Welcome to Wal-Mart & The Next-Gen Shopping Challenge

Attention Wal-Mart shoppers: The next-generation video game shopping season will soon kick into high gear and Wal-Mart is readying itself for the holidays as Microsoft, Nintendo and Sony go head-to-head this fourth quarter.

With much fanfare shoppers will have a choice between the Microsoft Xbox 360, Nintendo Wii or the Sony PS3 this quarter. Wal-Mart has already begun preparing store locations for new video game console stock. Select locations have even seen a complete redesign and wider floor space to play future demo units. With anticipated high demand and frenzy, shoppers will choose which next-gen console or handheld they'll take to the checkout counter. Wal-Mart's slogan promises "Always Low Prices", while the big three video game makers are promising competitive prices among each other as the gaming public is well aware. The question is what consumers choose, what will sell, and what will remain in stock at Wal-Mart stores?

Gamasutra brought questions to Steve Perry of Wal-Mart Stores Inc. Perry is a busy video game buyer for the Bentonville, Arkansas retail giant, traveling to suppliers around the globe looking at new games and accessories. Our interview covered everything from the future of PSP UMD movies, in-store Wii demo units to the Xbox 360/Wal-Mart appearance on the NBC network reality show "The Apprentice".

With the interview taking place shortly after the end of the 2006 Tokyo Game Show, the important and obvious questions came first: We were interested to know what Wal-Mart thought of the PS3 price drop in Japan and if SCEA would follow suit with an accompanying North American price match?

Gamasutra: Ken Kutaragi recently announced that the price of the 20GB PS3 would be cut 20% for Japanese consumers only. No other territory would see a PS3 price cut for the console launch. Has Wal-Mart received any kind of indication from SCEA of a North American price drop for the PS3 at launch?

Steve Perry

Steve Perry: No, haven't heard a thing.

GS: With regards to Sony and the PS3 price drop in Japan, does Wal-Mart have any influence on obtaining universal price-drops for its customers that reflect ones in other international markets?

SP: That's a good question, it typically is up to them (Sony), and to be honest we have not had that conversation with them. We'd certainly like to see parity on pricing, but we have not had that conversation with them yet.

GS: Have Nintendo and Sony given you any dates on when they'll be able to supply customer demo displays for their respective Wii and PS3 consoles to Wal-Mart stores?

SP: They have not. I know they're working on that.

GS: Do you have any timeframe of when you'll be able to announce the availability of demo units in store?

SP: I would say definitely by the fall of this year we will have demo units in stores so customers can experience what the systems are all about.

GS: In-store demo units for both the Nintendo Wii and PS3?

SP: I think it depends on how difficult the allocations are. We will have information out on the stores and certainly interactive entertainment so that customers can experience what the new systems are. We're still working with both suppliers (Nintendo and Sony) on that end; it's a big challenge.

GS: Can you give an overview as to what have been the most successful video game products this past summer at Wal-Mart?

SP: Sure, we've been really successful with Madden, that's been really good. NCAA has been great. Guitar Hero's been on fire. The new DS Lite, the colors came out a few weeks ago, those have done really well. Then you've got Xbox 360 and PS2, we're still extremely strong with those, certainly with 360 and PS2.

GS: The Hollywood Reporter reported in an article that Wal-Mart was considering dropping the UMD movie format from its stores. I did not find any UMD's in my local Wal-Mart. Is it safe to say that Wal-Mart has discontinued carrying UMD movies?

SP: We haven't made any decisions on the UMD format. We build our assortments based on what we call "Store of the Community", but it's basically we try to build our assortments based on what the relevance and the movement are in regards to the local community. We look at demographics and history on different items to determine what's relevant, get a lot of feedback from the local people out on the market, whether or not its something that particular market is looking for. Typically a lot of it's based on history, we try a lot of things, and we try to see what sticks.

If you've seen a decrease in that availability it's probably due to the relevance or the "Store of the Community" program we use based on the demand in that particular store.

GS: Having enough shelf-space will be key this fourth quarter with the PS3, Wii and Xbox 360 going head-to-head competing for holiday sales. How is Wal-Mart preparing for this challenge?

SP: We've expanded our space in a number of our stores to accommodate the new systems, making sure our assortments reflect the new programs and new systems that will be coming into place, so that we are able to have a nice presentation but more importantly be relevant to what the customer is looking for.

GS: Sony is stating that 400,000 PS3 units will be ready for launch while Nintendo is stating that 1,000,000 Wii units will be available. Wal-Mart is well known for its distribution flow, are there any special preparations that Wal-Mart is making this holiday season to keep the PS3, Wii, and Xbox 360 in-stock?

SP: Well, we'll make that decision based on how the flow is, and how the in-stock position is in the store. If we need to expedite product we will certainly do that. The most important thing is that we try to keep as many stores in-stock as we can.

It will be challenging, we sell a number of systems, it's kind of hard to predict what the customers are looking for, and we try to keep it in stock. We do expect a demand for PS3 to exceed what they (Sony) will be able to supply. We certainly expect that to happen.

GS: Have you found that customers are taking advantage of taking demo disks, using the DS download stations, and downloading Xbox 360 demos from Wal-Mart? Has this been in-demand?

SP: It absolutely has, the response has been phenomenal, and we're pleased with how responsive the customers have been to these features.

GS: Has Wal-Mart considered carrying more exclusive game demos for other consoles and handhelds in the future?

SP: I think we're going to certainly wait to see what the demand is for that and work with the suppliers as they come up with ideas. The DS download station was an idea that came up while we were working with Nintendo. We said 'Hey, let's test this thing out and see how it does.' We tested it in a few stores and it was exceptional so we've quickly moved to roll it out. We'll always work towards different ways to reach our customers and make the offering intriguing to them and entice them to shop at Wal-Mart.

GS: I'm sure by now you've heard of the downsizing of E3 from the Los Angeles Convention Center to hotel conference rooms. Overall, how has Wal-Mart felt about the downsizing of this event in previewing potential new games for its stores?

SP: For us it's not an issue at all. We typically meet with suppliers on a frequent basis, and actually get most of our information from the suppliers, so it's not an issue at all.

GS: Does Wal-Mart give any feedback to the ESA, the organizers of E3 of how the event could have been improved?

SP: Well, for us it was a big event, it was crowded, it was noisy, and you really couldn't accomplish anything. It was just more of a show in terms of accomplishing anything other than seeing the new game systems.

GS: Was it always a problem for Wal-Mart reps to see everything on display at E3 because of the crowds, long waits and overall public spectacle of the show?

SP: Yes, it was difficult for us to be able to get everything we needed. Sometimes we weren't able to see what we wanted to see.

GS: Just recently, MSNBC aired a two-hour documentary called The Age of Wal-Mart, which documented how the retailer selects products for its stores. It showed a line-up of sale reps lined up at Wal-Mart's Bentonville headquarters with products, ready to meet with Wal-Mart buyers. Does this same process apply to game publishers? Do game publishers (large and small) travel to Bentonville to meet with Wal-Mart buyers? Or does Wal-Mart go to them?

SP: Both, typically they'll come to us, but we do go out and visit suppliers from time to time.

GS: What overall factors does Wal-Mart look at when deciding to carry a game?

SP: We look at appealibility of the title, we look at the history of the title, and we ask for a lot of supplier input on the title as well. We certainly look at what customer demand would be.

Our number one commitment is making sure we're pleasing our customer; we're getting what our customer wants. We'll evaluate the games based on: One, will it satisfy our customers demands, wants and needs? Two: Will it sell?

We utilize our history that we've got, and a lot of our customer and supplier input on that.

GS: International sales accounted for 20% of overall Wal-Mart sales for 2006. Does the Bentonville corporate headquarters have any involvement in what kind of video games and accessories are stocked in stores outside North America? Or does Wal-Mart International and its partners handle this task?

SP: We do discuss with our buyers and help them out with other areas with the games and systems – that type of thing. A lot of the stuff we see sells differently across the country, so for example like Madden sells really well in the U.S., but in other countries it doesn't do so well. Soccer does extremely well in other countries and this year did well with the World Cup, but typically soccer is not one of our better titles – that's just an example of that. We'll take a lot of input from them on other countries but typically we try to run them separately.

GS: To what extent do Wal-Mart corporate video game buyers travel domestically or internationally in a year to publishers and developers to get a look at new games or accessories in development?

SP: Typically we travel to trade shows and meetings with suppliers, quite a few trade shows in this industry. We've also been to some suppliers for development tours and then we'll go overseas on buying trips as well.

GS: Do Wal-Mart corporate video game buyers also travel to other international trade shows, such as the Tokyo Game Show to see upcoming products?

SP: We do not.

GS: Have there been any changes in the past five years between how Wal-Mart and publishers interact with each other?

SP: We try to make it more of a collaborative relationship, make sure we're listing the suppliers input and certainly their expertise and making sure we get the proper games for our stores. We have to make sure that we're appealing to the masses and work closely with them to get the right quantities and right flow-plan. They do a really good job of helping us do that.

GS: On a recent visit to Wal-Mart I noticed an interesting change, the electronics department was completely re-arranged to a new style. Since the Nintendo Wii will have motion-sensing capabilities, is Wal-Mart preparing to accommodate these products that will need more floor space for customers to move around in?

SP: It's a good challenge. The changes you've noticed in electronics this year, we've actually already expanded our space in our presentation to try to position ourselves for this next generation of gaming. It's one of those deals where you have to try to anticipate what's going to happen, so that's what we've been trying to do.

There's been minor challenges, but most of them, we've been able to get through them pretty quick.

GS: What have been some of the minor challenges?

SP: Some technical issues, the wireless frequencies, we have had a few minor challenges, nothing that was anything major. We've been able to remedy them pretty quickly.

GS: There have been prior reported technical challenges in accommodating recent and future video game system demo units with regards to wireless controllers. Can you discuss how technically these wireless frequency problems can be overcome and how you work together with your suppliers in correcting these problems so that demo units can remain on at all times in the store?

At this point in our interview, a separate Wal-Mart PR representative chimes in and politely comments that Wal-Mart would not want to discuss about any specific problems, but cited that they do work together closely with their suppliers anytime there is a technical challenge. This subject was obviously off-limits, but it’s a subject that obviously may remain an issue with respect to retail store demo units and the challenge of maintaining stable wireless frequencies with so many other electronics on display.

We then decided to change the subject to video game ratings.

GS: In your opinion, has Wal-Mart, the ESRB, and game publishers worked well together to promote video game ratings to parents?

SP: I think so, I think we have – we just rolled out some new and improved signing in all of our stores trying to help educate our customers on the ratings and what they mean.

I think for us, it's critical, when we've got multiple different ratings that customers understand. I think the big push has been on our part; we want to make sure customers understand what a "T" rating means, and an "M" rating means. The ESRB has been critical in helping us do that.

GS: On the previous season of the NBC show The Apprentice, the Xbox 360 was prominently featured on the show as one of the products that teams Gold Rush and Synergy had to create an in-store Wal-Mart demo kiosk for. Microsoft's own J. Allard and Steven Quinn, Wal-Mart's senior VP or marketing were featured and judged each teams effort. How did this showcase of the Xbox 360 come about? Was it the idea of Wal-Mart, Microsoft or the producers of The Apprentice?

SP: Great question. It was actually a collaborative effort among all parties, once we were aware of the opportunity and the situation we had to move quickly to execute that. It was a good challenge, I wasn't involved in the decisions made, to my knowledge it was more of a collaborative effort that came out of discussions. Once everyone understood the opportunity we just jumped right on it.

GS: To your knowledge, did this exposure help sales of the Xbox 360 in Wal-Mart?

SP: Absolutely, we were very pleased with it and more importantly it helped create awareness for the 360, the versatility of that system, and then more importantly the offerings that Wal-Mart carries in the home entertainment area that can integrate with the 360. That was basically the message of the show; it's not just about the gaming but what can integrate with it.

GS: Which brings us to another question; the task for the contestants on The Apprentice required that they use other Wal-Mart products to showcase the "digital entertainment lifestyle" of the Xbox 360. Customers will have soon have a wide array of video game system formats to choose from, from HD to Blu-Ray, and features such as HDMI output, hard drive space – all of these features ranging in price. This could all get quite confusing for a Wal-Mart customer. Are all of these formats and potential consumer confusion a concern for Wal-Mart?

SP: That's a good question. When you have technology it's always a challenge to take the technical aspects of that and be able to simplify that message, so that the customer can understand what the benefits are for them and obviously what they need and what they want to buy. It is a challenge. We have got to figure out how to simplify that message for our customers. That's one of the things we take pride in – trying to simplify it, so they (the customers) can understand what the appeal is.

GS: Do you think Wal-Mart customers care about having a so-called "multimedia digital entertainment lifestyle", or do they just care more about simply playing a good video game?

SP: I think it's evolving as everything becomes more integrated and especially with the move towards high-definition TV's. Personally I think the demand for the whole video/sound experience, we've already seen that ushered into the "digital entertainment lifestyle" - I think it's going to continue to grow.