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Best, Circuit, Tandy Execs Examine State Of Industry

The heads of the nation’s three largest consumer electronics chains took on such hot-button issues as direct-to-consumer sales by manufacturers and the future of DTV during a spirited question-and-answer session held earlier this month at CES.

Fielding questions from CEA president Gary Shapiro and a packed audience were Brad Anderson, president of Best Buy; Alan McCollough, CEO-elect at Circuit City; and Len Roberts, chairman of RadioShack parent Tandy.

After lauding the long-term promise of e-commerce, the retail executives tackled the flip side of Internet marketing: direct manufacturer sales.

“Consumers want choice; they won’t go to a single source,” commented McCollough, who pooh-poohed vendor ef-forts as “no different than another store opening near us.”

For RadioShack’s Roberts, the issue is more complex, given the chain’s strategic alignments with, and in-store shops for, core suppliers Thomson, Compaq, Sprint and Microsoft. “Part of our deal with our partners is to use our infrastructure to support their individual direct sale efforts,” he explained.

On the product front, all were in agreement on the growth potential of digital television, a category that caught most retailers off guard last Christmas due to unexpectedly heavy demand.

“No one can prepare for that kind of rate of ramp-up,” remarked Best Buy’s Anderson. “We’re at the beginning of the cycle of DTV really taking off.”

Circuit’s McCollough concurred. “We don’t know how high is up,” he noted. “Business was very strong last fall, and customer interest is very strong. This year we anticipate there’s only one way to go — up.”

Added Roberts, “We’re foaming at the mouth to launch our RCA digital TV center,” which will begin rolling out to stores this quarter as part of Tandy’s in-store pact with Thomson.

One of the factors that will further fuel the DTV fire is the resolution of the DBS local-access issue, Roberts said. “The whole DBS market has been explosive already, and removing that barrier will create a very robust market. I’m only afraid about keeping up with demand.”

To ensure that demand for DBS continues to swell — along with the recurring revenue streams that the mega-chains derive from its sale — McCollough cautioned, “We have to make sure we provide compelling content to continue to ramp up beyond the early adapters.”

Meanwhile, McCollough an-ticipates that sales of cable modems and services at retail will also become a meaningful source of income for stores, albeit at a slower pace than DBS. “The FCC is looking at it,” he said. “It’s not happening as fast now, but competition will move cable boxes for sale at retail. Cable customers should not have to settle for less.”

Despite the boom in DTV and other CE products that the digital revolution has wrought, the retailers reminded the audience that every action can have an equal and opposite reaction.

For Best Buy’s Anderson, the downside of digital is the “cannibalization of older technologies,” particularly the VCR. Despite their high rate of sale, “VCRs are not a very profitable category for us these days,” he said.

For McCollough, the danger lies in feuding formats. “We don’t want to overwhelm the customer with so many options that they take no action at all,” he said. “It should be the retailer’s role to keep technology focused and not let it run amok, and it’s the joint responsibility of the retailer and the manufacturer to ensure that the out-of-box experience is positive.”

Agreed Anderson, “Our role is to make digital products human. We look at the customer experience first, and back into it.”

The need to demystify new technologies for customers is also placing a high premium on skilled employees, the trio agreed. “We need highly motivated people,” Roberts acknowledged. “We want to be the best company to work for in America, because we’ve got to recruit and retain the best people. It’s a constant journey for us,” he said, citing 32 employee initiatives, including stock options for 6,000, that were implemented during his tenure.

Similarly, Best Buy is “spending a lot of time and money to expand our human resources capability,” Anderson said. “We’re incurring greater costs to get higher quality people. It’s a tremendous investment and probably our top priority.”

Looking ahead, Roberts described the balance of 2000 as “the best year of all” for RadioShack and the industry, with his store generating “upper single numbers in top-line growth, double-digit EPS growth, and $100 million in pure profit.”

Anderson projected that Best Buy will have a $30 billion year and said 2000 “has the potential to be great.” McCollough declined to peg Circuit’s calendar-year financials, simply describing 2000 as “exciting.”