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An Ominous Retail Trend

News today of Tweeter closing 49 stores, two regional facilities and leaving five states within two to three months should not be a surprise to anyone who has followed the fortunes of this chain, and of the CE industry in recent months.

What is disturbing is that this announcement comes on the heels of Rex Stores closing stores and exiting markets, CompUSA closing more than half of its 229-store base and Cambridge SoundWorks reporting at the end of January that it would reduce its store count to two and offer stepped-up installation services.

Now each chain mentioned its own reasons for making their separate decisions. The Tweeter announcement was probably overdue. Tweeter has had its troubles in becoming a quasi-national chain, rather than a regional, and will hopefully come out of this as a stronger retailer. Rex is a conservative operation and its lease-back plans have as much to do with its synthetic-fuel investments as it does with razor-thin CE margins. CompUSA had been trying to re-invent itself before it took over The Good Guys. And Cambridge is trying to go the custom route, something plenty of other retailers have tried to do in recent years.

The industry has seen a rash of store closings and Chapter 11 filings in the past, these recent developments are ominous but not unexpected. After all, when major brands let top national chains sell 42-inch flat-panel HDTVs on Black Friday for $999, something’s got to give.

The big question, for retailers and for those hearty manufacturers that don’t want to give away their products for next to nothing, is “what does this mean?” Are we going to have an industry with only two or three major players? TWICE senior editor Joe Palenchar, who has seen his share of retail upheavals over the years, said to me this morning that A/V specialists are “dead in the water without a significant custom install presence.”

Joe is probably right, because plenty of top-line manufacturers are selling their video and audio products, from low- to high-end, to just about any type of retailer who is willing to take a shipment. One reader responded to the Tweeter story this morning with this “Talkback” comment: “Manufacturers do in another retailer that has supported them for years. The proliferation of non-electronics retailers has driven the profit out of flat panels and other categories. Soon enough we will see 7-11 selling flat panels with a loaf of bread and a six pack. When will it end? If Tweeter can’t make it, will Best Buy be next?”

Is that an over-the-top comment? Probably, but it shows the concern of the industry as venerable chains take a hit and more profits are driven out of even high-end product categories.

Even if manufacturers sell more and more goods directly to consumers, via their own stores or on their Web sites, this is an ominous sign for everyone.