That Was The Year That Was: A Retail Retrospective - Twice

That Was The Year That Was: A Retail Retrospective

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New York — Retailers weathered a number of storms in 2005 (pun very much intended).

Hurricanes Katrina and Rita wreaked havoc on the Gulf States, with hundreds of CE retailers feeling the brunt, and Hurricane Wilma caused widespread power outages on the East Coast. Ovation filed for Chapter 11, as did Ultimate Electronics, after which Ultimate’s new owner, Mark Wattles, upped his stake in Tweeter Home Entertainment.

But 2005 was also the year for lofty plans: Best Buy announced its intentions to open 20 percent more stores than previously planned — all in the new customer centric format — along with freestanding Geek Squad stores and more Magnolia Home Theater in-store shops. Also, Tweeter unveiled a next-generation prototype, Sears launched a new store format, and BrandSource and Home Entertainment Source both bowed a series of new programs and initiatives.

The outlook remains positive for 2006, with retailers expecting blockbuster holiday sales this month, providing that tight supplies and high home heating bills don’t stop them in their tracks. — Lisa Cervini

JANUARY

Record-Breaking Crowd Attends CES: The International Consumer Electronics Show (CES), held in Las Vegas from Jan. 6-9, hosts a record-breaking 142,585 attendees, shattering the previous record of 132,000. The 1.5 million net square feet housed 2,550 exhibitors, also surpassing the prior year’s record. Rain showers and a snow squall couldn’t dampen the enthusiasm of the crowds, which flocked to a show floor packed with executives from the consumer technology, broadcasting, cable and motion picture industries, among others. The high-profile corporate keynoters included Microsoft’s Bill Gates, Intel’s Craig Barrett, Ron Garriques of Motorola, and HP’s Carly Fiorina.

Ultimate Files Chap. 11: Ultimate Electronics files for Chapter 11 bankruptcy protection in a deal that gives Mark Wattles, founder/CEO of Hollywood Entertainment, control of the specialty A/V chain. As part of the transaction, William Pearse, founder and chairman of Ultimate, resigns from the company, and all of its directors resign from the board.

Investment Firm, Management Team Buy Gregg: Regional white- and brown-goods powerhouse H.H. Gregg is bought out by a partnership comprised of Freeman, Spogli & Co., a private investment firm, and the retailer’s management team, led by chairman/CEO Jerry Throgmartin, which will hold a minority interest in the 61-store chain. The deal is designed to fund Gregg’s aggressive expansion plans and allow family members to cash out their equity in the privately held business without taking the company public.

FEBRUARY

Best Buy To Build: Best Buy announces plans to open 60 new flagship stores in the United States this year as it pushes toward its build-out goal of 1,000 superstores nationwide. The new units will incorporate lessons learned from the company’s laboratory and customer centricity stores, and they will be built to accommodate the company’s move to a consumer-segmented business model.

Tweeter Unveils Next-Gen Prototype: Tweeter unveils its first Tweeter Entertainment Architects store, a 10,000-square-foot retail lab and prototype; elements of the store are to be integrated into all Tweeter stores over the next 18 months. The concept shop emphasizes solution selling by presenting a series of prepackaged home theater, distributed media and home automation systems, all built around Hewlett-Packard’s Digital Entertainment Center PCs, Microsoft Windows XP Media Center Edition 2005 operating system and Lifeware’s Media Center Edition software.

Workman Out, Wattles In As Ultimate CEO: Ultimate Electronics’ president/CEO Dave Workman leaves the company, along with top members of his management team. Workman is succeeded by Mark Wattles, the founder and former CEO of Hollywood Entertainment, who engineered January’s takeover of the A/V specialty chain. Those leaving with Workman include sales senior VP Neal Bobrick and services senior VP Gerry Demple, among others.

Sears To Launch New Store Format: Sears announces plans to roll out a new midsize store format this spring that will accommodate its 56 recently acquired Kmart and Wal-Mart locations, and prepare the way for its coming consolidation with Kmart. The new concept, dubbed Sears Essentials, is a scaled-down version of Sears Grand, the company’s larger full-line, off-mall format, which sells CE; majaps; tools; soft lines; and fast-turn convenience items like health and beauty, food, pet supplies, household products and toys. The Sears Essential stores are also expected to offer pharmacy.

MARCH

Circuit City Streamlines Management: Circuit City streamlines its management by developing new reporting lines to chairman/CEO Alan McCollough and recently named president Phil Schoonover. It also fills three key merchandising, store-level and logistics holes in its executive lineup. The changes were made to provide for better accountability and to improve overall efficiency, according to the company.

Circuit City Rejects $3.25 Buyout Bid: Circuit City’s board passes on an unsolicited $3.25 billion acquisition offer made in February by Boston hedge fund Highlands Capital. The board announces that a buyout by Highlands or any other party would not be in the best interests of the company’s shareholders, and expresses confidence in management’s efforts to revitalize the No. 2 CE chain. The rejection comes after a series of dramatic changes in the four weeks following Highland’s bid, including shutting 19 underperforming stores, promoting chief merchant Phil Schoonover to president (see above), accepting the resignation of COO John Froman, hiring former Best Buy supply chain/inventory management exec Ron Cuthbertson, reorganizing its management structure and severing its online sales ties with Amazon.com

FTC Issues Rebate Warning To Retailers: The Federal Trade Commission orders CompUSA to make good on hundreds of thousands of dollars in unpaid rebate claims, and it uses the occasion to warn all retailers that they will be accountable for rebates they advertise, including those sponsored by vendors. The action against
CompUSA stems from the failure of thousands of consumers to receive advertised rebates in a timely matter, or at all, between September 2001 and July 2002.

NATM Adding 25 Storefronts In ’05: NATM dealers announce plans to open 25 additional stores this year. Among those adding new locations are BrandsMart U.S.A., Bernie’s, Queen City, R.C. Willey and Conn’s.

New Sony Strategy Ends Group Funding: Sony announces plans to discontinue its buying group co-op programs as a consequence of a new local-marketing strategy that focuses on individual retailers and specific store locations rather than channels of distribution. The announcement is made to dealers and buying group execs at an open house in Las Vegas. The new distribution plan means that Sony’s marketing support dollars will now flow directly to dealers based on individual performance, not through group coffers based on collective sales volume.

APRIL

BrandSource, HES Bow Ordering, Marketing Plans: BrandSource and Home Entertainment Source unveil a series of new programs and initiatives at the groups’ spring summit in Dallas. Plans include a cross-dock program that allows members to place smaller white-goods orders of as little as 12 pieces directly with vendors, freight prepaid, using the group’s 18-month-old OMS online ordering system and HES’ three regional warehouses.

As Ultimate Liquidates, Wattles May Bid: Ultimate Electronics is scheduled to put all of its assets on the auction block and file to de-register its stock. This comes after the A/V specialty chain failed to meet a final deadline to forge a financing package that would pay creditors and fund its emergence from Chapter 11 bankruptcy protection. These moves occurred after the company announced plans to close about half its stores, exit six markets, lay off nearly a third of its employees and reorganize its merchandising structure as part of a new business plan. The liquidation could allow Wattles to buy back stores and resume operations with a clean slate.

Best Buy’s Best Laid Plans: Best Buy announces plans to aggressively roll out customer centricity stores, expand its Magnolia Audio Video in-store shops, phase out rebates, increase its service offers and revamp its supply chain and IT infrastructure. The company plans to bring the customer centricity program’s training elements to all stores this year and to complete full conversion system-wide in three years. The customer centricity concept was developed to increase profitability and customer loyalty, and to better distinguish Best Buy from mass merchants like Wal-Mart and direct sellers like Dell.

MAY

Best Buy Set To Open 20% More Stores: Best Buy announces that it is raising the ceiling on its retail build-out plans by 20 percent and will begin rolling out freestanding Geek Squad stores this year. The chain raised its final store count target to 1,200 locations in the United States and Canada, up from 1,000. Most of the remaining stores will be 20,000-square-foot units that will allow the company to penetrate urban areas and smaller markets, and to backfill existing trading areas.

Tweeter Closing 19 Stores, Cutting Workforce By 6%: Tweeter Home Entertainment Group begins shutting 19 underperforming stores in 10 states and will reduce its workforce by 6 percent, or approximately 220 employees. More than half the layoffs directly relate to the closings, while the balance represents a general workforce reduction that also includes corporate personnel. The closings mark the first time that Tweeter is shuttering locations other than through lease expirations.

NATM Names Samsung Core Video Vendor: The NATM Buying Group chooses Samsung as one of its core video vendors; the decision marks the first time that the manufacturer has enjoyed core status within the buying group. The move follows Sony’s recent decision to stop funding group co-op programs and to redirect its marketing funds to individual dealers.

Report: CE Sales Rise 8% For Top 100: TWICE’s Top 100 CE Retailers report shows that 2004’s then sky-high energy prices and apocalyptic weather patterns (sound familiar?) couldn’t keep consumers away from CE stores last year. The CE feeding frenzy resulted in a 7.9 percent increase in cumulative sales for the 100 largest electronics dealers. Best Buy kept its hold on the No. 1 spot, while Wal-Mart took No. 2, Circuit City took No. 3, Dell took No. 4 and RadioShack took the No. 5 position.

JUNE

Circuit City Is Overhauling Operation: Circuit City unveils a sweeping new business plan designed to return the company to a growth track and help it regain lost market share. The multi-pronged revitalization program includes a renewed focus on core home entertainment products, particularly flat-panel TV; a multichannel market approach that more fully interweaves its retail stores, e-commerce site and a new direct-mail catalog; the rollout of in-home services; and an overhaul of its inventory, point-of-sale and other key backroom systems.

Best Buy Opens In-Store Shops: Best Buy opens high-end home theater and small-business shops in 45 of its flagship stores, making good on previously announced plans to leverage its Magnolia Audio Video and Geek Squad operations. Best Buy targeted 12 cities for the rollout: Baltimore, Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, San Francisco and Washington. The Magnolia shops feature premium brands, in-home design services and same-day installation.

CompUSA Opens Megastores:
CompUSA and its Good Guys subsidiary open their first wave of combination megastores in California, Oregon and Washington. The prototype
CompUSA and Good Guys megastores combine CompUSA’s wide computer and home-networking selection with Good Guys’ premium home entertainment assortment, and share sales staff from both chain. The reformatted stores include 13 former Good Guys locations and three CompUSA units.

Best Buy Begins Store-Tailored Assortments: Best Buy announces new efforts that include tailored market assortments that are edited on the store level to suit the demographics of individual markets, plus a renewed focus on employee retention, which ultimately impacts customer loyalty and the in-store experience. The plan gives individual stores control over between 10 percent and 30 percent of the products they sell. The tailored assortments will allow individual stores to better meet the needs of their customers, while further empowering employees by driving key decision-making processes down to the regional and local levels.

JULY

Workman Joins Warrentech: Warranty provider Warrentech announces that Dave Workman, former president/CEO of Ultimate Electronics, has joined the company as marketing senior VP. Workman is responsible for exploring new distribution channels, expanding relationships with retailers and increasing sales within Warrentech’s existing customer base.

Sony Shifts Retail Operations Structure: Responding to strong growth in its direct-to-consumer sales operations, Sony announces plans to realign management responsibilities, shifting the online consumer electronics and Sony-branded retail stores to the consumer electronics group. The e-commerce and retail store business, which were previously managed under Sony’s e-Solution Company, are moved into the consumer electronics sales operation.

Tweeter Merges Sales, Install Divisions: Tweeter Home Entertainment Group combines its sales and custom home installation units into a single division. The move underscores the central role that custom install now plays in Tweeter’s long-term planning.

NATM Adds Sharp To Core Video Vendor Lineup: The NATM Buying Group adds Sharp Electronics to its core vendor matrix. The manufacturer joins Toshiba and Samsung as preferred NATM providers for the group’s current fiscal year. Sharp’s addition completes a selection process started last March, when the buying group began its annual reevaluation of core suppliers.

AUGUST

Good Guys Gets Makeover, Trim From CompUSA: CompUSA closes 17 Good Guys stores in seven markets and converts eight additional locations into megastores. Affected markets include Los Angeles, Las Vegas, Seattle and San Francisco, along with Portland and Eugene, Ore., and Sacramento, Calif. The format combines CompUSA’s PC and home networking offerings with Good Guys’ high-end home entertainment assortment, and draws sales staff from both chains.

RadioShack To Drop Verizon For Cingular: RadioShack announces plans to end its five-year relationship with Verizon Wireless when its contract with the carrier expires at the end of the year. It will then enter into a new 10-year agreement with Cingular Wireless. RadioShack also announces plans to extend its decade-long relationship with Sprint PCS with a new 10-year contract that takes effect next June. The retailer says its new, more profitable relationship with Cingular will provide it with an entrée into the GSM protocol.

Consumer Survey: Independents Better For Majaps: Mom-and-pop appliance stores, which are typically known for service, also offer good prices and a better selection of appliances than nationwide chains, says a report in September’s Consumer Reports. The survey also shows that none of the major retailers that were rated for large appliance purchases out-priced the independents.

Best Buy Adds More Customer Centric Stores: Best Buy adds elements of its customer centricity program to another 57 stores and opens five new locations that also employ the chain’s new operating model. The latest additions bring the total number of converted and new customer centric Best Buy stores to 198 in a national rollout that will reach upward of 350 stores by February. The conversions include new, expanded interactive gaming areas called Test Drive, personal shopping assistants for one-on-one service and guidance, and Magnolia Home Theater and Best Buy for Business in-store shops.

Retail Havoc In Katrina’s Path: Hurricane Katrina, which made landfall on Aug. 29, wreaks destruction in Louisiana, Mississippi and Alabama. Hundreds of CE retail stores in the three states stay closed for at least a week after the storm. Among the chains affected, 126 Wal-Mart and Sam’s Club locations, along with two distribution centers, remain closed immediately following the storm, with 97 percent of the closings attributed to power outages. Five RadioShack locations are completely destroyed, 15 Best Buy locations are immediately affected, and Cowboy Maloney’s Electric City loses its two Gulf Coast stores.

SEPTEMBER

Wattles Raises Tweeter Stake: Ultimate Electronics’ CEO Mark Wattles further increases his stake in Tweeter Home Entertainment Group, from 11.4 percent, to 12.2 percent of outstanding shares, and asks the company to consider dropping its defenses against hostile takeovers. This follows a move in the previous month in which he raised his stake from 9.7 percent to 11.4 percent of outstanding shares, and asked the Boston-based A/V specialty chain to sell him more. A filing with the Securities and Exchange Commission says that Wattles’ investment company, Wattles Capital Management, purchased the shares for investment purposes, but may also seek to acquire control of Tweeter through a merger, proxy solicitation, tender offer, significant investment, exchange offer or some other action.

Circuit City Continues Making Changes: Circuit City announces further changes designed to make the No. 2 CE specialty chain more competitive and to help it regain market share. Among the changes is a "significant restructuring" of the company’s real estate organization under recently named real estate VP Steven Jackson. The company is testing "strategically differentiated" pilot stores in Boston and southeast Florida that are more customer focused, and it has hired a consultancy firm to help "rethink" the in-store experience.

Hurricane Rita Makes Minimal Retail Impact: Despite the added misery wrought on area residents by Hurricane Rita, the storm’s impact on Gulf Coast retailers is minimal compared to Hurricane Katrina. Among dealers most directly impacted is Conn’s, whose corporate headquarters building in Beaumont, Texas, is evacuated and sustains minimal damage. By mid-October, all of Conn’s affected locations will resume normal operations.

OCTOBER

Sony On Track For 30: Sony Electronics remains on track to have 30 Sony Style retail stores up and running by the end of the company’s fiscal year in March 2006, with the opening of three new stores in McLean, Va., and White Plains and Garden City, N.Y. Although the stores serve as a Sony showcase, they are also expected to turn a profit.

CompUSA Shutting Good Guys:
CompUSA pulls the plug on Good Guys, but keeps the brand name to expand its two-year-old strategy of offering premium home entertainment products within some of its PC stores. CompUSA immediately closes six freestanding Good Guys stores and five hybrid CompUSA/Good Guys megastores, and will shut the remaining 35 Good Guys stores and three dedicated distribution centers within the next 60 days following liquidation sales.

CEA Predicts Robust Holiday Sales: The Consumer Electronics Association (CEA) predicts a 9 percent increase in manufacturer shipment revenues and an 8.8 percent gain in sales for the entire year. The CEA’s Annual Holiday Survey, which is historically accurate, also says that consumer confidence is the "lowest ever," product mix has shifted toward higher prices, overall gift plans are up 22 percent, interest in CE is the same overall (with increases in certain categories), and the number of planned gift purchases is down.

Ovation Files For Chapter 11 Reorganization: Ovation, a high-end, eight-store specialty A/V chain, files a voluntary petition for Chapter 11 bankruptcy protection. The action is prompted by a credit crunch that prevents the cash-strapped company from obtaining sufficient premium merchandise to stock its stores. Gary McCormick, founder, president and owner, says the company has crafted a restructuring and financing plan that will allow the company to streamline operations and lower its cost structure while maintaining inventory levels through the pre- and post-holiday selling season. All eight existing stores will continue to operate.

NOVEMBER

Wal-Mart Jump-Starts Holiday Season: Wal-Mart fires the first volley of Holiday 2005, setting the stage for what is expected to be a bruising promotional season for CE dealers. The retailer jump-starts the period by breaking a 32-page circular on Oct. 30 under its new seasonal theme, "Home for the Holidays." On Nov. 1, Wal-Mart launches its holiday marketing campaign, which will carry across all media channels, including TV, radio, print, online and in-store signage. The launch is in direct contrast to Wal-Mart’s efforts last November, when it sharply narrowed its promotional mix in pursuit of improved profitability in an attempt to boost its stalled stock price.

Power Outages Hobble Florida Dealers: Widespread power outages on Florida’s Southeast coast from Hurricane Wilma keep stores closed and customers away, although area retailers report no injuries and little structural damage from the storm, which hit last month. Among CE chains affected by Wilma: power outages keep nine Best Buy locations closed the week of the storm, Circuit City says 10 of its regional locations are initially closed, and Wal-Mart has seven locations closed a week after Wilma.

Tight Supplies May Hurt Holiday Sales: CE Retailers and their suppliers anticipate a blockbuster holiday season as gas prices moderate and competitively priced flat-panel TVs and new iPods stoke consumer demand. However, tight supplies of plasma and LCD panels in key sizes and the arrival of the first home heating bills could decrease December sales. Retailers and suppliers attribute the shortages to conservative forecasting and aggressive pricing by manufactures.

DECEMBER

CE Sales Soar After Slow Black Friday: The tabulations are in, and apparently the holiday selling season got off to a rousing start as deeply discounted CE products helped drive record traffic and sales in the three days following Thanksgiving. However, the bulk of retailers’ business came after Black Friday, casting doubt on the efficacy of profit-draining door-buster promotions. Retailers are also hoping that they can make their December numbers before the first wallet-shutting home heating bills arrive.

CompUSA’s Nathan Morton Dies: Computer retailing pioneer Nathan Morton, who built the business from a two-store operation into a national multibillion-dollar specialty chain, has died. CompUSA was founded in Dallas in 1984 as a direct-to-business reseller, and opened its first retail store in 1985.

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