That Was The Year That Was: A Retail Retrospective - Twice

That Was The Year That Was: A Retail Retrospective

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NEW YORK –

In many ways 2010 was more of the same for CE and appliance retailers.

Although the economy technically emerged from the recession, joblessness, foreclosures and the threat of both continued to suppress sales for much of the year.

Business was choppy at best, with value-minded shoppers sporadically emerging for sales events or to get their piece of the $300 million in majap stimulus funds. That program provided a much-needed shot in the arm for white-goods dealers and vendors, but sales dissipated as soon the till ran dry.

Business hit a new low over the summer, when limited disposable dollars were diverted to vacations, and didn’t return in a meaningful way until November, when pre-Black Friday promotions helped prime the holiday pump.

Early returns suggest a solid holiday season, especially for e-tailers and assisted floors, as near-cost pricing on TVs and PCs drive traffic, and 3D begins to fulfill some of its early promise.

So before we bid a final farewell to 2010 and the dealers it took with it including Bernie’s, Flanner’s, Ken Crane’s and MyerEmco, let’s take one last look back at some of the highlights and low points of the first year of the second decade of the century.

JANUARY

CE Boosts Holiday Sales

Chain stores started the New Year off on a roll thanks to solid CE demand in December. Best Buy reported strong sales of notebooks, mobile phones and majaps and a surge in online orders that boosted comp-store sales 9.3 percent; Target said net sales rose 5 percent in December with an assist from CE; Costco saw strength in PCs and audio, which drove mid-single digit gains in its CE and majaps business; and strong sales of CE and video games helped push BJ’s Wholesale Club’s revenue up 9.4 percent.

Nevertheless, The NPD Group said CE sales slipped 0.8 percent overall during the holiday period, dragged down by double-digit dollar and unit declines in TV.

Ominous Signs From Ken Crane’s

While the holidays were relatively happy for the industry overall, store closings at Ken Crane’s suggested that the retail consolidation of 2009 was not over yet. The Los Angeles-area A/V specialty chain shut four of its 10 stores and laid off industry veteran Steve Caldero in an effort to control costs and boost profitability amid dwindling dollar volume.

PRO, HES Exploring New Tech Categories

The Progressive Retailers Organization (PRO Group) and its strategic partner Home Entertainment Source (HES) plan to expand their product mix beyond the buying groups’ core A/V specialty assortments. New categories under consideration include gaming, computers, mobility devices, control automation, energy management and subscription-based content services, the buying groups said. The partners, known collectively as The Alliance, will support the new avenues with turnkey business solutions, including logistical support through HES’ fulfillment centers, in order to reduce risk, lower the barrier of entry, and deliver profitable sales for members.

“The business models of old are just that – old,” said Jim Ristow, executive VP of HES. “There are opportunities, but it means doing things differently.”

Bernie’s Bids Adieu

New England A/V, majap and furniture chain Bernie’s became the industry’s first retail casualty of 2010. High costs, low margins and the weak local economy forced the 15-store chain to file Chapter 11 bankruptcy protection and begin liquidation sales. Losses mushroomed from $234,000 in 2008 to $1.9 million in 2009, and sales declines led to defaults on about $12.7 million in loans. Bernie’s was founded as a gas station in 1947 by Bernie Rosenberg, was bought by Newmark & Lewis in 1985, and was re-acquired six years later by Rosenberg’s son Milton, who re-built the business from a two-store operation with plans to expand into Boston and beyond.

MyerEmco Going Bust

MyerEmco Audio Video, which served the Washington D.C. market for the past 55 years and helped set the standard for the independent A/V specialty dealer, is going out of business. Principal Jon Myer said the company succumbed to the prolonged recession and a credit squeeze that left it without sufficient working capital, and began liquidation sales in mid-February. “The economic downturn was like a light switch,” he said as revenues plummeted by 35 percent.

Super Bowl Meant Super Sales For Retailers

Super Bowl XLIV added extra zest to TV sales, especially for local dealers in the hometowns of the contending New Orleans Saints and Indianapolis Colts. “It’s been wild,” said Cowboy Maloney president Eddie Maloney. “The Saints are a big story here.” Meanwhile, Indianapolis-based hhgregg marked the big game by extending its “Employee Family Discount” program to virtually all product categories. “We’re excited for the Colts and are cheering for them in Super Bowl,” the company told TWICE.

Elsewhere around the country, big-box chains also mounted aggressive TV price and financing promotions in the days leading up to Super Bowl in a flashback to Black Friday. “We’re making value and convenience our top priority for our guests,” said Mark Schindele, Target’s senior merchandising VP.

February CE Sales Up 6% At Retail

Retail sales of consumer electronics rose 5.8 percent in February following a tepid 0.4-percent gain the month before, MasterCard’s Advisors consultancy division reported. The increase represented the sixth consecutive monthly gain in CE sales, and came despite severe winter weather that crippled much of the Mid-Atlantic, Northeast and North Central regions. The uptick was also achieved without extreme discounting, the company said, likely due to tight inventory and easy year-ago comparisons.

MARCH

Walmart’s Vudu Creates Sticky Wicket For Dealers

Walmart’s acquisition of Vudu is putting dealers in a difficult position. The video download provider was set to become a Walmart subsidiary after the estimated $100 million deal closes this spring, giving the world’s largest retailer ownership of an embedded service that is sold by competitors on select TVs and Blu-ray players from LG, Mitsubishi, Samsung, Sanyo, Sharp, Toshiba and Vizio. Dealers have voiced concerns to manufacturers over Walmart’s access to their customers and data, but it appeared unlikely that vendors plan to limit inclusion of Vudu on open line models.

HES Pushes Members On New Technologies

Home Entertainment Source (HES) urged dealers to add home controls to their repertoires to help offset margin declines in their core A/V businesses. Executive VP Jim Ristow outlined a new model to members attending HES’ and parent group Brand Source’s Spring Summits this month, in which dealers become “integrators that do A/V specialty,” rather than A/V specialists that provide limited integration services.

Citing CEA forecasts, Ristow said home technology, including structured wiring and whole-home sound, will outpace traditional CE categories this year with 6 percent growth, while disciplines such as automation, lighting and energy management could increase by as much as 20 percent.

Meanwhile, dealers and integrators attending the show reported that business was regaining momentum following a bruising 2009, and were optimistic about new marketplace opportunities despite remaining challenges.

Change Is In The Air

The New Year has brought with it changing roles and shifting alliances within the retail community. At Best Buy, a global management reorganization has given executive VPs Mike Vitelli and Shari Ballard expanded responsibilities, he as president Americas, she as president Western Hemisphere. Separately, the chain said it will convert the center of its stores into showcases for connections to, and content and services for, TVs, mobile phones and computers.

Meanwhile, former NATM members P.C. Richard & Son and Abt Electronics have rejoined the CE and appliance buying group after long respective absences, and Brand Source’s MARTA division was renamed Resource Plus to help tout the group’s focus on member services.

APRIL

HTSA Leveraging 3D, Tech Expertise For Growth

Home Technology Specialists of America (HTSA) is emphasizing its early embrace of home connectivity, its expertise in that area, and the opportunity 3D TV will bring as part of the buying group’s strategy for 2010.

During its spring meeting this month, executive director Richard Glikes described his membership as “trusted experts,” and said the four pillars of HTSA should be relationship building, idea and information sharing, economies of scale, and program advantages that can provide profits during a tough economy.

Glikes said that the challenging times require members to “revivify” their businesses with “new life and new ideas.”

Northeast Heats Up As Retailers Fill A Void

The Northeast is shaping up to be the newest retail battleground as independent dealers including Ultimate Electronics and a re-merchandised Sixth Avenue Electronics vie for a piece of that abandoned market.

The liquidation of Circuit City, the departure of Tweeter from its New England and Pennsylvania strongholds, and the bankruptcy of Connecticutbased Bernie’s has left a specialty store void that has not gone unnoticed by chains near and far.

Laying the groundwork for a coming turf war are recent expansions by hhgregg, P.C. Richard & Son, Sixth Avenue, Paul’s TV and, most recently, Ultimate. What’s at stake, according to estimates by The NPD Group, is the 33 percent of Circuit City sales volume left unclaimed by Best Buy and Walmart, on top of any remaining market share that was abdicated by Bernie’s and Tweeter.

Walmart Adds LG TVs

LG Electronics has opened up segments of its TV line to Walmart and sister chain Sam’s Club in a dramatic departure from its policy of limiting distribution to dealers with directed sales floors and the ability to sell premium products and new technologies.

The expansion, which follows distribution to Costco, was viewed by some independent and specialty dealers as yet another defection of a sheltered TV line to a high-volume competitor whose pricing policies have made it difficult for smaller dealers – many of whom do a substantial portion of the industry’s educational heavy lifting – to compete.

But LG described the decision as a necessary step in following the purchasing practices of consumers, who increasingly shop the discount channel.

MAY

Top 100 Sales Hit $121.3B

CE dollar volume for the industry’s 100 largest dealers edged up 2 percent last year, TWICE reported in its annual Top 100 retailer rankings. Aided by the expanding role of CE in consumers’ daily lives, dealers grew their businesses despite the worst economic downturn since the Great Depression by cutting costs, opening new stores and changing business models.

Not surprisingly Best Buy and Walmart continued to lead the pack, and together with third- through 10thplace retailers Apple, Target, Costco, Dell, GameStop,

Amazon.com

, RadioShack and Sam’s Club, accounted for two-thirds of all Top 100 volume.

PRO Group Holds ‘Most Upbeat Meeting In Three Years’

That observation, by former member-turned-supplier Gary Yacoubian, underscored a decidedly optimistic spring meeting of the Progressive Retailers Organization (PRO Group), as dealers and vendors prepared for growth, projected a gradual improvement in the economy, and experienced glimmers of pent-up consumer demand.

PRO’s executive director Dave Workman predicted that group sales would grow $200 million to $2 billion this year thanks to a slowly improving marketplace; expansion by members including Sixth Avenue Electronics and Paul’s TV; the additions of World Wide Stereo, The Big Screen Store and Bill Smith; and a greater diversity of dealers than ever before, due in part to changes within the specialty A/V channel resulting from the recession.

CE Retail Remains In Flux

Despite the good cheer at PRO Group, CE retailing continues to give mixed signals about its health. Indeed, the buying group meeting was overshadowed by the suspension of operations at longtime member Flanner’s Home Entertainment due to severe cash-flow constraints, while Target, Costco and BJs reported year-over-year declines in CE, led by drops in TV and PC volume.

Meanwhile, other chains continue to expand operations, including hhgregg which entered Baltimore, P.C. Richard & Son, which opened two more stores in Connecticut and BrandsMart USA, which is planning to open its first smaller-format store near Miami’s Dadeland Mall.

JUNE

Flanner’s, Ken Crane’s To Close

Succumbing to the recession’s tight credit, high unemployment and mounting home foreclosures, Ken Crane’s, a fixture in Southern California TV retailing for more than 60 years, and Flanner’s Home Entertainment, the prototype for the independent A/V specialist, both began liquidation sales this month.

Ken Crane’s found itself “powerfully affected by the nation’s unusually severe and continuing economic downturn,” the Crane family said, and “a steep, relentless decline in same-store sales activity led to the difficult decision.”

Flanner’s principal John Flanner, a past president of the Professional Audio Video Retailers Association (PARA), suspended operations in April after his bank called in his loan, and was forced to sell off his company’s assets after attempts at refinancing failed.

Walmart Steps Up CE Strategy

Walmart unveiled dramatic plans for CE that were detailed in a special report by TWICE. Changes in store for the No. 1 retail chain include a focus on connectivity, as reflected in a slew of Internet-capable TVs and Blu-ray Disc players; a larger assortment of home networking devices and accessories; a dedicated area for mobile broadband services; and an expanded selection of smart phones.

In TV, the chain is complementing an expanded IP offering with edge-lit and full-array backlit LED models from LG, Samsung, Sony and Vizio; new “New Technology” centers in which to showcase them; and a wider selection of 42-inch and larger displays.

“Customers shop us at every price point,” Walmart home entertainment senior VP Gary Severson told TWICE, “and we seek to offer value whether it’s a tierone or value brand.”

Majap Sales Fall 4% For TWICE Top 100

Retail sales of major appliances fell nearly 4 percent for the industry’s largest dealers last year, according to TWICE’s latest Top 100 Major Appliance Retailers Report. The annual survey of leading major appliance merchants showed white-goods sales slipping 3.7 percent to $22.7 billion for the ranking retailers, which represent more than 90 percent of total industry sellthrough.

Sears handily retained its crown as the king of appliance retailing with a 32 percent share of Top 100 sales volume. But despite steep and relentless promotions, the company continued to lose ground to the home improvement channel, which grew its majap share 4 percent to more than a third of total sales.

The report revealed the first wisps of recovery from the now four year-long majap malaise, as sales declines eased from the 4.7 percent drop in prior-year revenue, and bettered the 6.5 percent falloff in total industry volume in 2009.

Sales rebounded this spring, however, as a one-time $300 million stimulus program helped spur whitegoods business across all 50 states.

JULY

Faceoff In Philly

Philadelphia, which had been devoid of a regionalchain presence since the demise of Tweeter Home Entertainment, is quickly becoming a CE/majap battleground as Sixth Avenue Electronics and hhgregg backfill the market with big-box stores.

Sixth Avenue opened its second area store this month and has begun work on its third, while hhgregg entered the market in May and New York powerhouse P.C. Richard is set to come into Philly later this year with two superstores of its own.

Sixth Avenue’s operations VP Tom Galanis doubts the market can support three specialty chains, but said his company is well-versed in the high costs, cutthroat competition and sophisticated customers within the New York-Philadelphia corridor.

Dealers Planning For Tough Q4

Dealers, distributors and buying groups are girding themselves for a tough holiday selling season based on lackluster summer and back-to-school sales. Working with manufacturers, merchants are already planning aggressive Black Friday promotions that may begin earlier, and last longer, than last year’s extended event period.

If the current environment is any indication, costconscious consumers will eschew step-up products for good-enough fare, as evidenced by current supply constraints in 720p plasma and a surplus of higherend LED TVs, industry executives told TWICE.

“This economy is the new normal,” observed Mike Temiz, president of Sixth Avenue Electronics, “and you’ve got to learn how to do business in it. There’s less room for error. You have to be stronger and work harder and smarter.”

One-On-One With Dunn

In a revealing one-on-one interview that appeared this month in TWICE, Best Buy CEO Brian Dunn reviewed his career, the state of the industry and his vision for his company with Gary Shapiro, president/ CEO of the Consumer Electronics Association (CEA) at the trade group’s CEO Summit.

Among his observations: What drove the market during the booming economy was “consumers taking home equity out for consumption. That open to buy is gone. Consumers are buying … more for utility. So the sales highs are higher in some parts of the year, but there are deeper lows.”

Dunn added that the CE market has become event driven. “ They buy more for Dads and Grads, Mother’s Day, Back to School … and they come out for new technologies,” including smartphones and tablets.

AUGUST

Retailers Foresee Q4 Sales Growth

Retailers are looking past this summer’s placid CE sales to a more robust holiday season. Despite pockets of strength and gains over 2009, business has been coming in fits and starts through the summer months, adding urgency to a strong finish to 2010, dealers, distributors and buying group executives told TWICE.

A Yuletide recovery appears to be in the offing, fueled by pent-up consumer demand and enticing new CE devices and form factors, including 3D and IPTVs, motion-sensor gaming and tablet PCs. Also priming the pump will be a surfeit of bundled promotions and ever-earlier holiday sales events designed to deliver value to recession-weary shoppers, they said.

Nationwide Gains Market Share

The Nationwide Marketing Group has been exceeding industry performance in CE and majaps this year through a combination of aggressive promotions and step-up sales of premium products.

Executives of the buying group told TWICE during its bi-annual PrimeTime meeting and buy fair that promotional offers and package deals were getting customers into members’ stores, where they’re wowed by 3D-, IP- and LED-TV.

On the white-goods side, steep discounts tied to holiday sales events helped Nationwide dealers outpace industry growth two-to-one during the first half of the year, the group said.

Microsoft Planning More Stores

Microsoft COO Kevin Turner said the company is planning to open “dozens” of new retail stores. Speaking at the company’s annual Worldwide Partner Conference, Turner described the showrooms as “an incredible learning vehicle” that is helping its designers and developers create next-generation products based on end-user feedback.

“We’re going to keep building them,” he said. “That direct contact with consumers in the community is awesome.”

Microsoft opened its first four stores within the last nine months in Arizona, California and Colorado.

SEPTEMBER

Custom Installers Seek Growth Ideas

Custom installers are turning to new technologies and business strategies to reinvigorate a market whose main growth drivers – new home construction and remodels – could remain soft for several more years.

As a result, many electronic systems contractors (ESCs) attending last fall’s CEDIA Expo are turning to retrofit installations and have diversified into light- and medium-commercial installation, networking and secusecurity to help cope.

For its part, CEDIA unveiled its first New Technology Pavilion to highlight potential profit opportunities in such emerging areas as energy management, home health monitoring and residential communications.

Brand Source Entering New Categories

Brand Source, the $14 billion home-goods buying group, is getting connected through a new turnkey program that will provide members easy entrée into the broadband, content delivery and mobile categories. The effort, along with a possible solar-power program, are intended to help members diversify their assortments and build business within a sluggish marketplace marked by deep discounting and sagging consumer sentiment.

CEO Bob Lawrence described the summer months as “the toughest” 60 days in his career at the group’s fall convention this month, while keynoter Jim Campbell, CEO of GE Appliances, urged dealers to temper their product mix to remain price-competitive with bigbox chains.

Best Buy Counting On Connectivity

Best Buy sees broadband connectivity as its salvation through the recession and beyond. Despite a lackluster retail environment in which TV revenue stalled and same-store sales slipped, CEO Brian Dunn pointed to Best Buy Mobile as the company’s “single-biggest profit driver” during its second fiscal quarter, and “the tip of the spear” in its connected world strategy.

Connectivity, he told analysts, has brought the CE industry to “a pivotal, transformational inflection point,” on par with the analog-to-digital transition that began 15 years ago.

RadioShack Looks Beyond Mobile

Meanwhile, RadioShack, whose mobile business is similarly booming, is looking to revamp its CE assortment, which has variously included TVs, video gaming, PCs and personal media players. The company said it will undergo a series of product transitions over the next few quarters based on a category’s ability to drive traffic and fill market baskets with accessories and other attachment sales.

OCTOBER

NATM Hangs Tough Despite Weak Market

The NATM Buying Corp.’s 11 leading regional retailers are riding out the recession by cutting costs, opening stores, entering new categories and otherwise hunkering down until the economy recovers. “Our members are strong and well-financed,” the buying group’s president and executive director Bill Trawick said during NATM’s annual fall meeting, and the group is maintaining its market share in a stagnant, if not declining, environment for TVs and major appliances.

The dour sales environment has left Trawick looking forward to Black Friday, when even fiercer CE and majap promotions, and the suspension of MAP policies, “should bring people into stores.”

HTSA Sets New Sales Goals

Home Technology Specialists of America (HTSA) has set its sights on growing group revenue by $100 million over the next six months. The plan, which also includes a new membership drive, an “aggressive” online attack, a focus on Black Friday, and continued marketing and public relations efforts, was announced at HTSA’s annual fall meeting.

Richard Glikes, executive director of the 58-member buying group for specialty A/V dealers, custom installers and system integrators, said the $100 million increase would help offset but not compensate for sales losses over the past two years that reduced group revenue to less than $400 million.

Distributors Predict Steep Holiday Discounts

Distributors anticipate that heavy holiday-season promotions, beginning in early November and particularly in TV, will drive good sales volume during the fourth quarter. Retailers will need to promote aggressively to get consumers into their stores, but once there, tablet PCs, e-readers, Blu-ray players, digital cameras, HD camcorders, accessories and flat-panel displays should enjoy strong sell-through, distributors told TWICE.

TWICE Lauds Top Dealers

The winners of TWICE’s seventh annual Excellence In Retailing Awards were announced this month, recognizing best-in-breed dealers across five distribution channels and a new category, Best Retail Executive.

This year’s recipients were: Staples, Best National Retailer; Nebraska Furniture Mart, Best CE/Appliance Dealer; J&R Music & Computer, Best A/V Specialty Dealer;

Newegg.com

, Best Consumer Direct Dealer; Apple Stores, Best Vendor Retailer; and Best Buy CEO Brian Dunn, Best Retail Executive.

NOVEMBER

CE Shines On Black Friday

Consumer electronics was a major star on Black Friday as shoppers packed retail stores and went online to find unprecedented deals on TVs, Blu-ray players and computers. But the real winner over Thanksgiving Weekend was e-commerce, where free-shipping offers, competitive pricing and the convenience of home shopping led to a record $1 billion in sales on Cyber Monday, representing the single-biggest dollar-volume day ever for e-tailer.

Conversely, brick-and-mortar sales remained relatively flat to last year, as month-long promotions pulled business up into the early weeks of November.

Majaps Enjoy Big Black Friday, Too

CE, toys and apparel weren’t the only beneficiaries of Black Friday sales. For the third year in a row, major appliances have joined the pantheon of Thanksgiving Weekend promotions as retailers and manufacturers sought some holiday cheer for an otherwise stagnant category.

“Major appliances are now an important part of Black Friday,” observed Betsey Owens, VP of Sears’ private label Kenmore brand. Sears helped establish the tradition of hot appliance promotions three years ago, Owens told TWICE, and since then, “We’ve seen cost-competition on the day after Thanksgiving become something consumers anticipate. They know there are great deals out there.”

3D TV Gets Failing Grade

In a wide-ranging interview conducted by TWICE executive editor Greg Tarr at the NewBay Media 3DTV 2011 What’s Next? Conference, Sixth Avenue Electronics operations VP Tom Galanis said the industry dropped the ball on 3D’s debut.

“As an industry we could have done a better job launching it,” he said. “We should have had standardized glasses and we should have presented it to the consumer as a feature of a higher quality television.”

Galanis described 3D TV sales forecasts of 3 million to 5 million sets for 2011 as overly optimistic, and pointed to the active shutter glasses required by many models as the primary stumbling block.

He said retailers with trained sales staffs, like his own A/V chain, are better positioned to sell the category due to its complicated nature, and can explain to shoppers why they should spend more for the technology.

DECEMBER

Conn’s Gets New Lease On Life

Conn’s successfully completed a refinancing plan that extends its loans out as far as 2014 and provides access to $500 million in capital. The package provides some breathing room as the multiregional CE and appliance chain looks to regain sales momentum and return to profitability following an especially bruising year.

The company’s off to a good start: it trimmed its losses during its fiscal third quarter and enjoyed double- digit sales increases on Black Friday thanks to a better mix of fully-featured large-screen TVs – including a 55-inch 3D LED model that “blew out the door,” CEO Tim Frank said.

Chains Release New Round Of CE Promos

With Christmas little just two weeks away, big-box chains including Best Buy, Walmart and Sears let loose another round of CE sales promotions on TVs, Blu-ray Disc players, laptops, gaming bundles and smart phones, including an iPhone 3GS giveaway by Best Buy.

Meanwhile, the retailers’ online arms continued to offer free shipping on many if not most CE items, and pure-play e-tailer

Amazon.com

extended its own freefreight offer to Dec. 17.

CEA Resumes 3D Demo Days

The Consumer Electronics Association (CEA) brought back its National 3D Demo Days event for a pre-Christmas run the weekend of Dec. 17-19. The instore showcase, first deployed last September, drew some 70 dealers, including Abt, Best Buy, CompUSA, Fry’s, ListenUp, Nebraska Furniture Mart, Ovation, Paradyme, Sears, Starpower and Video & Audio Center. Content was provided by ESPN and Hollywood’s Digital Entertainment Group (DEG).

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