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Tweeter Home Entertainment Group will cut its store base by one-third, exit four states and trim 20 percent of its workforce in a massive restructuring aimed at stabilizing the business, focusing on its best performing markets, and converting its remaining 104 stores to its new "CE playground" format.
The action follows the sharp plunge in flat-panel pricing that wounded Tweeter's holiday sales and earnings, and a corporate restructuring in January that cut 20 percent of its headquarters staff.
Under the new plan, the A/V specialty chain will close 49 of its 153 stores over the next two to three months, and will entirely exit Alabama, California, New York and Tennessee, as well as most of Georgia. Two regional facilities, in Vista, Calif., and Atlanta, will also be shut, and about 650 of the company's approximately 3,100 employees will be terminated. President/CEO Joe McGuire and Tweeter's top human resources excutives manned a live 1-800 number on three consecutive nights to help ease the blow for affected workers.
The retrenchment reverses Tweeter's previous growth-through-acquisition strategy, begun in the late 1990s, that took the company coast-to-coast by snatching up smaller, family-held A/V specialty chains including Bryn Mawr Stereo, Dow Stereo, HiFi Buys and Home Entertainment. Three HiFi Buys stores will remain in Atlanta, to be renamed Tweeter, but the last vestiges of the San Diego-based Dow and Big Screen City chains will dissapear.
The consolidation will reduce annual revenues from $735 million to $555 million but is also expected to "dramatically improve" Tweeter's profitability and cash flow, the company said, aided by a new five-year, $75 million secured revolving credit facility with GE Capital and a nearly $14 million IRS refund.
McGuire said the company will invest it resources on expanding its two-year-old CE playground store concept, which uses sleek "notional spaces" that depict fully integrated family rooms, bedrooms, bathrooms, kitchens, sports bars and patios, to showcase whole-home control and automation. So far, the playground stores have outperformed the chain's traditional formats in margin, sales and in-home installations, the company said.
Stores that don't physically fit the format will be remodeled. And all new openings — including two locations in Charlotte, N.C., that will open later this year — will be built as playground stores, McGuire said.
Increased investments will also be made in training, coaching and education; structural changes are expected to enhance the efficiency of store managers; and streamlined sales tools should deliver better service to customers, the company said.
"As we continue to face the challenges of our ever-changing industry, we do so with a renewed focus on the future of our brand and on our ability to deliver the ultimate consumer electronics shopping experience," McGuire said. "We will continue to define the Tweeter brand as clearly focused on the mid to high-end consumer, clearly delivering an outstanding service experience to our customer, and clearly doing things that differentiate us from the pack, all to build our cache around being the best."
McGuire told TWICE that a restructuring was in the works since December, but that the scope of the plan was broadened by the steep and sudden decline in flat-panel prices and the weakness in rear-projection TV. He acknowledged that the move is aggressive and painful, but said it will ensure a prosperous, growth-oriented company.
"I would rather be a healthy $500 million company than a struggling $800 million company," he said.
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.