough image quality, a cleverly selected suite of features, very low cost and well-maintained channel relationships with warehouse-type retailers.

According to Ross Young, president of the well-known market research firm DisplaySearch, "Vizio was one of the few brands to earn sequential growth in North America in Q1′07 due to its strength in the rapidly growing warehouse club channel. As a result, its North American flat panel TV unit share surged from 5% in Q4′06 to 9% in Q1′07 and it rose from the #9 position in Q4′06 to #4 in Q1′07. In addition, in the important 32"+ flat panel category, VIZIO rose from #5 to #3 and led the 37", 42", 47" and 60"+ flat panel market segments."

Despite VIZIO’s success, the new relationship is a very important one. VIZIO had revenues of $169M in 2005 and $800M in 2006 on sales of 750,000 TVs, said VIZIO’s Lowe, and he expects an astounding $2B in sales this year, with much of the increase from the company’s entry into Wal-mart, as I reported in the February 2007 issue of Insight Media’s Projection Monthly with Flat-Panel Coverage.

With this kind of performance from a quote "Tier 3" provider, we have to wonder what these designations mean any more. We would assume a Tier 3 provider is mostly a light assembler leveraging existing technology and a good channel strategy. Tier 1 suppliers are vertically integrated, invest in R&D and build strong brands and channels. If a Tier 3 provider can outsell a Tier 1 provider, does this distinction still make sense?

Jeff Schindler, VIZIO’s VP of marketing, said, "This partnership is one of shared values, where the success of both companies is based on reputations for providing customers quality products at remarkable prices." In other words, they’re both cheap.

The companies have good reason to believe they can work together. "Wal-Mart’s decision to add VIZIO to its electronics department was…in response to VIZIO’s…phenomenal growth performance coupled with customer response to VIZIO in our Sam’s Club division," said Kevin O’Connor, Wal-Mart VP and general merchandise manager for Wal-Mart’s consumer electronics.

But when it comes to HDTVs, Wal-Mart may be too cheap for its own good. As reported by Michael Barbaro in yesterday’s New York Times, a confidential report prepared for Wal-Mart executives says the company’s reputation for discounts, all-in-one shopping format and enormous selection "work against us" as the company tries to move upscale.

"The Wal-Mart brand," says the report, "was not built to inspire people while they shop, hold their hand while they make a high-risk decision or show them how to pull things together." The report says that Wal-Mart’s low prices actually suggest low quality for products like HDTVs.

The once invulnerable-seeming Wal-Mart is struggling to regain its momentum. "Sales at stores open for at least a year fell to the lowest levels in decades over the last 12 months, well below those of Target," reported Barbaro. And Target, Kohl’s and Best Buy are cherry-picking Wal-Mart customers who become a bit more affluent and a bit more fashion- and brand-conscious.

The report, prepared by GSD&M, Wal-Mart’s former advertising agency, also cites its one-time client’s battered corporate reputation and the "near catastrophic" economic pressures faced by the company’s working-class consumers.

Wal-Mart is still an impressive retailing powerhouse. It pulls in 138 million shoppers a week, a remarkable number unmatched in American retailing, says Barbaro. But the report states the percentage of Americans who say the chain is their No. 1 destination for discount shopping fell from 75% two years ago to 67% today.

VIZIO’s reputation for products that are easy to set up and it’s policy of free, at-home service for the first year of ownership, may help Wal-Mart overcome some of its problems in selling HDTVs, including a complete lack of knowledgeable sales personnel.

But when cheap is your number one product characteristic, the frills have to go. Vizio and Wal-mart are about to find out how many frills economy-conscious consumers are willing to do without.