New York — Consumer electronics suppliers are anxiously waiting for Schultze Asset Management, the winning bidder for Tweeter Home Entertainment Group, to provide some clues about the direction of the 103-store specialty A/V chain after it emerges from Chapter 11.
At press time, Tweeter and Schultze didn’t respond to inquiries from TWICE, and key vendors were left to wonder about the changes that Schultze would make in an era when most specialty A/V retailers have revamped their business models to focus on custom installation, in many cases by dropping retail storefronts altogether.
“The acquisition provides the opportunity for Tweeter to rebound quickly,” observed Jay Vandenbree, Sony Electronics consumer sales president. “We are eager now to understand their new business plan so we can evaluate the opportunity and be a part of a successful Tweeter.”
Vendors also wondered whether a new Tweeter will focus more on selling profitable attachments to flat-panel TVs, including audio, furniture or home-control.
“The [Tweeter] business model has already proven not to be profitable, so what will the new Tweeter look like?” asked Bob Weissburg, president of D&M Holdings North America. “If they stay the course, there’s not a long future in that.”
He said the challenge for all specialty A/V retailers, not just Tweeter, is, “How does the dealer manage expenses and still make a profit as he focuses on installation while maintaining some presence at retail?” One solution might be “smaller stores that are highly specialized and provide services people need.”
“There’s clearly a need for a company to provide great service and installation, whether it’s a $5,000 or $50,000 [installation] job,” Weissburg continued. “There are too many places to buy flat-panel TVs, so there has to be more to the sale, such as multiroom, home control, furniture.” TV, he noted, “is the center of the [CE] universe, [and] it is creating a lot of new opportunities,” including stimulating interest in high-definition audio sources and furniture that fits the shape and size of big new widescreen flat-panel TVs.”
“Despite Tweeter’s failings, the industry itself is growing,” Weissburg added, “but we’re all challenged to change with the times. Clearly, there’s a necessity for specialty retailing, but it can’t look the way it did 10 years ago.”
Tom Hannaher, owner of niche audio supplier Zvox, agreed that Tweeter’s problems are a reflection of bigger issues. Tweeter’s predicament “is a real microcosm of the industry,” he said. “When CE stores became grocery stores where the consumer entering the store is entirely in control of what is being bought, the easiest thing to do was sell commodity products.” That model isn’t sustainable “unless you’re a supply-chain machine,” he said.
In a grocery store model, CE stores “sell the fun, cool product that consumers come in and ask for,” mainly flat-panel TVs, iPods and exotic DVD players, he explained. “To some extent, Tweeter never took on the grocery store model, but it did become really easy to sell the TV and not attach the audio system.”
Schultze Asset Management, an investment firm specializing in distressed situations, placed the winning $38 million cash bid to acquire all assets and “significant liabilities” of Tweeter, which is seeking court approval today for the transaction in the U.S. Bankruptcy Court in Wilmington, Del. If approved, the sale of the specialty A/V will likely close later today. Tweeter said it will continue normal operations pending completion of the acquisition.
Schultze’s bid includes the purchase of Tweeter’s 18.75 percent interest in Tivoli Audio. Schultze will also assume $8 million of Tweeter’s “cure costs” associated with the company’s bankruptcy proceeding. The investment firm will also provide the chain with a $10 million junior debtor-in-possession line of credit. Tweeter intends to use the $10 million in new funding to purchase merchandise and for other general corporate purposes.
Founded in 1998 and based in the aptly named town of Purchase, N.Y., Schultze Asset Management is an alternative investments firm specializing in distressed and special situations investing. The firm manages about $725 million in assets on behalf of institutional and high-net-worth clients located throughout the world. Schultze also has positions in Imperial Sugar; ladder and climbing-equipment maker and distributor Werner; and financially troubled Movie Gallery, which owns the Movie Gallery, Hollywood Video and Game Crazy chains.
“Both Tweeter and Schultze are very excited about this pending acquisition and are committed to emerging from this restructuring process as a stronger, more competitive organization focused on delivering an outstanding service experience to our customers,” said Tweeter president/CEO Joe McGuire. “The conclusion of this auction represents a very positive outcome for our employees, customers and business partners. We look forward to completing the sale transaction.”
Tweeter said that Schultze’s “going concern” bid was determined to be the highest or otherwise best offer in the Bankruptcy Court-supervised sale of its assets. Other confirmed bidders included Whippoorwill Associates and Bay Harbour Management, which teamed up to make a $10 million offer for Tweeter’s Tivoli ownership interest. — Additional reporting by Greg Tarr and Alan Wolf