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Tweeter Details New Business Model

5/12/2004 01:20:00 PM Eastern

Boston — Tweeter Home Entertainment Group unveiled a sweeping new business plan to analysts yesterday that emphasizes sales of bundled home theater products and services, targets its most profitable customer segments, and calls for a new brand image that conveys its home theater expertise.

The A/V specialty chain began developing the strategic initiatives last year with the aid of RetailMasters, a consultancy led by Wade Fenn and other former Best Buy executives, in order to better differentiate itself from mass-market competitors. To underscore the need for change, Tweeter noted that Best Buy now shares 60 percent of Tweeter’s video merchandise offering, up from 30 percent five years ago.

According to CIBC retail analyst Dan Wewer, Tweeter’s focus will be on selling pre-packaged home theater systems and attached installation services. To that end, the company plans to double the size of its in-house installer team to 800 technicians over the next few years, and expects that fully half of its profits will eventually be derived from installation and design services, maintenance contracts and other non-product sales, Wewer wrote in a research note.

The company will also concentrate on catering to and expanding the top 20 percent of its customer base, which generates 80 percent of Tweeter’s profitability, Wewer reported. Further, in an echo of Best Buy’s consumer centricity initiative, the chain has initially identified three key demographics — "maximum sensation seekers," "store trust seekers" and "cutting edge fans" — which it will target with more focused marketing.

Elsewhere, Tweeter will continue to improve inventory management through such measures as further reducing its vendor base, cutting back on slower-growth categories like loudspeakers, and by testing a consignment approach to inventory. The company is also developing a new store format, based on a prototype store in Braintree, Mass., that features home vignettes, pre-packaged systems and a central flat panel TV wall. Some of those elements may also be rolled out to some or all Tweeter stores later this year, Wewer observed.

To convey the changes and move away from a price-driven approach, Tweeter is developing a new branding campaign, expected to debut in September, that will emphasize its product knowledge, installation know-how and ability to provide complete home theater solutions, Wewer said.