This month the National Bureau of Economic Research officially declared the Unites States has been dealing with a recession since December 2007. The news couldn’t have come as a surprise for anyone connected to the consumer electronics industry after a tumultuous year in which they watched a housing slump, a credit crunch and a banking crisis chip away at the major appliance and custom-installation markets, while at the same time leading industry retailers such as Tweeter and Circuit City fell into bankruptcy and closed stores.
As this issue went to print, Black Friday news was still rolling out. The National Retail Federation reported that 25 million more consumers had reported visiting stores or Web sites over Thanksgiving weekend than had the year before and their spending had increased 7.2 percent. No one can say yet whether this can be interpreted as an early sign of things beginning to turn around, but, hey, we can hope. Happy New Year.
CES Demonstrates CE’s Reach
The pervasiveness of the consumer electronics industry was very apparent at International CES 2008 as it was the first time a top cable executive (Comcast CEO Brian Roberts) and head of a leading car manufacturer (General Motors chairman/CEO Rick Wagoner) were CES keynote speakers. Paul Kagame, president of the Republic of Rawanda, was even on hand to speak during the Industry Insider series called “Technology and Emerging Countries.”
The 2008 edition of CES featured a record 1.85 million net square feet of exhibit space with 2,700 exhibitors and approximately 130,000 attendees.
Show highlights included the 11th and final pre-CES keynote delivered by Microsoft founder Bill Gates and a one-on-one interview of Federal Communications Commission chairman Kevin Martin by the Consumer Electronics Association (CEA) president/CEO Gary Shapiro; the two discussed the impending Feb. 17, 2009, analog broadcasting cutoff.
Apple Intros MacBook Air
Apple chairman Steve Jobs unveiled “the world’s thinnest laptop computer,” the MacBook Air, to an enthusiastic crowd during his Macworld keynote. Jobs memorably illustrated just how thin Apple’s “thinnovation” was by slipping it out of a common interoffice envelope.
Weighing in at 3 pounds, the $1,799 Air measured just 0.76 inches thick at the hinge and 0.16 of an inch at the opposite edge. At the time, Jobs asserted that the Air at its thickest was still thinner than the thinnest part of the current thinnest laptop.
Retail Execs Predict Tough Times
The CEOs of Best Buy and Circuit City and the head of Target’s consumer electronics business each predicted tougher times ahead for CE retailing as shoppers were already feeling the pinch of high energy costs and a weakening economy as the year began.
The cautionary outlook came during an International Retail Power Panel, part of International CES’s Industry Insider series, moderated by Shapiro.
Circuit City’s then-CEO Phil Schoonover expressed apprehension about the economy. “Consumers are just getting their first oil bills — we’re paying $3 a gallon in Massachusetts — and they’re concerned,” he said. Compounding their fears was the subprime mortgage dilemma and talk in the media of a recession. In response, Schoonover said the consumers would take a “cautious approach to expenses, and [would] act prudently in the face of more difficult headwinds.” Schoonover also acknowledged his company’s own financial challenges, which he described as “trying to fix a plane while flying it.” He assured the large contingent of investment analysts in the audience that Circuit City was “on the road to improved performance.”
Sears Holdings Reorganized By Category
Sears Holdings restructured its Sears and Kmart businesses along key product category lines.
The goal was to organize the company around five core operating business units including consumer electronics, major appliances and apparel.
Each unit is now assisted by support units that provide operational and administrative functions, such as marketing, store operations, customer strategy and finance.
Wattles Ups Circuit City Stake
Mark Wattles, owner of Ultimate Electronics, amassed a 6.5 percent stake in Circuit City in January, putting him in control of a total of 11 million shares of Circuit City common stock. He had been collecting stock in the retailer since November 2007, according to a filing with the Securities and Exchange Commission. Wattles stated in the filing that the purchases were for investment purposes, but noted that he might use his shareholder position to influence or change Circuit City’s management or board, or to gain control of the company outright.
Economic Jitters Blunt Super Bowl Sales
Consumers’ macroeconomic concerns took some of the wind out of Super Bowl TV sales, prompting vendors and retailers to resort to steep promotions to drive volume.
Jeff Stone Named Circuit’s Executive VP
Former Tweeter president/CEO Jeff Stone joined Circuit City in the new role of executive VP for new business development. Stone had most recently served as president/COO of Tivoli Audio; he was appointed to Circuit’s executive ranks to oversee the growth and development of the chain’s new The City concept stores, its Firedog service business and ongoing “innovation work” as the retailer revamped its operations.
Stone’s appointment was part of a series of changes within the company’s executive ranks that happened around that time. During that period, John Harlow was also appointed executive VP/COO and multichannel sales executive VP Danny Clark left the company.
Big Boxes Help Blu-ray Win Format War
Toshiba decided to drop HD DVD shortly after it lost support of Best Buy and Wal-Mart.
At the time of its decision, Toshiba said it decided to no longer develop, manufacture and market HD DVD players and recorders and that it planned to be out of the market by the end of March 2008.
“We carefully assessed the long-term impact of continuing the so-called ‘next-generation format war’ and concluded that a swift decision will best help the market develop,” said Atsutoshi Nishida, Toshiba president and CEO. “While we are disappointed for the company and, more importantly, for the consumer, the real-mass market opportunity for high-definition content remains untapped, and Toshiba is both able and determined to use our talent, technology and intellectual property to make digital convergence a reality.”
Best Buy Continues U.S. Expansion
Best Buy announced its plans for new stores and programs would continue unabated this year despite a downturn in business during last year’s fiscal fourth quarter.
The retailer’s plans called for opening upward of 100 new U.S. stores during its 2009 fiscal year, which began March 1; extending its Best Buy Mobile wireless departments to the majority of its U.S. locations over the next 18 months; establishing Apple departments in a total of 600 stores; and opening 10 additional Pacific Sales Kitchen and Bath Center locations.
The company also planned to redesign its stores by resetting the GPS area and adding gaming and music elements to the center of the selling floor. Other plans entailed enhancements to its Web site and Reward Zone loyalty program along with testing of several new product categories throughout the year.
Wattles Seeks Dismissal Of Circuit Board
Dissident investor and Ultimate Electronics owner Mark Wattles kicked off an effort to unseat all 12 of Circuit City’s then-sitting directors and replace them with the five board candidates he nominated last month.
The proposal was submitted to Circuit City via letter, along with a second proposal to repeal any bylaw amendments or new bylaws that Circuit’s board may adopt without first seeking shareholder approval.
The proposal and bylaws were to be considered at the retailer’s annual shareholder meeting in June.
Nationwide Sees Growth In Soft Market
The Nationwide Marketing Group, the $11 billion majap, CE and home furnishings buying organization for independent dealers, rallied its 3,000 members to step up their marketing and promotional activities in the face of a weak housing marketing and soft economy at its biannual PrimeTime! meeting and convention held in Dallas.
The effort, which included a focus on higher-margin products like high-efficiency laundry and 120Hz LCD TVs, was expected to help extend the group’s four consecutive years of market share gains in majaps and its double-digit growth in flat-panel TV in 2008, Nationwide executives told TWICE at the meeting.
FCC Orders DTV Transition Education Effort
The Federal Communications Commission (FCC) issued a DTV Consumer Education Order requiring television broadcasters, multichannel video programming distributors, telecommunications carriers, retailers and manufacturers to promote awareness of the nation’s transition to digital television.
The FCC also said it would assist the National Telecommunications and Information Administration in ensuring that retailers were getting digital-to-analog TV converter boxes on shelves.
Previously, FCC chairman Kevin Martin had encouraged voluntary industry education efforts.
Weedfald Leaves Circuit City
Peter Weedfald left his post as senior VP/chief marketing officer at Circuit City as the retailer’s fiscal year ended.
During his tenure with the chain, Weedfald mounted a number of national campaigns to spotlight Circuit City’s Firedog in-home services brand.
The executive sent an email to industry colleagues as he left his retail post. He wrote: “It has been my honor and pleasure to have served so many dynamic, affable and spirited Circuit City leaders throughout our stores, departments and work groups … across our multichannel enterprise. I continue to be highly supportive of all our Circuit City associates focused intently on the art of the possible during difficult, hyper-competitive and cloudy economic times.”
CEA Discusses Custom Market Challenges
CEA economist Sean DuBravac and CEA’s industry analysis senior manager shared their less-than-optimistic thoughts about the outlook for the custom A/V market during the EH Expo this month.
DuBravac said custom installers faced big challenges because of a new-housing market that won’t return to its peak levels for a few years; a depressed home-remodeling market that likewise reduced the potential for custom-install sales; inroads by electrical contractors into the custom market; and home builders who, despite an apparent need to aggressively differentiate themselves, still do very little to promote custom-installed systems.
Wattles Pushes To Oust Schoonover
Wattles Capital Management called for the replacement of Phil Schoonover, chairman/CEO of Circuit City, along with a series of other changes in a letter signed by Mark Wattles. Wattles blamed Schoonover and his management team for the company’s declining performance over the previous two years despite much-publicized attempts at turning the company’s business around.
Harvey Shuts Stores, Adds Shops
Harvey Electronics announced it would close its five remaining stand-alone stores in May, and would look to open five to eight in-store shops in New Jersey this year as the A/V specialty retailer shifted to a custom-install-only strategy.
The closures left the New York-area business with two stores-within-stores, located at ABC Carpet & Home, a Manhattan home furnishings emporium, and in a nearby Bang & Olufsen showroom. The company shut its flagship store in midtown Manhattan in February.
Blockbuster Bids On Circuit City
Blockbuster went public with a $1 billion-plus cash bid for Circuit City, part of a hostile acquisition plan motivated by Circuit’s refusal to fully open its books during due diligence.
The deal had the backing of Blockbuster’s board, including majority shareholder Carl Icahn. At the time, Blcokbuster CEO Jim Jeyes intimated that Icahn, the billionaire investor who led the company in a friendly bid to buy Mark Wattles’ Hollywood Video chain three years ago, and more recently pressured Motorola to split off its handset operations, could help finance Circuit’s acquisition.
Wattles, a major Circuit City stockholder who had been agitating for change at the company and who stood to potentially realize a significant payout if the bid went through, was a major proponent of the idea.
Retailers Compete For Stimulus Checks
President Bush launched his economic stimulus plan to encourage consumer spending, and retailers were more than happy to help.
Several national chains, including RadioShack, Sears and Wal-Mart, developed programs to encourage consumers not only to spend their federal stimulus checks, which began mailing in May, but to spend them at their stores.
Top 100 CE Retailers’ Sales Hit $125B
According to the latest TWICE Top 100 CE Retailers Report, prepared with market research partner The Stevenson Company, retail sales for the industry’s 100 largest dealers rose nearly 10 percent last year to $125.4 billion, outpacing 2006’s reported 7 percent growth.
Best Buy was ranked as the leading CE retailer for the year, followed in order by Wal-Mart, Circuit City, Dell and Target.
Best Buy Buys Carphone Chain
Best Buy made plans to open its first European stores through a 50-50 joint venture planned with its British wireless partner The Carphone Warehouse.
PRO Upbeat About Second Half
The Progressive Retailers Organization (PRO Group) members expressed cautious optimism about the second half during its annual spring meeting, held and the Hyatt Regency and Gainey Ranch in Scottsdale, Ariz.
Wal-Mart Updates CE Department
Wal-Mart performed its annual update of its electronics departments by expanding its TV, portable, Blu-ray and social-gaming departments.
The retailer added 60 percent more SKUs in televisions and picked up the Sharp brand. It began offering for the first time a separate Blu-ray department and added three brands of Blu-ray players — Magnavox, Samsung and Panasonic — to its existing lineup of Sony players.
Also new was a GPS display offering hands-on interaction with six portable GPS devices. The retailer added Magellan to its GPS brand lineup offerings.
Finally, Wal-Mart also expanded its selection of MPS players and portable gaming devices. It also bowed an expanded area for social games such as Rock Band and Guitar Hero in 800 stores.
Tweeter Unveils New Prototype
Tweeter Opco unveiled its latest store iteration at its 10,000-square-foot store in Dedham, Mass. The store was remodeled with a series of self-guided interactive displays.
The demos, activated by pressing various “Try Me” buttons throughout the store, allowed customers to compare and assess products, visualize custom installations and experience the benefits of whole-home integration.
Sharper Image Shuts Remaining Stores
The joint venture that acquired The Sharper Image in May for $49 million in a bankruptcy auction said it would close the chain’s remaining 86 stores and would leverage the brand under a new licensing strategy.
The partners, which included liquidator Gordon Brothers, private equity firms Hilco Consumer Capital and Windsong Brands, and investment group Bluewstar Alliance, said they had developed a global licensing strategy for wholesale, direct-to-retail, e-commerce and catalog businesses that would “exploid The Sharper Image’s heritage of quality, excitement, innovation and fun.”
The chain originally filed for Chapter 11 bankruptcy protection in February and put itself up for sale in April after shutting about half its store base.
Blockbuster Drops CC Bid
Blockbuster’s attempt to buy Circuit City ended quietly with the movie-rental chain pulling the plug on the deal.
In a prepared statement, Blockbuster chairman/CEO James Keyes blamed the demise of the deal on “market conditions,” and determined after examining Circuit City’s books that “it is not in the best interest of Blockbuster’s shareholders to proceed with an acquisition of Circuit City. We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand. We will pursue this strategy through our Blockbuster stores as a way to diversify the business and better serve the entertainment retail segment.”
Blockbuster’s rejection sent Circuit City’s share down 16 percent to slightly more than $2 a share when TWICE first went to press on the story, giving the chain a valuation of about $370 million, or less than a third of Blockbuster’s original offer.
Best Buy Predicts Sales Will Double By 2012
Best Buy predicted it will see its sales double to $80 billion over the next five years at its annual shareholders meeting.
The pronouncement capped an upbeat management presentation that emphasized the company’s ambitious international growth strategy, which includes store openings in Mexico and Turkey and the aforementioned $2.1 billion joint venture with Britain’s Carphone Warehouse.
Sirius and XM Merge
Sirius and XM formally announced the completion of their merger and unveiled Sirius XM Radio as the name of the merged companies.
The merger, described by commissioner Robert M. McDowell as “one of the most heavily conditioned” in the history of the FCC, took 412 days to work its way through the approval process.
Target.com Offers Home Installation
Target.com began offering home-installation serviced to customers through a third-party provider.
The Minneapolis-based vendor, Zip Express Installation, provided and managed an installation infrastructure for retailers by contracting with some 16,000 TV, home-theater and wireless-home-network installers nationwide.
The partnership represented the first home-installation program for the discount chain, and followed news of a home installation service that Dell was testing for Wal-Mart and an effort by SonyStyle stores to increase in-store services.
As of the announcement, Target.com shoppers were to be offered home-installation packages when making any major CE purchase.
HES/PRO Form Alliance
The PRO Group and Home Entertainment Source (HES) formed a strategic alliance this month. The move was viewed by many as the industry as a means to help keep the specialty A/V retail channel competitive.
According to Dave Workman, executive director/COO of PRO Group, and Jim Ristow, executive director of HES, the specialty A/V division of the Brand Source buying group, the alliance would allow both enteties to collaborate with their mutual vendor partners on special buying opportunities and specific channel strategies. The initiative would leverage HES’ warehouse distribution infrastructure.
Workman said that the two groups together represent almost $4 billion in retail volume, and he described the alliance as a “long-term commitment” to sell “step-up goods for vendors in a growing [retail channel].”
Best Buy Completes Mobile Rollout
Best Buy completed its national effort to bring in-store mobile shops to all 965 U.S. stores, a rollout that began in October 2006.
In the same month, the company also began a 12-market test of CE vending machines for airports and opened a store in Mall of America, the country’s largest indoor shopping mall, which is located in a suburb of Minneapolis.
Best Buy’s Mobile Stores also announced it would become the first and only store, other than stores operated by Apple and AT&T, to offer the Apple iPhone starting in September.
Boscov’s Files Chapter 11
Boscov’s, the privately held Reading, Pa.-based department store filed for Chapter 11 bankruptcy protection and announced plans to close 10 stores.
The chain, a member of the NATM Buying Group that was ranked No. 69 in the TWICE Top 100 CE Retailers Report with $108 million in CE sales for calendar year 2007, operated 50 locations in 2007.
When the chain made the filing The Wall Street Journal quoted Maralyn Lakin, Boskov’s senior VP, as saying in reference to the economy and market conditions, “We are middle America. I have never seen anything like this.”
Circuit City’s Schoonover Resigns
Circuit City’s chairman, president and CEO Phil Schoonover stepped down from those positions as he resigned as company director. Schoonover had been with the company since 2004.
James A. Marcum, recently appointed vice chairman, was named to serve as acting president and CEO.
The board of directors elected Allen B. King, former chairman of Universal Corporation, as its chairman.
Investors gave the move a thumbs-down by selling off stock following an initial rally, suggesting that the retailer’s woes go well beyond any one individual.
Circuit City’s share price, which was already down 80 percent from a year before, fell nearly 9 percent to $1.55 at the close of trading the day after the announcement.
Best Buy Announces Napster Acquisition
Best Buy announced plans to buy the Napster music-download and streaming site for around $121 million, including Napster’s international operation and cellphone services.
“We can forsee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions,” Dave Morrish, Best Buy’s connected digital solutions executive VP said at the time. The chain was to us the purchase to “leverage our existing relationships with the labels, the studios, and the hardware providers,” he said, calling Napster and its 700,000 subscribers “an outstanding addition to our already robust portfolio of partners and offerings in the digital music space.”
Retailers Express Economic, Holiday Concern
Retailers and distributors said the global financial crisis is putting added pressure on CE sales, which were already squeezed by high fuel costs and the weak housing market.
The pain varies by trading area and product category, a cross-section of re-sellers told TWICE, with flat-panel TVs faring best and home-related sectors, including custom install and white goods, taking the biggest hit.
Of greatest concern was the rapidly approaching holiday selling season and the impact the historic economic upheavals will have on consumers’ willingness to spend.
T-Mobile Debuts ‘Google Phone’
T-Mobile USA launched its T-Mobile G1 with Google this month. The touchscreen-equipped cellphone with 3G is the industry’s first phone based on Google’s open-platform Android operating system.
The $179 HTC-made device was targeted almost exclusively to consumer users, but the carrier noted the open operating system would enable third-party developers to create enterprise-oriented applications, including apps for Microsoft Exchange email.
At launch, the carrier-subsidized SIM-locked phone was available in select T-Mobile-branded stores as well as select third-party retailers.
Circuit Curbs Expansion
Circuit City took itself off the auction block and announced plans to dramatically reduce new store openings following a $239 million net loss in its second fiscal quarter.
Acting CEO and vice chairman James Marcum also imimated the company was considering closing existing stores following a comprehensive review of its business.
Marcum said in a conference call that the chain would prepare for the holidays with “simple, easily implemented fixes.”
Just before the retailer’s financial results were announced, Bernard Sands, a credit reporting company, reportedly pulled its recommendations from the retailer for suppliers to ship it goods because it might not be able to pay vendors. The call had the potential to affect Circuit’s ability to replenish its inventory.
Potential store closings and fire sales by Circuit City raised concerns throughout the industry. A Wall Street Journal article suggested that such a situation would flood the market with deeply discounted product and put added promotional pressure on retailers.
TWICE Announces 2008 Excellence In Retailing Winners
TWICE announced the winners of its fifth annual Excellence in Retailing Awards, a program established to honor best-of-breed merchants in consumer electronics and major appliance retailing.
The winners in each category were:
- Best National Retailer — Best Buy
- Best A/V Specialty Dealer — Audio Advice
- Best Consumer Direct Dealer — Huppins
- Best CE/Appliance Dealer — hhgregg
- Best Vendor Retailer — Apple Stores
CEA Predicts 3.5% Increase In Q4 Sales
The CEA 15th Annual CE Holiday Purchase Patterns study predicted a 3.5 percent increase in fourth-quarter sales, half of what the same report predicted for last year’s holiday season.
Mobile phones were expected to provide almost half that growth, at 1.7 percent.
The survey was considered a bit of good news for the industry, which had been facing a deluge of bleak economic news at the time it was released. However, the study did reflect the economic pain and anxiety consumers were feeling. Overall holiday spending by consumers for all categories was predicted to drop 14 percent, though consumers also reported their holiday budget for CE products would be 28 percent of their purchases, up from 22 percent last year.
CEA later revised its forecast saying it expected relatively flat revenues.
CEA Names First Retail Chairman
CEA named Gary Yacoubian, president/COO of MyerEmco, its first chairman who is a retailer. DBL Distributing president Henry Chiarelli was named to take over Yacoubian’s former vice chairman spot.
Gary Shapiro called the move “historic” because for so much of its life CEA was a manufacturers-only group, but now its chairman and vice chairman will be a retailer and a distributor.
Yacoubian replaced Pat Lavelle, president/CEO of Audiovox.
Toys ‘R’ Us Expands CE Assortment
Toys “R” Us began carrying Apple iPods and Asus ultraportable notebook PCs in a major expansion of its CE assortment.
The iPods and related accessories were merchandised within specially designed “iPod boutique” wall displays.
The four models of Asus’ Eee PC were promoted through a comprehensive marketing campaign that included print efforts and active in-store displays that allowed shoppers to try the notebooks.
The addition of both products reflected an effort by the retailer to become a one-stop shop for products desired by children.
Tweeter Shuts Distribution Centers
Tweeter closed all of its distribution centers in a move described by management to employees as saving up to $12 million per year, according to various industry sources.
Under the new plan, suppliers would ship directly to stores.
Several vendors contacted by TWICE declined to go on the record about the story, but they confirmed aspects of the story and said it was an unheard of move for any type of retail chain with Tweeter’s store count and store sizes. These vendors feared warehouse closings were a precursor to liquidation.
Amazon Launches Car Electronics Store
Amazon.com formally launched a new mobile electronics section for car audio, video and navigation at www.amazon.com/carelectronics.
Previously, mobile electronics were sold by individual sellers at Amazon.com but without an overarching area on the site. The e-tailer had enlisted top brands and leading retailers to launch the new store with more than 5,000 new and used car audio, video, navigation and security products.
Tweeter Goes Bankrupt
Tweeter filed for Chapter 11 bankruptcy protection in a Delaware bankruptcy court this month after shutting its distribution centers, dismissing its headquarters staff and commencing going-out-of-business sales at all remaining 94 stores.
According to petitions filed under the names Tweeter Opco, Tweeter Newco, Tweeter Tivoli and Tweeter Intellectual Property, the retailer faced “a severe liquidity crisis brought on by slow sales caused by declines in discretionary consumer spending.”
The chain, which was acquired last year by Schultze Asset Management after a previous bankruptcy filing, estimated its liabilities at between $50 million and $100 million.
Circuit City Goes Bankrupt
A cash-starved Circuit City filed for Chapter 11 bankruptcy protection with plans to continue to operate the business as a debtor in possession (DIP) with the help of $1.1 billion in financing from its current lenders.
The company said it took the action to ensure that vendors would continue shipping it goods through the critical holiday selling season, after which the DIP credit facility would be reduced to $900 million, a filing showed.
The move came only a week after the retailer announced the closing of 155 stores.
Best Buy Cuts Full Year View
Best Buy lowered its guidance for the rest of the fiscal year following a 7.8 drop in domestic same-store sales in October amid what vice chairman/CEO Brad Anderson described as “the most difficult climate we’ve ever seen.”
As of the announcement of its October financial results, the chain was then projecting a company-wide decline in comps sales of 5 percent to 15 percent for the balance of its fiscal year (November through February), and full-year comp declines of 1 percent to 8 percent.
Black Friday CE Sales Surge
Despite fears of a promotional free-for-all on Black Friday due to the weak economy, excess inventory and liquidation sales at Tweeter and some Circuit City stores, CE dealers largely avoided the deep, margin-killing discounting seen in recent years.
Shoppers turned out in record numbers on Black Friday. A survey by the National Retail Federation found more than 172 million people either visited or planned to visit stores or Web sites over the four-day weekend, up from 147 million the year before. These consumers spent an estimated $41 billion, or $372.57 per shopper, up from 7.2 percent from Thanksgiving 2007.
Tweeter Closes All Stores
Tweeter closed out the year by terminating its corporate staff and shuttering all of its remaining stores, days before a planned weekend shutdown.
The move was believed to be a precursor to a conversion from Chapter 11 bankruptcy protection to complete liquidation under Chapter 7.