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hhgregg Cops Second Consecutive Win In CE/Majap Category

hhgregg is well on its way to filling the void left by Circuit City as it seeks to become a second national CE and appliance specialty chain.

But the company, founded by the Gregg and Throgmartin families in 1955, became a multiregional powerhouse long before Circuit’s demise, with stores and distribution centers fanning out from its home turf in Indiana to markets as far south as Florida.

During a decade-long build-out the chain perfected its expansion template, which includes a spoke-and-wheel strategy of opening distribution centers in key regional markets and surrounding them with a ring of standardized and easily replicated stores. Markets are later backfilled with additional storefronts to increase share and further leverage such fixed costs as advertising and delivery expenses.

Meanwhile, rigorous personnel training grounds new sales associates and store managers in the company’s service-oriented culture, while a robust back-office infrastructure with a scalable inventory replenishment and forecasting system provides the foundation for the company’s national ambitions.

Management said the studied approach will allow hhgregg to avoid the fate of former fast-track CE chains that overextended their skills and resources, while it works toward its own goal of some 400 stores nationwide.

But the economic downturn prompted hhgregg to move up its timetable dramatically, as the retail playing field consolidated and choice real estate became available. Plans now call for a 45-store rollout into the Mid-Atlantic market next year, including the key urban centers of Baltimore, Philadelphia and Washington, while plans for the current year have been escalated to upwards of 22 stores in the new markets of Memphis; Tampa, Fla.; and Richmond, Va., Circuit City’s former hometown.

The store openings will be funded with cash from operations and a revolving credit facility, while the chain also explores various financing alternatives to fuel longer-term growth, including equity and debt.

“Once in awhile you get a window of opportunity that you have to take advantage of because you don’t know how many more will come along,” chairman Jerry Throgmartin told an investor conference in June.

But can the marketplace sustain a second national CE and appliance chain? The answer, said recently promoted CEO Dennis May, is a qualified yes, based on hhgregg’s more profitable mix of premium TVs and appliances, and its highly trained assisted sales force.

“Manufacturers are struggling significantly with profitability and are extremely excited about us becoming a national retailer like the Circuit City of 10 or 15 years ago,” he said at the investor conference.

“We have an extraordinary opportunity to gain market share by taking advantage of the current rental rates and excess availability in the real estate market,” May later said. “The combination of our effective operating model, an opportunistic real estate environment, strong partnerships with key vendors, and the availability of talented field-level personnel create a significant opportunity for the company to accelerate its growth while continuing to provide customers with a superior customer purchase experience.”