BENTONVILLE, Ark. -- Wal-Mart here said it will begin test-buying products directly from three software publishers currently handled by GT Interactive, New York, the retailer's primary software provider.
A test with the three publishers -- CUC International, Stamford, Conn.; LucasArts Entertainment Co., San Rafael, Calif.; and Electronic Arts, San Mateo, Calif. -- is slated to begin some time in the second quarter. A Wal-Mart spokeswoman said that the test does not signal the beginning of a trend.
"There are no plans to enter into any other direct relationships," she explained, adding that Wal-Mart is pleased with the job GT is doing. "We are still going to be doing major business with [GT]."
Last year, Wal-Mart started buying products directly from Disney Interactive, Burbank, Calif., which GT had also been distributing. Until Disney began shipping to Wal-Mart directly, GT had been the exclusive software vendor to Wal-Mart since 1993, placing software from about 120 publishers on the retailer's shelves.
After the three other publishers ship directly, GT will handle about 85% of Wal-Mart's assortment, according to GT. GT also ships products directly to Target Stores, Minneapolis. Aside from Wal-Mart and Target, GT ships its own products directly to retailers that include Toys 'R' Us and Electronics Boutique. A GT spokeswoman said that 1996 sales of products from CUC International, LucasArts Entertainment Co. and Electronic Arts comprised less than 5% of GT's total revenue.
The sale of those companies' titles at Wal-Mart accounted for $20 million of GT's $365.5 million revenue in 1996, according to GT.
The upcoming direct test had been expected by GT. "It was a matter of not if, but when," the spokeswoman said, adding that more companies could begin shipping direct to Wal-Mart. "As the industry consolidates and business grows, a limited number of companies would likely go direct with Wal-Mart. We think it is a natural occurrence in a growing market."
Mike Yocco, an analyst at Paul Kagan Associates, Carmel, Calif., said the growth of such direct relationships is due to margin compression.
"This is one way for Wal-Mart and the publishers to get better margins," he noted.
The growth of direct relationships will be limited because "there are only a handful of publishers that can provide the necessary services," the GT spokeswoman said. Those services include inventory management and planogramming, which would be necessitated by a direct relationship with a mass merchant such as Wal-Mart.
GT Interactive publishes "Duke Nukem 3D," which was a best-selling title in 1996, according to market researcher PC Data, Reston, Va. GT has high hopes for four game titles -- "Unreal," "Odd World Inhabitants," "Blood," and "Total Annihilation" -- which will debut later this year.
