TWICE Names Six 'Retailers To Watch'

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With the goal of sharing best practices, and to salute dealers who have created a successful niche within an increasingly competitive marketplace, TWICE presents its second annual Retailers To Watch list.

Like last year's inaugural honor roll, this sophomore installment profiles CE and major appliance merchants who through marketing, store design, service, selection and/or business model have earned the admiration and respect of their peers and customers.

This year's short list, based on industry input and the judgment of TWICE, also places special emphasis on the custom installation category, given its growing importance as a revenue-enhancing, margin-rich adjunct to traditional retail sales.

While the list is by no means comprehensive, it is representative of the best in breed in specialty retailing. Congratulations, dealers.

Freeman's Stereo Video

215 Lawton Road

Charlotte, NC 28216

John and Jane Freeman, principals

Product mix: Mobile and marine audio/video, custom home installation, home automation and security, furniture

Charlotte, N.C.— Freeman's Stereo Video is a business in transition.

After 24 years in the mobile audio, and later, mobile video businesses, the husband-and-wife team of John and Jane Freeman are expanding their horizons and branching out into the home.

A local fixture in mobile A/V and automobile customization, and closely affiliated with NASCAR and some of its top drivers, the 10-store chain is nevertheless diversifying its mix of products and services in advance of a changing marketplace.

"The car business used to be such a booming category," recalled Jane Freeman. "Today, it's a declining market due to the way new cars are built," she said, citing intricate electronics systems that make customizing difficult, and an improved selection of OEM A/V options for new car buyers.

"We were looking ahead at the future, and realized we needed to branch out," Freeman continued. "We always liked home, so we said 'Let's jump in.'"

The most noticeable evidence of that decision is the company's name. The business was originally founded in 1980 by John — who began installing eight-track players and CB radios at age 14 — as John Freeman's Car Stereo Center, located in a self-described "tin shack" behind a Dixie Hi-Fi.

Within ten years the company was incorporated as Freeman's Car Stereo, and grew to a peak of 12 stores in North and South Carolina, upwards of 10,000 square feet in size, along with a 30,000-square-foot warehouse to support them. (Two satellite stores were later closed due to the cost inefficiencies of lying outside the chain's core advertising market.)

As technology evolved, the Freemans moved beyond audio and alarm installations and custom wheels and tires to satellite tracking devices (largely for car dealerships) and mobile video, with the latter now representing some 35 percent of the business.

The company also performs custom installations on recreational vehicles and boats, with some marine contracts running between $20,000 and $30,000. "We'll work on anything that moves," Jane joked.

Also raising the dealer's profile is its association with NASCAR. The company does work on NASCAR team pit boxes and has customized the private autos of top racers, such as Kurt Busch (including his truck and $200,000 Porsche) and the late Dale Earnhardt.

Indeed, racing is in the family blood. John is a former championship driver and both their 17-year-old son and 14-year-old daughter race, with the former winning kudos on the Formula One circuit.

So while it is unlikely that the business will ever sever its automotive roots, the company has begun transitioning into the home, as reflected by its new, non-denominational name, Freeman's Stereo Video, which is slowly making its way to signage across the chain.

But the most dramatic manifestation of the change is the creation of a fully functional demo home within the company's store in Cornelius, N.C., an up-market community near Lake Norman.

The store, located in a three-story building formerly occupied by a boat dealership, is large enough to accommodate the $200,000 stucco house, which also has a slate roof, hardwood floors and a fireplace. Officially opening September 1, the smart house features home theaters, hideaway flat panel displays, distributed audio, and lighting control and security systems, and boasts such brands as Mitsubishi Diamond series, Yamaha, Sony, Paradigm, Denon and Sharp. Display furniture will also be available for purchase.

To help the company get up to speed in home CE, the Freemans joined Home Entertainment Source (HES), the A/V wing of the Brand Source/AVB buying organization, and hired a number of staffers from the Tweeter Home Entertainment Group, which entered the Charlotte market in 2001 with the acquisition of the three-store Audio Video Systems chain.

Freeman's Stereo Video already has several $20,000 to $40,000 home installation jobs under its belt, Jane said, and the company eventually plans to roll its home-within-a-store concept to three additional locations while possibly adding smaller home-theater showrooms to the balance of the chain.

"We just have to find more installers," she said.

Ovation Audio/Video

2750 Tobey Drive

Indianapolis, IN 46219

317-890-2480

www.Ovation-av.com

Gary McCormick, president

Product mix: Upscale home audio and video, home theater, mobile electronics, furniture and custom installation

INDIANAPOLIS — Ovation Audio/ Video's president Gary McCormick, who is also president of the Progressive Retailers Organization (PRO Group), has seen plenty since he entered the consumer electronics business in 1973 and opened this chain in 1986.

Back in 1986 Ovation was "pure audio, both home and car," McCormick noted, with video coming in a few years later when "big screens and rear-projection sets became popular." He added Mitsubishi and NEC product then and "really entered the business in 1994 and 1995 when home theater bloomed."

His chain has survived and thrived over the years because it has adapted to changing tastes and changing technologies in upscale audio/video products. Ovation, which has been offering custom installation, is emphasizing it with the opening of a 10,000-square-foot location in Ft. Wayne, Ind., during the middle of this month.

The Ft. Wayne store is described by McCormick as a "custom retail showroom." He noted that the store is 2,000 to 3,000 square feet larger than a typical Ovation location. "We are having a 'house' built into the location, with a den, dining room, kitchen and other rooms, to give consumers an idea of what these products can do," he said.

Ovation has been a fixture in several key markets in Indiana and Kentucky over the years, with three stores in Indianapolis, one in Lafayette, Ind., two stores in Louisville, Ky., and another in Lexington, Ky.

McCormick noted that the reasons for the new store and its emphasis on custom installation are varied. "Well, it was an attractive real estate deal, and it is a market where its leading CE specialty retailer, Lehman's, recently closed." And he said that with Ft. Wayne being 100 miles northeast of its closest sister stores in Indianapolis, "We can experiment with new concepts in the new store. We know we can't be low-end, and don't want to be, but we can try new things with this format since no one there has pre-conceived notions of who we are."

For instance, along with the "home" displays in the Ft. Wayne store, McCormick said it will feature a high-end audio room for components and "an area just for Bose products, something we have never done before."

He explained that since video "has run away with the business," the audio area will be located close to the video department. While the video area won't feature "a mass TV display," it will be clustered near audio so that components can be sold with the latest HDTVs.

McCormick noted that the point to this new approach on the part of Ovation is that "We want people to know that we are in the custom business. The more we can add value, the better."

He said that in recent years at existing Ovation stores, "We have offered custom to a lesser extent, with an area attached to the retail store. We have seen a synergy between the retail floors and the custom areas."

Ovation has two dozen installers and "a three-week backlog, which is too long," McCormick noted. He sees the key to custom, and this new approach, as "managing the cost of labor effectively. If you do that, you can make five points or more with custom than [traditional] retail. This can be very profitable, so based on our current business we can use all the installers we can train."

The Stereo Shop

40 Jay Scutti Blvd.

Rochester, NY 14623

585-424-1820

www.stopattheshop.com

David Lane, owner

Product mix: consumer electronics

ROCHESTER, N.Y. — The Stereo Shop is a two-store operation based here that opened in the early 1980s and has been owned by David Lane since 1990.

The $6 million-a-year operation, which has a 10,000-square -foot store and second 4,000-square-foot location, has been a MARTA member for two years.

"That's unusual, since we don't carry major appliances," Lane said. What his company does carry is consumer electronics: home audio, video, custom installation and car installation, as well as cellular phones.

"The big change in our business over the past few years has been custom installation," Lane said. "A larger portion of our sales are coming through installation of systems for new construction and existing homes, which are larger individual sales than our traditional retail transactions."

The company, which has been "dabbling in custom install since 1995," has had two full-time installation crews for home systems for the past three years and has become "more serious about this business," Lane said.

The reason this traditional CE specialty store got involved in custom installation is, "We saw a hole in the market, a way to generate a lot of business. We also have a 10-percent greater profitability in custom," he explained.

Larger profits in CE are always tough to come by, and when asked what the mix of his sales are, traditional retail vs. custom, Lane noted, "It is tough to say because sometimes a traditional sale becomes a custom sale. Still, custom is now 25 percent of our sales."

Business is up for The Stereo Shop, both on the retail and custom ends of the business this year, Lane said. "Sales are up 18 percent vs. last year, and we expect strong sales for the rest of year, especially during our favorite time of the year, the fourth quarter."

He explained that business has improved due to "the willingness on the part of consumers to spend more on TVs than they have in the recent past. People will spend to buy plasma and other micro-displays."

On the audio side of the business, "We've seen a revival of decent quality sound systems with features. We are a Denon dealer, and they have a video up-conversion feature in one of their components, providing a single video feed, which is what consumers want. Audio sales are better."

The Stereo Shop is also selling both DirecTV and Dish Network at a great rate, especially since "local TV stations are now being carried by them."

Lane said he joined MARTA because "they have good relationships with the major CE suppliers we carry, and they have strength where we need it. And it is a co-op, which was attractive to me. MARTA sees the big picture."

When asked what goals Lane has for his company, he commented, "We will go with the market and follow trends." As for expansion, "We would rather have two good locations than two good ones and another that didn't provide growth. In the next two years we may look at expansion into other areas near Rochester."

Progressive Home

7181 Amigo Street / Suite 140

Las Vegas, NV 89119

702-263-7357

www.progressivehome.com

Mike Lemke, president

Product mix: Custom installation of audio/video systems, low-voltage cable installation, home security systems, vacuum systems and home networking systems, among others.

LAS VEGAS — Progressive Home is not a retailer, but a two-year-old custom installation company that has already been a MARTA member for a year. So why is this company a "Retailer To Watch"? This type of company is doing business that is putting it in competition against traditional retailers who want to be in the same business. As custom installation becomes more popular, CE retailers will not only be competing against each other for business, but for specialists like this one.

Progressive Home, a custom installation company for new homes, was opened by Mike Lemke in 2002. Why Las Vegas? "Well, it is still the largest growing city in the U.S., and we saw a need," Lemke said. There were plenty of companies that would do custom installations of CE, home networking and other home systems for luxury homes, "but few for mass production houses that range from $250,000 to $700,000 a year," he said.

Lemke saw an opportunity when he wrote his thesis for business school called "Home of the Future," back in 1997. "The paper became our business plan five years later," Lemke noted. While at school he was the head of an IT department for a casino, and in writing the paper saw that there were products in place for these types of installations, as well as products that needed to be developed.

"We also learned that companies that design high-end custom systems for luxury homes couldn't do installations like ours, due to tight budgets and tight deadlines, which are sometimes one day," Lemke said.

His company has 35 installers and has a 4,000-square-foot showroom here in Las Vegas. "When a customer opens our door he steps inside and sees what looks like a home. We have typical layouts of a kitchen, home theater, home office, living room and bedroom to show what a custom install is like and to display the technology," Lemke said.

Lemke said his company joined MARTA last year based on the appeal of being a shareholder in a co-op. But the bottom line reason was that "I never thought it would be so difficult to buy consumer electronics products at a decent price!" He noted that MARTA has relationships with many of the CE suppliers he has been working with.

Progressive Home's business is 80 percent new construction and 20 percent in existing homes, what Lemke calls "retrofits." The company has a custom division just dedicated to retrofitting existing homes with systems. He added that while there is "more demand for wireless products, IT, convergence products and others, the products are simpler for consumers to do the install. But while that is happening, plenty of consumers don't want to set it up," he noted.

Lemke sees opportunities for expansion in the next year in other areas around Las Vegas, but the key is "getting the right people" to hire to do the installations. He also sees more competition from traditional CE retailers. "Most of them have a retail focus, and they have to realize that the construction business is a relationship business. Heads of construction companies want to speak to owners, not regional managers, when they have problems."

The booming housing marketing in Las Vegas, and the boom in the custom install market, could mean Progressive Home should have a strong business for years to come.

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