Retailers Plan For Convergence

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New York — Now that connectivity is finally upon us — as evidenced by last month’s Consumer Electronics Show and the marketing of A/V products by PC stalwarts CompUSA, Dell, Gateway and Hewlett-Packard — retailers are scrambling to be first on the block to catch the convergence wave.

In a recent flurry of announcements, top CE retailers led by Best Buy and Good Guys have revealed plans for or unveiled actual prototypes of a new generation of stores and services that will help consumers connect their disparate digital devices while delivering incremental dollars to dealers.

Best Buy Debuts Connectivity Demo Areas

Minneapolis — Best Buy has begun to make good on the industry’s promise of a connected future by reconfiguring stores and retraining personnel in order present customers with on-floor demos of portability’s possibilities.

To date, seven stores in two markets have been retrofit as the company begins to shift emphasis from selling individual SKUs to building personal networks with products and services that will allow consumers to manage content at home and on the road.

These laboratory stores may provide a glimpse into Best Buy’s and the industry’s future, as CE’s largest specialty retailer lays the groundwork for what appears to be an evolutionary transformation in its approach to market. But the changes may have been prompted as much by mass-market competition as the arrival of convergence, as Wal-Mart’s CE offering begins to spill over into Best Buy’s traditional terrain.

The new 'experience areas' are comprised of four wirelessly connected, interactive vignettes, including a 'media room' and a 'family room,' where shoppers are invited to download and play music, view transmitted images on a TV screen and generally 'unleash the capability' of digital devices, said senior VP/CE George Danko.

Although Best Buy is still in 'a learning phase,' as the prototype pods are tested and refined, Danko said the company is pleased with the results to date, and plans to take the concept national over the course of the next two to three years.

Supporting the effort is an expanded wireless assortment, specially trained sales personnel and a 'much improved' service element that ranges from in-store advice to home installation options.

'We’re moving from discreet sales of products and subscription services to demonstrating how it all works together as the consumer becomes untethered,' Danko said. 'But it takes a different store environment and skill level to deliver the entire experience to customers.'

He added, 'People may have bought a PC, a cell phone, a laptop, an MP3 player and a digital TV, but their eyes open wide when we show them the art of what’s possible' by linking all of them together wirelessly.

Good Guys Talks Post-Merger Plans

Alameda, Calif. — In the wake of its acquisition in December by CompUSA and consequent management shakeup last month (see TWICE, Jan. 19, p. 6), Good Guys has begun to embark on an ambitious new convergence strategy that could eventually take the company national.

Newly named president Cathy Stauffer envisions a re-merchandised and reinvigorated Good Guys that would build on its own A/V expertise by playing off the service and PC strengths of its new corporate parent to become a national player.

'There are opportunities for expansion,' Stauffer told TWICE. 'While we have no plans for more stores this year, we could eventually be multi-regional or national. But first we have to shine here.'

One of her first priorities is to increase Good Guys’ assortment by adding new brands to current categories and bringing in new PC-centric products, courtesy of the deep pockets and vast resources of CompUSA and Mexican owners Grupo Sanborns.

'Good Guys has a solid brand, a great position in the marketplace and terrific vendor connections,' Stauffer said. 'But we were financially constrained. Now our merchants,' led by VP/merchandising and GMM Mike Mohan, 'have the resources behind them.'

The most immediate and noticeable change is the addition of Samsung to the video vendor roster. The brand first appeared in some 30 stores last month and a system-wide rollout should be completed by May, making Good Guys its largest West Coast dealer.

At the same time, the company is leveraging CompUSA’s IT expertise — and its own knack for demonstration, presentation and solution selling — to begin introducing multimedia and mobile computing products that keep consumers connected both inside and outside the home.

'People want to network, they want connectivity,' Stauffer noted. 'They want to move content from the house to the car or office. If you have a PC with music, photos and videos, we want to be able to say, ‘Here’s how you watch it in your living room.’ We want to be able to do the whole solution. But first we want to learn what works.'

Good Guys has already begun testing the convergence waters in its Reno, Nev., store, where it recently introduced 33 new SKUs including PDAs. The results, said Stauffer, are promising: without any advertising promoting the new mix, comparable store sales climbed 4 percent to 5 percent in a matter of days.

RadioShack Revamps Operations To Boost Bottom Line

Fort Worth, Texas — RadioShack is proceeding with a series of initiatives ranging from supply chain savings and optimized pricing to increased labor and store level productivity designed to improve its gross margins.

Senior RadioShack management detailed the stratagems — which included a revamped merchandise mix and the end of its exclusive A/V alliance with Thomson — during a two-day institutional investor conference at company headquarters here (TWICE, Jan. 26, p. 4).

The initiatives, some of which began last year, include:

l Strategic pricing — RadioShack has begun using software to determine optimum pricing for its proprietary and non-commodity products that satisfy 'distinct wants.' Last year some 500 SKUs were 'right priced,' resulting in upwards of $7 million in incremental gross profit, explained chief business operations officer Arvin Goldberg, and the SKU count will rise to about 1,500 items by the end of 2004. The company will also institute local market pricing this year and more scientifically manage its markdown and sales process.

l Store productivity — To improve return on space, RadioShack is devoting more square footage to profitable and growing categories like imaging and broadband connectivity, while consolidating SKUs and diminishing the store presence of laggards like computers. The chain has also either opened or retrofit about 230 stores with its new Best to Shop format (see TWICE, Jan. 9, 2003, p. 78) and a less expensive 'light' version, and will revamp another 300 stores with both formats this year.

The new format has only provided a moderate sales lift, but consumer surveys indicate a greater satisfaction with the shopping experience. Behind the counter, RadioShack hopes to realize payroll savings through better scheduling of store staff, with more hands on deck during peak Sunday hours and fewer on weekdays.

The chain will also test the use of dedicated cashiers to free up commissioned sales people, and will break with tradition by hiring store managers from outside the company in addition to promoting them from within.

l Supply chain improvements — Vendor consolidation contributed to a savings of $40 million in supply chain efficiencies last year and will continue in 2004. According to president/COO Dave Edmondson, RadioShack is also increasing the use of online reverse auctions and is renegotiating its payables terms with vendors.

Looking ahead, the company expects number portability to further boost its wireless business, which is projected to be its biggest sales driver this year with estimated growth of 5 percent to 8 percent. Chairman/CEO Len Roberts said the company will continue to play to its strengths, which he described as small cube products that require answers, can be accessorized, and are convenience driven, and will focus on technologies that are tied to its core power, communications and connectivity categories.

Tweeter’s Sales Rose 2% During Fiscal Q1

Canton, Mass. — With all types of new-technology television driving top-line sales, Tweeter Home Entertainment Group recorded a 2 percent increase in revenue for its first fiscal quarter, hitting $255.2 million, up from $249.7 million in the year-ago period.

The revenue increase helped Tweeter post a net income of $5.1 million, down from $5.2 million the previous year, for its first quarter. Operating income decreased to $8.7 million in the first three months, ended Dec. 31, compared with $9 million year-on-year.

However, comp-store sales dropped 1 percent.

'We had hoped for a better overall comp performance in the quarter,' said Jeff Stone, president/CEO, 'but after seeing all the comp-store CE reports for the month of December, we faired well, compared to the industry.'

Earnings were also affected by snowstorms that impacted Tweeter’s stores in the Northeast and mid-Atlantic regions, which are its most profitable, Stone added.

Stone attributed growing sales of plasma, LCD and DLP television technologies for holding the line on company comps and for boosting total TV sales to 47 percent of total revenue. Specifically, flat-panel sales, including plasma and LCD, accounted for 19 percent of the quarter’s revenue, up from 12 percent during the year-ago period, while Tweeter enjoyed 'strong double-digit growth' in projection TVs in both unit and dollar volume, with DLP alone accounting for 8 percent of total revenue, Stone said.

By contrast, unit sales of direct-view TVs fell 50 percent during the period. Audio also continued its slide, although Stone said in a conference call that the company is working on initiatives to revive the category, including a greater emphasis on in-wall installation and distributed audio.

Elsewhere, sales of mobile electronics grew 40 percent in dollar volume, and Tweeter’s custom installation business enjoyed double-digit growth.

Looking at the retailer’s second fiscal

quarter, through Jan. 24, comp-store sales are up 3 percent, with company expectations for full-second-quarter comps at between flat and up 3 percent. This compares with a negative 12 percent comp in the second quarter, ending in March of 2003. Second quarter revenue is anticipated in the range of $184 million to $188 million, said Tweeter.

Stone said the company is working diligently to drive down costs, increase attachment rates and basket, grow its in-home service business, improve portfolio management and, through its association with the Retail Masters consultancy, comprised of former Best Buy executives, realize new efficiencies through supply chain initiatives.

Stone also suggested that Tweeter was exploring a new, PC-based media center solution as part of its strategic initiative, and promised to share more details with the investment community this spring.

Looking ahead, CFO Joe McGuire said that the improving macro-economic picture and the ascent of DTV — which he described as 'America’s greatest replacement cycle' — bodes well for the business.

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