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Home >> That Was The Year That Was: A Retail Retrospective
NEW YORK – In many ways 2012 may prove to be a transitional year for CE and appliance dealers, as new pricing policies were unfurled, multichannel strategies were put in place, and old-guard merchants gave way to a new generation of retail leaders.
Consumer habits were also in play, as attention turned from TVs to tablets, and increasing numbers flocked to the Internet to purchase the devices.
Along the way, the industry bid adieu to retail veteran Jerry Throgmartin, and watched in awe as Japanese video manufacturers hemorrhaged red ink and retail giants Sears and Best Buy were rocked by steep losses and corporate turmoil.
But a stabilizing housing market, the end of a contentious presidential election campaign, and a wellplanned promotional calendar contributed to a robust and perhaps even profitable Black Friday selling period, giving retailers cause to believe that 2012 may end with a bang.
Here’s a look back on the highlights (and lowlights) of the year.
New Technologies Star At CES
New technologies for big-screen displays and retail shopping headlined the 2012 International CES. AMOLED TVs were front and center at the LG, Samsung and Toshiba booths, while Sony offered up a 55- inch CrystalLED, billed as the industry’s first FullHD self-emitting display. Meanwhile, eBay president/CEO John Donahoe, in his keynote at the Consumer Electronics Association’s (CEA) annual Leaders In Technology dinner, said smartphone shopping apps will continue to radically alter the way consumers shop and pay, but are also providing brick-and-mortar retailers with new tools to drive traffic to their stores.
TWICE Retail Panelists Take On Key Industry Issues
Critical industry issues of profitability, channel management and retail real estate will come to a head this year, predicted the top merchants who comprised TWICE’s annual closed-door Retail Roundtable at International CES. Earnings-strained manufacturers must do more to differentiate their product lines and channel partners; dealers must do more to present a seamless multichannel experience; and everyone needs to rethink how to display, explain and monetize tablets and other low-margin mobile products, they said.
Jerry Throgmartin, 57
The CE industry was shocked by the sudden death of retail veteran Jerry Throgmartin, who was felled by complications from meningitis. The executive chairman of h.h.gregg led the build-out of the specialty chain from a family-owned Indiana regional to a multi-market public powerhouse with more than 200 stores. Throgmartin was also a past president of the NATM buying group. “To all of us at h.h.gregg, Jerry served as a role model, a community patron and an inspirational leader, who always lived his life to the fullest,” said president/CEO Dennis May. “To me personally, he also served as a mentor, a trusted advisor and a tremendous friend.”
Dealers Score With Super Bowl TV Promos
Steep promotions on 60-inch and larger displays and a highly anticipated contest between the rival New York Giants and New England Patriots helped Super Bowl XLVI live up to retailers’ expectations as the most important TV selling cycle of the year. But despite a number of significant vendor- and dealer-driven bargains, consumers held out for the best deals, and results were mixed among brands and retail accounts in the lead-up to Super Bowl week.
Japanese Vendors Hemorrhage Red Ink
The fiscal third-quarter financials of top Japanese CE manufacturers were by and large bleak to say the least. Many companies reported record losses, including Sony, which lost 159 billion yen, and Sharp, which lost 213.5 billion yen. Vendors attributed the downturns to unfavorable currency exchange rates, the after-effects of last year’s Japanese earthquake and tsunami, lower TV sales and prices, and the global economic malaise. In Sony’s case, the announcement was accompanied by a changing of the guard, as Howard Stringer was succeeded as president/ CEO by Kazuo Hirai, but retained the chairmanship.
Retailers Off To Shaky Start
One month into the new year Sears reported a $2.4 billion net loss for its fiscal fourth quarter, and North Carolina specialty chain Queen City Audio, Video & Appliances filed for Chapter 11 bankruptcy protection. Contributing to Sears’ woes were comp-sale declines of 4.1 percent at Sears and 2.7 percent at Kmart, led lower by CE and appliances, while falling CE margins also impacted results. Meanwhile Queen City, which owed $2.5 million to Whirlpool and hundreds of thousands of dollars to other vendors and suppliers, will continue to operate as a debtor-in-possession (DIP).
But all was not doom and gloom: Despite a third-quarter earnings decline of 15.6 percent at h.h.gregg, president/CEO Dennis May told analysts that sweeping changes in manufacturers’ minimum advertised pricing (MAP) and unilateral pricing policies (UPP) could stabilize average selling prices (ASPs) and restore profitability to the core video business. The new measures represent “the most significant” policy changes in 30 years, he said.
Retailers Welcome Channel Management Efforts
A recent spate of vendor-driven directives to better manage lowball retail sales and price promotions of higherend TVs and other home entertainment products were met mostly with applause by observers from a broad swath of the CE industry. Companies including Samsung, Sony, Panasonic and LG Electronics each announced changes to MAP programs, online-retailing policies and/or distribution programs in attempts to bring profitability back to product lines as manufacturers’ ledger sheets see more and more red ink. In several cases, manufacturers have broadened existing UPPs that give retailers with directed sales floors guidelines both on how to sell and how much to charge for their products.
Dealers Diversifying Through Industry Downturn
CE and appliance dealers responded to the tepid sales environment by entering new, higher-margin categories. Their extended assortments included everything from furniture to fashion accessories. Abt Electronics, for one, added electric generators, sump pumps, fitness equipment, luggage, designer sunglasses, wristwatches and gourmet cooking to its mix, while Conn’s envisioned bedding and furniture to eventually comprise upward of 50 percent of its sales mix.
Dealers Find New Paths To Online Parity
Independent dealers leveraged thirdparty marketplaces, transactional sites like eBay, and their buying groups’ growing array of e-tail services to claim their piece of the e-commerce pie. But new marketplace bans by LG Electronics and Panasonic against selling their products through online marketplaces earned mixed grades from authorized retailers, who lauded the vendors’ good intentions but bristled under the restrictions.
Dunn Out At Best Buy
Best Buy CEO Brian Dunn was ousted after his inappropriate relationship with a female employee was brought to the attention of the company’s board. The scandal would eventually engulf chairman/founder Dick Schulze, who knew of the impropriety but chose to keep it from corporate watchdogs. Director Mike Mikan was tapped as interim CEO as the board began a search for a permanent successor. During his tenure, Dunn began positioning the company for a multichannel future, but pundits said he did too little too late to reduce real estate and meet the challenge from online retailers.
Buying Groups Sharpen Strategies
Buying group executives were busy developing new product categories, e-commerce services and strategic alliances to better position their independent dealer members for a rapidly evolving CE landscape. Some of those changes, such as consumers’ shift to online and mobile shopping, presented a clear challenge to the groups’ brick-and-mortar membership, while others, including setbacks for top CE and majap competitors Best Buy and Sears, may have offered new market-share opportunities for local dealers.
Hana Hosts First HTSA Meet
Bob Hana hosted his first meeting as managing director of the $400 million Home Technology Specialists of America (HTSA) buying group this month. The former head of Runco outlined plans to emphasize online integrated marketing to create more leads and business opportunities for the group’s 63 members, but also emphasized the importance of print ads, promotions, and good old-fashioned networking with builders, designers and architects.
CE Sales Up 5% For Biggest Dealers
CE sell-through proved surprisingly solid in 2011. According to TWICE’s annual Top 100 CE Retailers Report, released this month, the industry’s largest dealers generated a collective $133.2 billion in 2011, an increase of 5.2 percent on top of the prior year’s 5.8 percent gain. But, as the report shows, the increases were concentrated among a handful of fast-track companies – notably Amazon and Apple – offsetting widespread declines among ranking dealers and resellers, including Sears, Fry’s and Dell.
PRO Calls For Cooperation With Vendors
The Progressive Retailers Organization (PRO Group) called for greater collaboration between dealers and manufacturers who together can meet the industry’s unprecedented challenges. Speaking at the buying group’s annual spring meeting, president/ COO Dave Workman commended vendors’ efforts at reigning in e-tail, alluding to UPPs and stricter online MAP enforcement, but said those programs need to be fine-tuned and less restrictive, and reminded manufacturers to embrace independents for their greater sales floor experience.
Walmart Revisiting Its Value Roots
Walmart stepped back from its upscale ambitions in CE and investing heavily in e-commerce catch-up, according to a special report prepared this month by TWICE. The efforts followed static CE sell-through in 2010 and 2011, as reported by The Stevenson Company, and stunning market share gains by Amazon.com over the same period. The No. 1 discounter reserved its bigger-ticket aspirational items for select markets, and instead forged closer ties and proprietary plans with low-priced cellular providers T-Mobile and America Movil (TracFone), and launched a series of crosschannel digital promotions to bring web and wireless users back into stores.
Schulze Leaves Best Buy
Best Buy founder Dick Schulze relinquished his seat on the company’s board of directors in the wake of the scandal involving former CEO Brian Dunn. Schulze, who still owns about 20 percent of the company’s shares, had planned to retain his directorship for another year, and had been scheduled to be named to the honorary position of founder and chairman emeritus at the company’s annual meeting this month.
Meanwhile, the board took defensive measures to ward off a possible takeover attempt by Schulze, who was reportedly huddling with Credit Suisse and other banks over buyout options.
Majap Sales Flat For Top Retailers
Despite a series of manufacturer cost increases and a greater show of restraint by all parties during the Black Friday period, majap sales for the industry’s 100 largest retailers remained essentially flat last year at $24.2 billion, following a short-lived rally in 2010. According to TWICE’s annual Top 100 Major Appliance Retailers Report, released this month, Sears still held the No. 1 spot as sales sagged 3 percent, while The Home Depot, Best Buy, P.C. Richard and especially h.h.gregg all gained ground.
Showrooming Overstated: Report
A report by TWICE research partner The Stevenson Company presented by the Consumer Electronics Association (CEA) this month suggested that showrooming’s impact on brick-and-mortar retailers in general, and Amazon’s threat to Best Buy in particular, may be greatly overstated. According to the study, only 8.8 percent of Best Buy shoppers also shop Amazon for CE, and less than half of those (4.1 percent) ultimately buy from the e-tail giant. Best Buy’s TV close rate is a commendably high 55.7 percent, Stevenson said, while only 8 percent of Best Buy shoppers who bought their TVs elsewhere purchased them from Amazon.
TWICE Offers Snapshot Of Camera Market
Pressures that hampered retail sales of digital imaging products in the 2010 season were compounded by floods, the economy and smartphone sales over the past 12 months as merchants were left short of supply for the higher-margined, better-featured products they needed most. In total, the top 25 camera retailers saw their collective camera revenue shrink 7.2 percent to sub-2009 levels of $8.6 billion, according to TWICE’s second annual Top 25 Camera Retailers Report, compiled this month.
Merchants Foresee A Moderately Jolly Christmas
As they prepared for the fourth quarter, CE and appliance merchants anticipated a reasonably rewarding holiday selling season as consumer confidence continued to build and new vendor pricing policies buoyed margins. Despite the gloomy backdrop of lowered projections by h.h.gregg, turmoil at Best Buy, and a mixed second-half forecast by the CEA, retailers, distributors and buying group execs believe holiday sales will exceed last year’s take, while still remaining below pre-recession levels.
Retail Weakness Seen In Quarterly Reports
Recently released quarterly reports by publicly traded chains show weakness at retail. Among them: h.h.gregg reported a net loss of $5.7 million on top of a year-ago loss of $800,000, with video continuing to be a major drag on same-store sales, which fell nearly 17 percent for the category. Even Amazon. com, which had double-digit CE sales gains in the latest full quarter, posted scant profits due to an acquisition and further investments in new distribution centers.
Best Buy Saga Continues To Unfold
August was a busy month for Best Buy, which in quick succession named former McKinsey, Vivendi, Electronic Data Systems and Carlson exec Hubert Joly CEO; reported a 91 percent drop in secondquarter earnings; and agreed to open its books to the company’s founder, former chairman and dissident majority shareholder Dick Schulze, who announced his interest in buying the business for about $8 billion and bringing back his old management team of Brad Anderson and Al Lenzmeier.
R’Shack CEO Resigns Amid Mounting Losses
Jim Gooch, RadioShack’s fifth CEO in seven years, suddenly resigned after 16 months on the job amid mounting losses that reached $21 million in the second quarter and would hit $47 million three months later. His departure, and the appointment of chief financial officer Dorvin Lively as his interim successor, came as the company was gearing up for the all-important holiday selling season. Like his predecessors, Gooch was unable to clearly define a marketplace role for the 91-year-old retailer, which is still largely perceived as a destination for electronics parts and batteries and is hampered by an anachronistic brand name.
Buying Groups Upbeat On Q4
The industry’s two largest buying organizations, Nationwide and BrandSource, prepped their dealers for a rough-and-tumble holiday season during their fall conventions, held in Washington and Las Vegas, respectively. Nationwide came to the table with operational improvements, new and enhanced merchandising and marketing programs, and an expanded product portfolio that included Canon and Nikon. For its part, BrandSource introduced a Cloud-based point-of-sale system that’s linked to its mobile app, and said product trends like wireless audio and jumbo screen TVs, as well as vendors’ new UPPs and MAPs, play to its members’ strengths.
Industry Preps For Win8
Manufacturers, retailers and distributors geared up for the Oct. 26 debut of Windows 8, Microsoft’s new touch-sensitive and mobile-ready operating system. Hewlett-Packard introduced the HP Envy X2 hybrid PC, a Win8 tablet paired with a combination docking station/keyboard, while Toshiba announced five new laptops, including a 12.5-inch convertible Ultrabook and an upgraded all-in-one. Best Buy, which spent more than two years preparing for the launch, said it would have 45 exclusive desktops and laptops from manufacturers including AsusTek, HP and Lenovo, and IT distributor New Age Electronics gave its retail customers a grounding in the new OS at an Executive Dealer Summit in Chicago.
Buying Groups Bow New Programs
The NATM, NECO and Mega buying groups announced innovative new programs for members at their respective fall meetings. NATM said it is pursuing a direct-sourced private-label TV program and may add mattresses to its merchandising matrix. Meanwhile, NECO introduced a tablet-based electronic ordering system and prepared pricing, advertising and marketing initiatives for the approaching holiday season, while Mega Group USA debuted a turnkey Serta mattress program to ease dealers’ entry into the high-margin category.
iPhone 5 Makes A Splash
Apple introduced its long-awaited iPhone 5 amid the usual fanfare and week-long queues. The latest iteration, which was more evolutionary than revolutionary, nevertheless delayed iPhone purchases and diverted discretionary dollars from other CE categories. By the same token, iPhone 5 launched an industry’s worth of longer cases and Lightning connector-compliant accessories, while spurring smartphone competition and across-theboard sell-through, analysts said.
Toshiba Imposes Online MAP Policy For TVs
Toshiba notified dealers that it is extending to online retailers the MAP policy it applied earlier this year to its TVs sold through the brick-and-mortar channel. The move, which includes most of the manufacturers’ LCD TVs 32 inches and larger, essentially extends its previous MAP policy all the way through to the online checkout cart.
Most merchants lauded the new policy, including the NATM Buying Corp., which credited online MAP strictures and UPPs with helping it outpace major appliance competitors and grow its better 50-inch and larger TV business.
Conn’s To Embark On Multi-State Buildout
Multiregional majap, CE and furniture chain Conn’s said it would add two more regions to its belt. The Texas-based retailer announced that it will enter the Arizona and New Mexico markets as part of a two-year, 17-store expansion, and will extend to additional states in 2015. The company would go on to open its first New Mexico store, in Albuquerque, in November, and its first Arizona location, in Tucson, in December.
Hurricane Sandy Batters Northeast
Another “storm of the century” hit the U.S. coast, this time destroying homes and knocking out power along wide swaths of New York and New Jersey. Area businesses were thrown for a loop, including those in Lower Manhattan, where power outages persisted for days. J&R Music was closed for five days, while photo specialist Adorama reopened after three with the aid of a generator. The storm’s aftermath ate into November sales, with Costco reporting a 0.5 percent impact on U.S. comps due to temporary store closures, and Target indicating a slump in Northeast business. But the CE industry rallied to aid in the restoration efforts, with retailers, distributors and vendors donating hundreds of thousands of dollars to relief organizations.
LG, Video & Audio Center Debut Ultra HD At Retail
LG Electronics USA marked the format retail debut of Ultra HD flat-panel TV this month with a launchparty gala at a Video & Audio Center’s Lawndale, Calif., showroom. The partners showcased LG’s 84-inch LM9600 4K LED display, and wound up selling 11 of the $17,000 sets. Video & Audio Center, a Santa Monica- based A/V specialty chain, would also serve as the launch pad for Sony’s $25,000 84-inch XBR84X900 4K Ultra HDTV less than one month later.
Holidays Up For Grabs
How CE dealers will fare this holiday season was anybody’s guess, with forecasts by analysts and market research firms tracking all over the retail map. Jim Ristow, executive VP of Home Entertainment Source (HES), the A/V specialty divison of the BrandSource buying group, anticipated a “good, not great” holiday season, essentially flat to last year, while Anthony Bruno, executive director of NECO, the Northeast division of the Nationwide Marketing Group, expected the typical holiday sales spike. Both were encouraged, however, by the stabilized pricing and improved margins wrought by vendors’ new UPPs and multichannel MAP policies.
TWICE Names 2012 Excellence In Retailing Award Winners
TWICE honored six CE dealers with its annual Excellence In Retailing Award, which recognizes bestof- breed merchants for outstanding customer service, store and web design, market share and performance, innovation, industry contributions and merchandising acumen.
This year’s honorees included B&H Photo, Conn’s, Curacao, Modia, P.C. Richard & Son, Video & Audio Center, and special recognition for Conn’s chairman/CEO Theo Wright for leading his company’s dramatic turnaround.
Black Friday Sales Top Charts
By most measurements, Black Friday weekend was one for the record books. A combination of Thanksgiving Day store openings and a highly motivated consumer led to a gangbuster weekend for merchants, with brick-and-mortar foot traffic up 8.2 percent and in-store sales up 2.7 percent year over year to about $22 billion for the four-day period, ShopperTrak said, although CE sales took it on the chin with a 5.6 percent decline for the week, according to NPD.
Cyber Monday No Slouch
Online sales soared 17 percent on Cyber Monday (Nov. 26) to $1.5 billion, marking an all-time, one-day high for the channel, according to ComScore. Walmart.com called it its “best day ever,” while Experian said Amazon.com was tops in visits, with some 35 million shoppers surfing the site, up 36 percent year over year.
Best Buy’s Joly At Bat
Best Buy president/CEO Hubert Joly provided a frank assessment of the company’s shortfalls and an overview of its opportunities at his first formal meeting with the investment community in New York. He pointed to declining comp sales and margins as the most pressing challenges and together with digital/ marketing chief Stephen Gillett and U.S. retail head Shawn Score outlined a host of initial fixes and broad-stroke goals under a “Renew Blue” turnaround effort that they said could readily stabilize those metrics. But the team had its work cut out for it: Best Buy later reported a $10 million third-quarter loss, a 3.5 percent decline in nets sales, and a 4.3 percent drop in total comps.
Vann’s Gets New Lease On Life
Bankrupt CE and majap specialty dealer Vann’s was saved from liquidation by a Texas conglomerate that acquired the five-store Montana chain for $4.5 million and said it intends to operate it as a going concern. The re-born Vann’s will be led by former Panasonic and LG Electronics regional sales exec Greg Regelbrugge, who serves as CEO. His immediate focus will be on the local Montana market, he told TWICE, and determining the fate of his predecessor George Manlove’s forays into mall-based boutiques (ON Store) and outdoor apparel (Bigskycountry. com). Vann’s new parent, Khaledi Group, also operates a Southwestern CE chain, HK Global Free, where Regelbrugge once worked.
Win8 Sales Underwhelm
Windows 8 got off to a slow start. According to The NPD Group, sales of Windows devices fell 21 percent year over year in the first four weeks following its Oct. 26 launch, and the new OS only managed to capture 58 percent of Windows computing device unit sales, compared with the 83 percent claimed by Windows 7 in the month following its debut. What’s more, tablet sales for the mobile-enabled platform were almost non-existent, NPD said.
Electronics Expo Reducing Real Estate
New Jersey-based A/V specialty chain Electronics Expo, which operated seven showrooms at its height, reduced its store count to three locations with the post- Black Friday closure of an 18,000-squarefoot store in the retail mecca of Paramus, N.J. Remaining real estate consisted of two showrooms and a clearance center. President/CEO Leon Temiz previously told TWICE that he planned to close stores as leases expired and reopen in smaller-footprint locations.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.