AUG. 19, 2013 • Wal-Mart has put into place a new wide-ranging electronic device buy back program called Gadgets to Gift Cards. The categories of electronics hardware included are numerous – everything from smartphones, MP3 players, game consoles, computers, car stereos and cameras are included. The retailer is also making payments to consumers very swiftly. After a customer enters the type and condition of their device online and agrees to the price to be paid for the device, an eGift card is emailed to the consumer immediately. Wal-Mart is using the Bill Me Later service to transact these payments, if customer credit is approved. The seller then has 10 days to send the device to Wal-Mart with the provided free shipping label. If the device arrives late, or not at all, the consumer is charged and their credit rating takes a hit. Prices in the program for used smartphones are generally good. A used 32GB iPhone 4S on the Verizon network is trade-in quoted at $170. But a 250GB PS3 Slim will return only $45.29, and a 250GB Xbox 360 Slim $21.60.
Impact: Fairly new smartphones seem to offer the best return in this Gadgets to Gift Cards program, which tells us a lot about broad consumer trends at the moment. As a result, the global secondary market in used iPhones, Galaxy S3s, and iPads is probably much stronger than game consoles. Another factor is that U.S. consumers are well attuned to two-year upgrade cycles, so there is ample opportunity to sell them a new smartphone. The appeal of Wal-Mart’s trade-in system beyond smartphones and tablets will be minor in our estimation, yet the retailer has come up with a seriously painless process that returns a near instant monetary reward. That’s a solid tool for encouraging impulse purchases online or in-store. Whether Gadgets to Gift Cards becomes popular relies a great deal on how broadly Wal-Mart markets the option. The concept is not a new one and there are competing programs by Amazon.com, eBay and Gazelle. Amazon is the major competition here and already has a two-year head start with its trade-in program. Wal-Mart does have several advantages over Amazon, however. Where Amazon grades devices as Acceptable, Good and Like New, Wal-Mart is only concerned with whether the item is in working or non-working condition. Amazon has also been criticized on occasion for canceling trade-ins on the basis of damaged merchandise that turned out not be damaged when returned to customers. Wal-Mart will also pay immediately whereas Amazon waits until it receives the item. So while it is possible to get a higher trade-in amount from Amazon, there is less friction and uncertainty with Wal-Mart. As smartphone penetration in the U.S. has topped 61% according to Nielsen, there is a shrinking base of completely new consumers to tap. As a result, the smartphone business is going to become increasingly cannibalistic in coming years. We think trade-in programs like Wal-Mart’s could become an important tool to drive new smartphone sales to specific online and physical retail sites. That is good for consumers, who increasingly will be asking, “Who will give me the best deal before I buy a new phone.”