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hhgregg Evolving Product Mix As CE Shifts To Mobile

INDIANAPOLIS – hhgregg is transforming its CE assortment as legacy categories like cameras, camcorders, GPS devices and MP3 players are supplanted by smartphones and tablets.

On an earnings call earlier this month, president/ CEO Dennis May cited an industry shift from traditional non-connected devices to connected IT and mobility products like tablets. To capitalize on the trend, the multiregional majap, CE and bedding chain is rationalizing SKU counts in traditional CE categories, and will downsize its laptop and desktop selection, while reallocating additional floor space to tablets.

The company said decreased profits from CE, as well as computers and wireless, contributed to a $1.3 million loss for the fiscal first quarter, ended June 30 (see story on Cost-cutting measures helped stanch the red ink, which hit $5.7 million in the year-ago quarter.

In mobile, the company will narrow its Verizon-based smartphone assortment, which was admittedly too broad, and will focus largely on iPhones and Samsung’s Galaxy platform, May said. hhgregg piloted a limited Apple program last year and has since rolled out its assortment of iPhone, iPads and iPods chain-wide.

The company is also re-examining its approach to TV. Despite some expected lift from the introduction of Ultra High-Definition and OLED displays, video will continue to post mid- to high-single-digit declines through the back-half of the year, May noted. In response, the company is cutting its TV assortment 10 percent by dropping entry-level and 40-inch and smaller screen sizes, and will increase its assortment of fully featured models in screen sizes of 60 inches and larger by 15 percent.

The chain will also bring in a small selection of opening price point models in the 50-inch to 60-inch range to help drive traffic, and plans to have six to seven Ultra HD models from LG, Samsung and Sony on the floor by the holidays.

Together, CE and TV comps fell 15 percent during the first quarter, and their share of the sales mix slipped from 40 percent to 34 percent, as the company culled select SKUs.

“CE remains challenged,” May told analysts and investors. “It is an important but smaller piece of the sales mix,” and reducing hhgregg’s exposure to those categories will improve margins and reduce its reliance on holiday sales, he said.

Shrinking the CE assortment will also open up floor space for growth categories like major appliances and furniture. Majaps, with 52 percent of the sales mix, remains the company’s largest and most profitable business. Demand has been fueled by the recovering housing market, and May plans to stoke the white-goods fires by upping the ad quotient, mounting kitchen package promotions, and offering rebate gift card incentives to encourage repeat purchases.

On the furniture front, the company is rolling out an expanded assortment chain-wide by Labor Day that includes sofas, loveseats and kitchen dinette sets following a success springtime test in Chicago, and reported double-digit increases in mattresses.

Exercise equipment, the latest product addition, is still a work in progress. May said the initial assortment was too costly and that the chain is bringing in a new, more competitively priced selection.

May stressed that it is looking to rejigger rather than jettison categories in order to “reshape the sales mix to increase unit store volume” and expand the customer base.

Elsewhere, hhgregg is improving its website with enhanced navigation, and is working with a distributor to add web-only SKUs that will double the site’s assortment. A new mobile site is also in the works, and May reported that online sales and traffic continue to grow “by leaps and bounds.”

The company is also making it easier for shoppers to finance their purchases with a new program for creditchallenged customers and a chain-wide expansion of its lease-to-own offering. The retailer also reported that its private-label credit card, issue by GE Capital, is now carried by more than a third of its customers.

In addition, the company will also launch a new advertising campaign by Labor Day by new ad agency Leo Burnett.

May said hhgregg remains committed to becoming a national chain, but will nonetheless limit new store openings to five new locations and six to eight relocations this fiscal year. The company is also finalizing a new 25,000-square-foot store model that optimizes floor space by reallocating real estate to its majap, furniture and tablet growth categories.