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Changing Marketplace Creates New Challenges, Opportunities For Dealers


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

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

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:

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

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.