Is Weller Finding Good Guys' 'Sweet Spot'?

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Whatever else Ken Weller accomplishes in his career he can always point to Good Guys' financial performance in the fiscal year ended Feb. 28, 2003 as being a highlight. The well-known West Coast CE specialty chain, under the tutelage of chairman/CEO Weller, posted an annual profit for the first time in seven years.

In this industry's history, under most circumstances when a CE retailer posts consecutive losses for that many years, one of these things usually happens: You go out of business or you are acquired by another chain. So far neither has happened to Good Guys, maybe because Weller is no stranger to the company or the industry.

Weller began his career in the CE business with Good Guys as a floor salesman during 1982, eventually becoming sales VP with the chain. He left for Best Buy in 1993, where he managed the chain's expansion in the western United States. Weller rejoined Good Guys as president during 2000 and by December 2001 was named to his current position.

Some may say that Good Guys' $1.1 million profit on $750 million in sales for the fiscal year was a fine accomplishment. Others could comment the chain's lower sales during the first quarter, ended May 31, and the net loss of $8.4 million, was more indicative of the company's long-term performance.

Those who think that way haven't been watching the cost-cutting and store-pruning efforts of Weller's management team over the past 18 months, which has significantly lowered the chain's cost structure. While doing that, Weller said he has also increased investment spending in areas such as sales training, new merchandising efforts and "more partnerships with vendors."

Weller commented that when he was thinking of rejoining Good Guys in 2000 he felt the chain was "in the sweet spot of the consumer electronics business." The Good Guys chief exec sat down with TWICE during the CEA CEO Summit, held here in June, to explain what he meant by that, and to lay out his future plans for the chain.

TWICE: How were you able to post a profit during the past fiscal year for the first time in seven years, during what was considered a mixed economy at best?

Weller: Looking back, it might have been a better performance than what we understood at the time. We knew we were going to have lower sales. By the end of the year we knew we would make a profit during a time when the economy was not good. The ability to reverse seven years of losses was a good performance. But I believe that our efforts have been more about positioning.

TWICE: What do you mean?

Weller: I honestly believed when I left Best Buy that Good Guys was in the 'sweet spot' of the consumer electronics business. When I re-joined the company, I mentioned that Best Buy, Wal-Mart, Target, Costco — great retailers, some of the best in the world — are beginning to look more similar than dissimilar.

I was part of Best Buy's expansion. The whole idea was to be a low-cost provider… and provide great values. Wal-Mart, Target, Costco ... all have the same idea. We are in the 'sweet spot' because with our product mix, better in-store experience and a shift in merchandising, we have an opportunity to capitalize on what I call the 'techno-coast.' The West Coast, from San Diego to Seattle starts trends, and we are in position to capitalize on that.

TWICE: What are other differences between Good Guys and what you call 'low-cost providers'?

Weller: The big difference between us is that we laser in on who is our customer and woo them, with differentiated marketing. Our customers look for more services. There will always be a niche for a chain that leads the way in new product introductions, in-depth product demonstrations and the like.

TWICE: How important has stronger partnerships been with leading vendors?

Weller: It has been important for us and it has been important for them. We differentiated ourselves with new product offerings, such as plasma TVs and all types of digital TV, digital video, and digital audio products.

When you are a low-cost provider it is really difficult to demonstrate new technology. And consumers who walk into your stores are way more informed than ever before. We understand that. They want to compare features, benefits and go to a store that understands and demonstrates new technology.

Our assisted selling environment is also really important for our vendor partners. Our average sales ticket has increased. For instance, we sell 500 to 600 plasma TVs a month. The average selling price is over $6000. The world is being told, by Gateway and others, that plasma TVs should be only $3000.

TWICE: You've repositioned Good Guys in the market as the place to go for digital entertainment electronics. Yet sales were down during the first quarter. What happened?

Weller: The economy in Northern California, where some of our largest stores are, has not rebounded quickly. That's the difference between Northern and Southern California, and it is an issue for us. We built our plan this year based on negative comps. We built a cost structure that delivers real savings and profits, especially if the next twelve months are better than the last twelve months, as many economists are predicting. We have seen more wonderful new technology being developed in the past year that will be reaching retail soon, which is really good for us.

TWICE: And finally, what is the biggest challenge facing retailers and the industry in general in the near future?

Weller: Specialty retailers like Good Guys must have the ability to partner with manufacturers to get top, cutting-edge product introductions, so we can demonstrate and explain the benefits to consumers.

The industry also needs to train its retail salespeople better, and keep the best people, and the economy has to get better.

And one more challenge — how do you introduce these great products without them becoming a commodity within a year? The process used to take three years. But I don't believe a year is in anyone's interest.

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