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Tweeter Closing 49 Locations In Restructuring

Canton, Mass.– Tweeter Home Entertainment Group will cut its store base by one third, exit four states and trim 20 percent of its workforce in a massive restructuring aimed at stabilizing the business, focusing on its best performing markets, and converting its remaining 104 stores to its new “CE playground” format.

The action follows the sharp plunge in flat panel pricing that wounded Tweeter’s holiday sales and earnings, and a corporate restructuring in January that cut 20 percent of its headquarters staff.

Under the new plan, the A/V specialty chain will close 49 of its 153 stores over the next two to three months, and will entirely exit Alabama, California, New York and Tennessee, as well as most of Georgia. Two regional facilities, in Vista, Calif., and Atlanta will also be shut, and about 650 of the company’s approximately 3,100 employees will be terminated. President/CEO Joe McGuire and Tweeter’s top human resources executives are manning a live 1-800 number on three consecutive nights to help ease the blow for affected workers.

The retrenchment reverses Tweeter’s previous growth-through-acquisition strategy, begun in the late 1990s, that took the company coast-to-coast by snatching up smaller, family-held A/V specialty chains including Bryn Mawr Stereo, Dow Stereo, HiFi Buys and Home Entertainment. Three HiFi Buys stores will remain in Atlanta, to be renamed Tweeter, but the last vestiges of the San Diego-based Dow and Big Screen City chains will disappear.

The consolidation will reduce annual revenues from $735 million to $555 million but is also expected to “dramatically improve” Tweeter’s profitability and cash flow, the company said, aided by a new five-year, $75 million secured revolving credit facility with GE Capital and a nearly $14 million IRS refund.

McGuire said the company will invest it resources on expanding its two-year-old CE playground store concept, which uses sleek “notional spaces” that depict fully-integrated family rooms, bedrooms, bathrooms, kitchens, sports bars and patios, to showcase whole-home control and automation. So far, the playground stores have outperformed the chain’s traditional formats in margin, sales and in-home installations, the company said.

Stores that don’t physically fit the format will be remodeled. All new openings – including two locations in Charlotte, N.C. that will open later this year – will be built as playground stores, McGuire said.

Increased investments will also be made in training, coaching and education; structural changes to enhance the efficiency of store managers; and simple, streamlined sales tools to deliver better service to customers, the company said.

“As we continue to face the challenges of our ever-changing industry, we do so with a renewed focus on the future of our brand and on our ability to deliver the ultimate consumer electronics shopping experience,” McGuire said. “We will continue to define the Tweeter brand as clearly focused on the mid to high-end consumer, clearly delivering an outstanding service experience to our customer, and clearly doing things that differentiate us from the pack, all to build our cache around being the best.”

McGuire told TWICE that a restructuring was in the works since December, but that the scope of the plan was broadened by the steep and sudden decline in flat panel prices and the weakness in rear projection TV. He acknowledged that the move is aggressive and painful, but said it will insure a prosperous, growth-oriented company.

“I would rather be a healthy $500 million company than a struggling $800 million company,” he said.

Industry reaction was supportive. Jay Vandenbree, president Sony Electronics Consumer Sales Company, told TWICE that “We support the management of Tweeter both in terms of getting [expenses] in line, while focusing on a higher level of service through training initiatives in the stores. Consumers need as much knowledge around CE as possible, and Tweeter has always tried to provide that at a high level.”

“Mitsubishi believes in the A/V specialty channel,” said Max Wasinger, Mitsubishi sales and marketing senior VP. “We are sorry to hear that Tweeter is closing 49 stores, but if this is what they need to do to be a strong player to get healthy in the future, we endorse and support their decision and look forward to working with a new Tweeter as they reorganize and focus on their core competency and the markets where they are strong.”

Bob Weissburg, president of D&M Sales & Marketing, North America, said he is “glad they are taking action in trying to make changes in how they run their operation. They seem to be doing things in their shareholders’ best interest. The biggest challenge for retailers is that they can’t continue to operate the same way anymore. They have to merchandise better, control costs more and do other things better. Retailers have to evolve as their customers’ needs and wants change too.”

Tweeter could increase its mix of custom install, Weissburg suggested, “But it is a delicate balance between that and doing retail. There is still a need for good A/V specialty retailers.”

Dave Workman, executive director of the PRO Group buying organization, said that despite the consolidation, Tweeter remains its largest member dealer and will “continue to see a bright future with solutions driving the sale. These moves will help further strengthen its position in the marketplace.”

He continued, “The industry wants to see a healthy and profitable Tweeter regardless of its size. The industry needs a Tweeter and the specialty retailer at the front edge to break exciting new technologies.”

Workman added that he doesn’t foresee the restructuring having a negative impact on PRO Group’s programs with its vendors.

Other vendors seemingly took the announcement in stride. “From our perspective,” said OmniMount’s executive VP Geoff Miller, “It’s business as usual. Maybe some time ago the closing of stores would be alarming. Today it’s a good thing [overall] because it means they’re looking at their costs.”

Miller said that Tweeter’s actions and similar moves recently taken by other large chains – including CompUSA and Rex — were smart decisions in terms of the big picture, because it showed that executives are paying close attention and reacting sooner than they might have in the past. Hopefully, he said, they will avoid the much bigger losses they might have incurred if they had decided to wait and continue to operate the stores.

Hal Moulton, VP sales for car stereo supplier JL Audio, said “We knew there were some dead weight stores. We could tell by our numbers, every time we’d run numbers by location. We’d say, ‘How can they even keep that store open?’ I’m glad they are getting rid of the dead weight. Their stock is up so I think the stock market is thinking the same thing.”

Overall, Moulton is “pretty positive” about Tweeter’s prospects. “[Tweeter’s] Chris O’Neil is the best in custom installation. There’s no one better. We’re not really concerned with the health of Tweeter. The new playground stores are really nice. Absolutely, they will be able to reposition themselves. In car audio they have Gary Stackpole. He has a gazillion years of experience and is a great asset, and Dave Malin is doing a great job. They have the right people.”

Sandy Gross, president of Directed Electronics-owned Definitive Technology, said “It seems they are making a valiant effort to get overhead costs under control and restructure the concepts of the stores,” but he noted that the chain faces a “betwixt and between” conundrum.

Tweeter, he continued, is not “small and entrepreneurial enough to be a true specialty store and not big enough to have the traffic and market presence of big-box retailers.”

Tweeter’s woes do not reflect the end of the specialty-store era, Gross emphasized. The issue for Tweeter, he said, “is do they have the right footprint in the marketplace and the right overhead structure to function successfully as the custom installer they envision for themselves?”– With additional reporting by Colleen Bohen, Amy Gilroy, Joseph Palenchar, Steve Smith and Greg Tarr