New York-It was a tale of two Christmases for consumer electronics retailers.
Dealers with product mixes that skew toward the mid- to high-end of the sales spectrum reported a robust holiday business that approached, if not equaled, the high-water mark that was set during the fourth quarter of 1999. For these upmarket merchants, traffic in big-ticket, high-margin merchandise-like large screen TVs, digital cameras and camcorders, and better DVD players-helped make the Yuletide bright for company coffers.
For others, notably the big box CE chains, the season held the same woes that beset retail in general. Due to a confluence of higher energy costs, a softening economy, the stock market's tailspin and mounting personal debt, consumer confidence slid sharply through late fall and early winter, making shoppers less inclined to loosen their purse strings.
To counter sluggish sales, worried retailers resorted to deep discounting that reached new depths on Black Friday weekend as TVs, DVD players, VCRs and CDs were touted near, at and even below cost. The off-MAP promotions proved effective at boosting foot traffic and ravaging earnings, but failed to wrench the big bucks from a nation of bargain hunters.
Adding to the dealers' dilemma was a blast of severe winter weather throughout much of the nation last month that further chilled holiday sales.
Even the last-minute shopping surge that came courtesy of an extra pre-Christmas weekend was unlikely to raise retail spirits to 1999's lofty levels. Indeed, barring an explosive, inventory-cleansing sales week between Christmas and New Year's Days, CE merchants expected to report holiday revenues that, on average, were in the low to mid single digits over the prior-year period.
But as the baseball truism goes, it ain't over 'til it's over, and for retailers that meant Dec. 31.
"It's the same thing every year," sighed veteran retailer Norman Goldberg, chief operating officer of The Wiz. "Sales drop off after Thanksgiving and everything in the press is doom and gloom. But the biggest shopping day isn't Black Friday, it's always the Saturday before Christmas."
The sentiment was similar at Sears. "When the month is out, I think we'll be able to look back and say we had an absolutely fantastic Christmas," said Ray Brown, VP and general manager for CE and home office. "Christmas is always a nerve-wracking time of the year because we've trained a lot of consumers to look for bargains and to wait for the last minute to shop. But our sales are on track to where we planned, and when all is said and done I think we will have had a tremendous Christmas."
But if retailers had taught consumers to shop price in the past, they practically provided graduate courses last season. "You saw the ads out there-some of the new price lows were remarkable," observed Bill Trawick, executive director of the NATM Buying Corporation. "Best Buy was among the most aggressive in pricing, and put some new lows out there on things like 13-inch TV/VCRs. In fact, I told a friend who was shopping for a TV to go there, because at $190 for a 27-inch set, he'd be buying below cost."
Although the promotions reached a fever pitch after Thanksgiving, Trawick doesn't believe the industry has seen the last of the price wars. "We think there's still a lot of inventory out there and that dealers will really have to push it out after Christmas," he said. As for NATM members themselves, "Thanksgiving was real strong, but since then business has softened up slightly in white and brown goods, and margins are a little off. But it's not a dramatic decline. Comps are still up. They're just not tracking as high as early on."
While Best Buy's executive VP/marketing Wade Fenn explained that breaking MAP on CDs in particular was "a seasonal event, not a full-time strategy," the price moves clearly came back to haunt the company. Chairman/CEO Dick Schulze acknowledged that despite a nearly 6 percent uptick in comp-store sales, "the combination of slowing consumer spending and a more promotional environment reduced profits" by 27 percent.
The situation was more severe at Circuit City, which lost $70 million in its third quarter while comp-store volume fell 10 percent. "Declines in average retails were lower than expected," noted president/CEO Alan McCollough, who described the environment as "extraordinarily promotional." But even sharp pricing on analog products couldn't spark sales of traditional merchandise, which offset double-digit comp gains in such higher-ticket categories as big screen TVs, PDAs and DVDs, he said.
The story was markedly different at RadioShack, whose November comps at company-owned stores rose 12 percent over the prior year's record 17 percent gains. While the retailer refused to comment on December sales before the final numbers were released, chairman/CEO Len Roberts predicted that a strong digital product cycle would continue to benefit the business. "We expect our sales momentum to continue through December, giving us one of the strongest fourth quarters in RadioShack history," he said.
And what of their bottom line? "We don't use price to drive traffic," Roberts said during a conference call last month. "Our customers don't cross the threshold for price. They come for a part or a battery, and then we cross-sell them. And while we're not going to get outflanked on price, we're not going to make the mistake of destroying margins either."
Joe McGuire, chief financial officer of Tweeter Home Entertainment Group, was also cautiously optimistic as the holiday season entered the home stretch. "We're nervous like anybody else, but we haven't seen anything disastrous yet," he said. "It doesn't feel as strong as it did last year, but that's okay. We're still comfortable with the 5 percent comp store growth that [Wall] Street has us down for, and even though it's skittish out there, so far, so good."
High-end A/V specialist Sound Advice also has high hopes for a "great December," based on the "great November" it enjoyed, reported senior VP Michael Blumberg. "We haven't had to resort to promotional stuff," he said, thanks to solid sales of projection and high definition TVs, which he described as "the No. 1 driver." Also "hot" were all manner of digital categories, as well as audio, which is "having a great business" thanks to the boon in DVD and home theater systems.
Also benefiting from the digital wave and a high-end stance was Ken Cranes. "Business is beyond our expectations, and has been the best in our 53-year history," said director Tom Campbell. "We expect to be up over last year, which itself was a record. And even though the market as a whole has cooled off, the new technology will be our savior."
Also enjoying a stellar holiday season were CE e-tailers. Despite the gloom and doom surrounding dot-coms, Internet sales were on track to double 1999 levels, according to Goldman Sachs/PC Data, which said online orders hit $8.7 billion between Nov. 1 and Dec. 17, a 108-percent increase over the comparable period last year.
"We've set records in website traffic and revenue," concurred Frank Sadowski, senior VP at 800.com. "DVD is incredibly hot, as are digital cameras and camcorders. But we're doing disproportionately well in high-end TVs. The big sellers this season are the branded big glass, direct-view sets and digital projection TVs, both high definition and HD-ready."
More in line with marketplace expectations is multichannel marketer Crutchfield. "Our Christmas business looks good, but not great," said senior VP/merchandising Dan Hodgson. Riding a wave of DVD players, 36-inch direct-view TVs, digital cameras and camcorders, and promotionally priced audio shelf-systems, the company will "probably be up 5 percent over 1999, which in turn represented phenomenal growth," he said.