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2003: War And Retailing

Surveying the landscape of 2003, it’s a tough bet deciding on who had the worse year: Saddam Hussein or CE retailers. Sure, Saddam lost his palaces, his legion of mustached look-alikes and ended his reign of terror by being dragged ignominiously from a spider hole and treated to a public delousing. But dealers didn’t exactly live on easy street either.

They began the year by coming off what TWICE described as the “worst holiday selling season in 30 years.” Retailers took it on the chin, the culmination of what editor Alan Wolf described as the wages of “joblessness, economic uncertainty, the threat of war and a dearth of new products.”

And for several dealers it was all downhill from there.

Kmart closed an additional 326 stores in January after closing over 200 stores the year before. Cablevision shuttered its CE retail chain The Wiz. Struggling West Coast retailer The Good Guys was purchased by CompUSA.

Not even the top of TWICE’s Top 100 CE retailers was immune. Best Buy shed its Musicland subsidiary (for which it paid $685 million in 2001) to a private investment firm, which paid no cash in the deal but assumed Musicland’s liabilities. Best Buy CEO Brad Anderson, reflecting on the Musicland saga, ruefully described it as a “painful and expensive lesson.”

Circuit City made a controversial decision to shift its sales force from a commissions-based to an hourly pay scale and slashed jobs in an effort to stay competitive.

In an interview with TWICE, McCollough defended the move — which MARTA director Warren Mann decried at the time as a “major blunder” — thusly: “No one comes into any store and asks, ‘How do you pay your salespeople?’ They only care if we have people who are able and capable. The customer wants knowledge, and we think we have always done an extraordinary job in that area and we still think we do an extraordinary job of doing that. That confidence enabled us to make the change.”

Circuit City also fended off a takeover bid by Mexican billionaire and CompUSA owner Carlos Slim Helu.

On the manufacturer side, accessories stalwart Recoton’s assets went up for auction following the company’s bankruptcy. Its accessories business was purchased by Thomson for $60 million while Audiovox shelled out $45 million for Recoton’s audio assets. Two photo imaging giants, Konica and Minolta, merged operations in an attempt to stay afloat in the digital era.

In August, a massive black-out swept across the northeast United States, shuttering businesses. The blackout provided dealers with a chance to sell emergency items like flashlights, batteries and radios.

But while some companies were bailing (or being bailed) out, others were jumping in. Blockbuster was trialing CE sections in its stores, Gateway was revamping its Country Stores to appeal to a higher-class customer. In fact, all three major PC makers were pushing consumer electronics in a big way. Gateway broke new price barriers in several categories — promoting what several executives hailed as a “disruptive” strategy (an apt term, that). Dell was announcing its plans to target the category, with products available by the holiday selling season.

CE firms responded by courting the builders channel and building-out their assortment of in-demand products. Notable here was Wal-Mart’s commitment to HDTV, which it expanded aggressively to 1,500 stores. Sears also got into the act, doubling its flat-panel display SKUs.

If the year had its share of grim headlines, there were silver linings as well. Sony surprised the gaming world with the announcement of the PlayStation Portable (PSP) at the E3 show that year. Less of a surprise was the company’s announcement that it would take a proprietary disc format, in addition to Memory Stick flash memory.

Digital photography came into its own in 2003, outselling film cameras for the first time since the introduction of consumer digital cameras in the late 1990s. The category saw two other mass-market developments: the first sub-$1,000 digital SLRs (Canon’s Rebel and Nikon’s D70) and the first “single-use” digital camera, Ritz’s Dakota Digital manufactured by Pure Digital.

The wireless industry enjoyed its 20th anniversary in 2003. During the Wireless 2003 trade show, five companies (LG Mobile Phones, Motorola, Nokia, Panasonic and Audiovox) displayed their first camera phones. Nokia also demonstrated the first camera phone able to capture and e-mail full-motion-video clips, while Motorola and Nokia showed their first EDGE-equipped handsets, capable of sending and receiving data at rates up to 384Kbps.

The wireless industry also witnessed a dramatic change in the regulatory landscape when the FCC approved wireless local number portability, which allowed consumers to change carriers without losing their phone numbers.

On the video front, the FCC reached a “momentous” decision late in the year, approving plug-and-play rules for TVs and digital cable systems. The approval, wrote TWICE executive editor Greg Tarr, “will eliminate the need for separate set-top boxes and makes it possible for a TV set to be transported from one cable market to another with the assurance that it will work with any digital cable system.” Even before the ruling was announced, Panasonic and Hitachi were readying their own cable ready integrated HDTV sets for the 2003 selling season.