2013-10-03

Walmart Makes a Big Splash in Residential LEDs

Walmart just threw a very big rock into the retail LED pond. They will begin selling a "Great Value" line of private-label, incandescent-replacement LED bulbs starting at $8.88.

Here is the company's announcement; a Walmart spokesman gave me a few more details in an interview. The Great Value line includes 26 LED lightbulb types, including a non-dimmable 800-lm LED bulb that will sell for $8.88; a dimmable one for $9.88; an indoor flood non-dimmable "65-watt equivalent" LED for $14.88; and a dimmable version of that for $15.88. There are 470-lumen, 40W-equivalent versions of some of these as well. All are offered in "soft white," which is 2700K CCT, and... something cooler; the spokesman could not give me a number.

These bulbs are made by TCP Lighting, I was told. The spokesman did not have many other details, such as who supplies the LEDs or the bulbs' CRI(s).

Announced at the same time was a GE-branded, dimmable "60-Watt equivalent" selling for $10.97. Walmart calls this price "the lowest for a national name brand LED on the market" -- perhaps Cree is not considered a name. (Walmart has been working with GE for years on its internal lighting needs.)

Walmart doesn't offer any special warranty on its bulbs, just the standard three-year limited warranty with a money-back guarantee under which much of its merchandise is sold.

Impacts
Those parties for which life will now become more difficult include: Ikea (which decided recently to phase out halogens and CFLs and stock only LED bulbs in its stores); Home Depot (which now sells an estimated 25 to 30 percent of all incandescent-replacement LED bulbs sold in the US); and Cree, Philips, and every other bulb maker targeting the residential market.

Walmart affects the other big LED channels by cutting off their air supply. The world's largest retailer is bound to take away some of that 25 percent from Home Depot.

And Walmart affects the makers of LED bulbs, both the larger brands and smaller players, by continuing and increasing the downward price pressure they feel. Piper Jaffray analyst Jagadish Iyer recently said of Cree: "...we think its light bulbs currently carry negative gross margins." If Cree can't make money selling 60W-equivalent bulbs through Home Depot at $12.97, Walmart's pricing could put real pressure on the company's margins.

Perhaps by fortuitous timing, Cree was able to respond yesterday by announcing that its soft-white 60W-equivalent bulb has just received Energy Star certification, qualifying it for $5 rebates from utility companies in some regions.

Walmart's supplier TCP won't necessarily have it much easier. Piper Jaffray's Iyer noted, "We do believe any supplier of LED bulbs to Walmart is likely to suffer a profitability squeeze and view that Cree remains one of the lowest cost bulb makers given their vertical integration."

Cree's stock earlier this week took a 12 percent jump after one analyst firm, Canaccord Genuity, reinstated a "buy" rating and another, Goldman Sachs, reiterated its "buy." On the day of the Walmart announcement Cree stock dropped back just over one percentage point.

Still, Iyer remains upbeat about Cree's prospects, citing more powerful LEDs that will allow the company to reduce the parts count, and packaging costs that will decline with time.

The quality of Walmart's bulbs is unknown. I anxiously await teardowns and openly published photometrics on these bulbs. If they prove to disappoint the market's expectations, Walmart's move could damage the nascent and growing public acceptance for LED lighting in general.

— Keith Dawson , Editor-in-Chief, All LED Lighting