Changing Marketplace Creates New Challenges, Opportunities For Dealers

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Economists say we’re emerging from the recession, but how much longer before business gets back to “normal” — if ever?

Dan Schwab, D&H Distributing:

Economists were invented to make weathermen look good.

When we look at the overall macro market, where unemployment is at 10 percent and real unemployment is at 17 percent, we’re still going to be on a very bumpy road, and this “new frugality” is going to exist for multiple years.

But we all control our own destiny. We all trade in a multibillion-dollar business, and at the end of the day there is opportunity; there is always going to be technology for us to sell.

It’s not so much whether the market is going to expand 3 percent or contract 1 percent; it is really incumbent on each and every one of us to drive the best customer experience, drive the best product solutions, focus on innovation, and just excite the customer and exceed their expectations. That is what is going to drive the revenue for our channel.

Michael Vitelli, Best Buy:

I don’t think we’ll ever get back to the way it was. We’re at a different place, and the opportunity for all of us is to expand the definition of what our market is. We say we’re in the consumer electronics industry, and we’re going to look at these unit counts that show the industry is down X percent. But there are rings around it. Whether it’s the media connections or the wireless connections, the parts are now inter-related, and we have to consider that as part of our industry and actively participate in it. If we don’t, it will continue to go down.

Dave Workman, PRO Group:

If you redefine what our industry is, then you actually do have growth. The core numbers are the core numbers. If you are trying to keep everybody happy, you need about 6 percent growth to satisfy organic growth plus store sales. That is not going to happen, and I don’t know that we are going to go back to that 6, 7, or 8 percent growth in the near term.

Then it gets back to, “How do you redefine the business and expand your horizons and parameters?” Think about it: Ten years ago what we defined as consumer electronics was completely different from what it is today.


Many dealers made it through 2009 by living off the market share remains of Circuit City and, to a lesser extent, Tweeter. Is that volume cushion all gone and accounted for by now?


In my experience at Ultimate Electronics, having been in markets where larger competitors went out of business, it generally does take some time. The holiday season was actually a settling point where market share got redistributed to the other players. And then by March somebody will turn off the switch on the roller coaster and we’ll have to fi gure out where the new fun ride is. There will still be some redistribution, but we’ll probably see the first part of the year smooth out a bit. But we won’t have the pull-forward effect that we saw in January and February of ’09. Circuit probably did more business disproportionately during that closeout period; plus we didn’t have the same inventory overhang and over-promotional environment during the holiday season just past. We’re coming out of the holidays with a much more rational inventory position. Everything was built to forecast, and there’s not a lot of that type of stuff in the marketplace.

Gilbert Fiorentino, chief executive, technology products group, Systemax:

We’re now more than a year into the closure of the Circuit City stores and almost two years into the closure of the old CompUSA stores. Two years ago Circuit City and CompUSA combined were doing almost $13 billion or $14 billion a year in business, and I will challenge anyone to tell me where that $14 billion went.

I think that they created a lot of that business. We bought CompUSA and Circuit City, so I know they were spending close to $800 million a year on advertising. When you had CompUSA and Circuit City with close to 25,000 retail associates selling these products in almost 800 stores in the United States, they were creating much of that demand by themselves by changing people’s perceptions of what they needed. You know how important advertising is — people think they need what they are told they think they need. It wasn’t just pent-up demand in a world where a guy woke up in the morning and said, “I want to go buy a laptop” or “I want to go buy a TV.” He was bombarded with $700 million or $800 million of advertising on television, in the newspaper, and on the radio that Circuit City and CompUSA were running.


It takes a period of time to redistribute, but we’ve always had retailers go out of business. The only significance I think of Circuit and maybe CompUSA was their physical size, but had they not gone out there might have been 1,000 other dealers that would have gone out.

When you go back into the history of this business, there has been a litany of names that don’t exist any more. It’s been a constant evolutionary process. We are dealing with a level of retail Darwinism. At the same time, channel distribution is changing. Some players are growing very, very quickly. Others are going away.

We tend to focus on big names like Circuit City, but this has been an industry that has always had an annual level of attrition.

I don’t think much of that $13 billion or $14 billion of business that we as an industry or maybe the manufacturers enjoyed two or three years ago has been redistributed. I think much of it went away. I’d like to hear more about the redistribution continuing and where it’s going to go, because I really don’t see it.


I agree with Gilbert that they spent a lot of money on advertising, which did create demand, but I think Dave brought up a good point that we were going through a cycle in which the smaller regional and local retailers were very challenged, and as the bigger guys got bigger there was contraction of that marketplace.

We went through six months of such a difficult time period that had Circuit and Comp not gone away, there would have been that much more pressure on the little guys to make it through the recession.

Even though there is continued attrition it created opportunity. We look at Circuit City globally, but for the one guy who has a two-store chain in a small town where there’s one Circuit City store, not having that competitor has a real impact on his business. Even though there are a lot of people that were struggling, we’ve seen a lot of tiertwo and tier-three guys become a lot stronger, and we look at it as opportunistic. Conservative, well-financed companies that have been through multiple recessions and downturns looked at this as an opportunity to invest in the future — not to over extend themselves but to look to fill a void in the market place.

Jeannette Howe, Specialty Electronics Nationwide:

I don’t think we’ve seen the end of the attrition of dealers. There are dealers who are one or two jobs away from being out of business and who have used down payments on a job to pay for another job. They are getting very aggressive out there, and if Starpower has a $150,000 job out there, there is somebody who is very happy to do it for $120,000. There was a lot of that last year, but I think we’re going to continue to see that in 2010 as the retail space continues to erode. There are challenges out there for the smaller dealer who can’t compete as effectively as we’d like to make them able to.


We still have to deal with the economy, unemployment levels, consumer confidence and the trade-down effect of the “new frugality.” Hopefully the economy isn’t a permanent thing, but some of the behaviors on the part of the consumer are going to be there for some time.


Given that, will Walmart begin siphoning off customers who would have traditionally shopped the specialty dealer channel?


Someone once asked who the Walmart customer is, and the answer is everyone. In this type of environment they clearly serve a place in the market, but Walmart’s avowed position is, “No matter what you price it at, I’m going to be lower.” That is the No. 1 tenant of their business model, and if you try to go up against that Sumo wrestler, you’re going to get your butt kicked every time.

But consumers buy more than price. They really do; they buy value. You have to tune in to value propositions that resonate with the consumer. You have to be more creative in how you present value. To think that you can go out and say some product is really special, and it’s full price, that story isn’t resonating.


The point Dave makes about consumers shopping for more than just price is true, and you have to be able to present that value to consumers. Best Buy is looking at that going forward. We are looking at all the unit increases that NPD reports and we’re saying, “Okay, what are consumers trying to do with all of those units?”

The ability for them to be connected to the wireless world, and ultimately to the people and things that they love through their devices, we think is an opportunity to capitalize on. If we can present that, execute it well, activate them, and have them walk out of our store with that working, then that will be the value that we’re trying to present to consumers, which will be beyond the price of the product itself.


Karen, you’re responsible for Kmart as well as Sears stores, and have to consider two very different value propositions. How do you balance that?

Karen Austin, president, home electronics, Sears Holdings:

Kmart’s is much more of a grab-and-go value shopper. Layaway is a key part of the customer’s experience there. It’s a different customer than our Sears customer, who is much more attuned to the complete A/V experience with larger-screen TVs, as well as the multi-channel shopping experience, whether it’s on-line, in-store or mobile.


How will hhgregg’s national ambitions change the marketplace dynamic?


I think they’re a formidable competitor. We consider everybody a formidable competitor. It’s not a size issue. The Internet levels the playing field. It opens up who can be a competitor, as long as you’re offering good value and good service.

Fred Towns, New Age Electronics:

When we talk about where Circuit City’s business went, there were a lot of people that shopped and looked at their search engines. We saw e-commerce going way, way up. When you look at that, the share shifts might not have been in traditional retail storefronts. With the new entries into e-commerce and more traditional retailers entering into the e-commerce world, some of that share magically went online.

Jim Ristow, Home Entertainment Source:

From what I’m hearing everyone is talking about the same types of things —consolidation and Darwinism, whether it’s wholesale or retail. That effect is happening, and we’re all looking at broadening our mix — our basket — for the customer base, whether it’s the box store moving into new categories or furniture bundling.

The key words are experience for the consumer, solution, making it simple, and bundling it all together. What we in our alliance with PRO Group are trying to do is to come up with a solution to provide the experience the consumer is really looking for, and to get it installed. We might be doing it at a different level than the mass channel, but that is our next big foray — coming up with these solutions in these categories to turn-key it for our members and the consumers.


Jeanette, you have also been providing some interesting value-adds for your group’s members.


We’re taking it very seriously. We offer at every one of our Prime- Time events free ISF [Imaging Science Foundation] training, because we believe you’ve got to get more share of your customer right now, and if you’re not doing that you’re leaving money on the table.

At our next event we’re actually offering a PrimeTime University class on how to fill that basket, and we’re score-carding the dealers so they can go back and implement it. You can talk about this on a global level with upper management, but if you don’t have an implementation strategy it kind of falls on its face when you go back home.

We are also bringing furniture into our warehousing programs, and we will bundle that for the dealer so that they can understand how they can merchandize that on their floor and advertise and sell it effectively. We’re looking very seriously at putting these packages together and helping our dealers create the package, sell it, get it into the customer’s home, and install it, from beginning to end.


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