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hhgregg To Open First Florida Stores

3/13/2008 02:59:00 PM Eastern

New York — Multiregional white- and brown-goods chain hhgregg will open its first Florida stores next week, in Jacksonville and Daytona Beach.

The company will begin its Florida foray with one store in each market, and will then expand into Central Florida during the May-June period, chief financial officer Donald Van der Wiel told investors during a Bank of America Consumer Conference, held here yesterday.

Plans call for the chain to next “backfill Central and Northern Florida,” including Tallahassee, with the eventual goal of operating 30 stores in the Sunshine State, he said.

To support the expansion, the company opened two regional distribution centers, in Jacksonville and Orlando, during its current fiscal quarter.

The chain, which currently operates 89 stores in eight states, sees the long-term potential for as many as 400 hhgregg locations, chairman/CEO Jerry Throgmartin told attendees. The company opened 14 new stores during its current fiscal year, which ends this month, and will continue to grow its store base at a rate of 15 percent to 18 percent over the next several years, he said.

The build-out will be slower for the company’s Fine Lines store-within-a-store concept for super-premium appliances, which has proven to be a “mixed experience,” Throgmartin said. The problem, he explained, is obtaining distribution from the luxury brands, which are largely sold via a two-step model. “You really have to earn your stripes with those people and work and perform for them before they get comfortable with you,” he said.

In the meantime, the company will expand Fine Lines one store at a time, and is incorporating “learnings” from the Columbus, Ohio-based Builder Appliance Supply business it bought and converted last year. Lessons learned include a preference for in-store shops over freestanding stores, as the former provide a “cascade effect” for hhgregg’s own premium majap lines like Jenn-Air, KitchenAid and Monogram.

There are currently three Fine Lines sites in addition to the Columbus store, located in Hoover, Ala., and Charlotte, N.C., as well as in Indianapolis. Throgmartin said the outlook remains strong for sales of super-premium appliances, which are expected to double to 12 percent of the total majap market.

On the CE side, Throgmartin lauded the end of the advanced-DVD format war, which will quell consumer “angst and anxiety” over choosing a technology and end the need “to keep two different camps of suppliers happy.” Nonetheless, he doesn’t believe Blu-ray will be a major driver of TV sales this year, and expects it to become a commodity business “relatively quickly, much like DVD.”

Asked what differentiates hhgregg from the former Tweeter Home Entertainment Group, Throgmartin pointed to his chain’s price competitiveness. “The customer won’t pay more for a better in-store experience,” he said. “You’ve got to play in the opening price points. If you’re not competitive, customers won’t come, and there aren’t enough at the very high end to live on.”

Other factors impacting Tweeter were its rapid build-out through acquisition and related integration and cultural issues, as well as the downturn in audio. “Companies like Tweeter were built on audio margins of 40 to 50 percent, and it’s a shock to the system to now have to live on video margins of 25 to 30 percent,” he said.

By contrast, hhgregg is competitive on everyday price while providing quality help, good information and the broadest selection possible. “I believe in my heart of hearts that the consumer is absolutely ready and waiting for an alternative” to the self-serve shopping model, he said — so much so that he recently purchased $1 million worth of hhgregg stock. “Based on that perspective I thought it was a good buy and bought some.”