It was a year that began with a bang and may very well end with a whimper.
Consumer electronics retailers kicked off 2000 by counting the proceeds from what most concurred was the best holiday selling season in history. But as the millennial year draws to a close, a slowing economy, tanking stock market, higher energy costs and an interminable presidential election have taken a toll on conspicuous consumption.
The result: Shoppers are clearly on a bargain hunt this quarter, and merchants are responding with $49 VCRs, below-wholesale CDs and other loss leaders that may come back to haunt their top and bottom lines.
But fourth-quarter concerns aside, there was plenty ado in CE retail during the preceding months as well. Among the highlights and lowlights were the demise of Roberds, the Chapter 11 bankruptcy of Heilig-Meyers, Circuit City’s departure from appliances and Best Buy’s Musicland/Magnolia buyouts.
Still, with two weeks left to 2000, the year’s grace note has yet to be played, so stay tuned for further developments.
Y2-OK: Despite concerns that a millennial glitch would melt down computers and return society to the Stone Age-or maybe because of it-shoppers splurged on CE products during the just-ended holiday selling season. Said Sound Advice senior VP Michael Blumberg, “This is my 26th year in the business, and it’s shaping up to be the greatest season I’ve ever seen.”
THREE’S COMPANY: The presidents of the three largest CE retailers-Best Buy’s Brad Anderson, Circuit City’s Alan McCollough and RadioShack’s Len Roberts-make a rare group appearance at a CES power panel. The upshot: Digital devices and the still untapped potential of e-commerce will be the keys to continuing growth in the new century.
MUCH ADO ABOUT DOT.COM: Leading CE e-tailers claim that returns-which pundits predicted would bring them to their knees-were a non-issue after the holidays. The cyber merchants, gathered at a TWICE E-Commerce Roundtable, note that return rates were actually well below the brick & mortar norm, thanks to the greater CE sophistication of the Internet shopper and the wealth of product information that the medium affords.
BATTLE OF THE BULGE: Newly engorged after swallowing up most of the Key America buying group, Nationwide TV & Appliances lays out a five-year plan to members during its 30th anniversary confab in Las Vegas that is designed to better leverage its enhanced buying clout. Says director Robert Weisner, “Today, Nationwide as a whole is among the top five electronics retailers. We want to be as big as Circuit City and Best Buy.”
THE WRITING’S ON THE WALL: In what will prove to be the first stage of Circuit City’s eventual withdrawal from white goods, the No. 2 CE chain says it will test 35 electronics-only stores and six to eight majap specialty shops in Florida. “Customers are looking for a different environment when they are shopping for major appliances,” explains then president Alan McCollough. The move, he adds, will “increase consumer awareness of our appliance offering and further strengthen our market-share position.”
TANDY WAS DANDY, BUT RADIO-SHACK IS DIVINE: Calling it a vote of confidence in the future of its CE chain, and an opportunity to capitalize on a proven brand, Tandy files with the Securities and Exchange Commission to officially change its name to RadioShack Corp. “RadioShack accurately reflects our single retail concept and clearly communicates to consumers and shareholders the confidence we have in RadioShack’s powerful growth prospects as a retail service concept,” says CEO Len Roberts.
NATM NOTES: The $3 billion NATM Buying Corp. holds a rousing millennial meeting in Tucson, Ariz., that evinces a newfound esprit de corps under recently installed executive director Bill Trawick. “We want to be more consistent and cohesive in the way we perform,” he says, “and we need to focus on coming to the vendors as one group.”
CAN YOU TOP THIS? According to the latest TWICE Consumer Electronics Retail Registry, a sizzling economy, aggressive store openings, and a rash of new and more affordable digital devices helped sales at the nation’s top 100 CE retailers surge 14.8 percent in 1999 to a staggering $74.5 billion. The figure is all the more impressive in that it handily surpasses the record $65 billion in revenue generated in 1998.
R.I.P. ROBERDS: The 29-year-old furniture, appliance and electronics chain calls it quits after suffering average losses of $1 million a month between January 1998 and September 1999. Operating under Chapter 11 bankruptcy since January, the regional retailer finally pulled the plug when major vendors were unwilling to extend further credit and merchandise began drying up.
THE HARDER THEY DOT-COM: Led by pure-play discounter Buy.com, which generated more than a half-billion dollars in CE revenue last year, the Internet’s biggest electronics dealers barreled into the new millennium on a $2.7 billion head of steam, according to TWICE’s first-ever E-tail Registry. Nevertheless, the good news comes amid a fresh wave of earnings concerns, consolidation, plummeting stock prices and a sudden dearth of venture capital for the once high-flying cyber store sector.
RCA SHACKING UP: Thomson Consumer Electronics and Radio-Shack officially kick off their five-year “store-within-a-store” deal now that RCA Digital Entertainment Centers have been installed in 98 percent of the retailer’s 5,000 company-owned stores. To herald the launch, recording artists Jewel and Lyle Lovett hold a private concert in New York that’s beamed into RadioShack shops nationwide.
MARTA, MY DEAR: At one of its biggest shows ever, the $2 billion MARTA Cooperative of America reports that members have been enjoying increased sales across the board, with white goods up about 5 percent and brown goods ranging from “flattish to strongly up.” Attendees tout built-in kitchen appliances as the best-selling majaps, while glass analog and projection TVs are among the independents’ top CE sellers.
HOLIDAY REDUX: Despite the somewhat tamer economy, merchants are confident they’ll be able to match last year’s record fourth-quarter sales performance thanks to a wider and more affordable slew of digital devices, led by $99 DVD players. But despite the added ammunition, dealers say they will have to work harder and smarter to make their holiday numbers.
MAJAP MERCHANTS CLEAN UP: Buoyed by accelerated AC sales and year-round gains in home laundry as product improvements spurred replacement purchases, the nation’s Top 100 majap merchants closed out the 20th century with a respectable 12.7 percent hike in white-goods revenue, according to the TWICE 2000 Major Appliance Registry. All told, the white-goods retailers generated $12.5 billion in sales, the report says.
THE DIRECT ROUTE: Retailers’ reactions are mixed to Sony’s an-nounced plans to set up shop online. SonyStyle.com, which begins a beta test this month, will initially sell about 600 SKUs from the manufacturer’s A/V and PC lines and will ultimately carry the company’s entire assortment. Dealers expressed concern over pricing and allocation issues, but given Sony’s clout with consumers, most agreed to take a wait-and-see stance.
PULLING THE PLUG: No. 2 majap player Circuit City has decided to give up the white-goods ghost and walk away from its $1.5 billion appliance business. The move shocks manufacturers, which scramble to find new homes for their capacity, and energizes retailers, who immediately make a play for Circuit’s market share by slashing prices.
THE CE SIDE OF SEARS: Sears, which was one of the first retailers to sell white goods over the Internet, adds CE products to its online mix some 15 months later. The chain says its cyber assortment, which covers 120 brands and in-cludes PCs and office equipment, essentially mirrors its brick & mortar selection, although the number of SKUs is significantly greater.
WE ARE FAMILY: Tweeter Home Entertainment continues its four-year buying binge by agreeing to gobble up Douglas TV, a Chicago-area A/V specialist, for $5.75 million in cash and stock. Like previous acquisitions, the 34-year-old, five-unit merchant is a family-owned business that’s likely seeking an exit strategy. It differs from other purchases, however, in that Douglas is not a fellow PRO Group member.
DOWN BUT NOT OUT: Struggling home furnishings chain Heilig-Meyers begins a draconian restructuring under Chapter 11 that includes closing 302 stores. “Despite previous actions we have taken to reduce costs, divest businesses and close underperforming operations, the company’s current capital structure is not in line with its store base,” observes newly named president/CEO Donald Shaffer. A show of confidence comes from Fleet Retail Finance, which proffers $215 million in debtor-in-possession financing to fuel the reorganization.
APPLIANCE ALLIANCE: Wal-Mart sends a chill throughout the white-goods arena by announcing its entry into majaps. The world’s largest retailer will begin selling a full line of major appliances this month under a pilot program with GE, utilizing the manufacturer’s virtual inventory business model that puts the warehousing and fulfillment onus on the supplier.
I’LL TAKE MANHATTAN: Best Buy barrels its way into the Big Apple with a $20 million marketing blitz that precedes the launch of its first New York-area stores. The opening salvo: A free concert in Central Park by Sting, followed by ads, product demonstrations and giveaways. Local CE stalwarts The Wiz and P.C. Richard shrug off the incursion and step up the promotional pace with blowout brown- and white-goods sales.
CHANGE IS IN THE AIR: Discount department stores Wards and Sears see a bright future in store redesign. The former, its Chapter 11 bankruptcy behind it, completes two-thirds of a planned chainwide renovation that dramatically improves store aesthetics, while the latter opens 13 “laboratory test” remodels that emphasize white and brown goods in particular. Both retailers’ redesigns feature a racetrack format, open layout, brighter lighting, bolder signage, wider aisles, upscale fixturing and shopping carts.
DODGING A BULLET: While a slowing economy and higher energy costs continue to weigh heavily upon most broadline merchants, CE specialists are sailing through early autumn with significant year-over-year gains. Leading the pack is RadioShack, which says sales spiked 19 percent last month thanks to robust demand for computers, digital A/V and wireless phones.
BELLYING UP TO BROADBAND: Broadband service is busting out all over. First out of the starting gate is RadioShack, which consummates its year-old ISP deal with Microsoft this month by offering DSL and satellite Internet access in 5,800 stores under the MSN HighSpeed banner. Not one to be bested, Best Buy counters with a broadband offering of its own through AT & T, which includes digital cable TV and cable Internet access. RadioShack counters by adding Internet cable service from [email protected] and says it too will offer cable TV before year’s end.
PLAY IT AGAIN, SONY: Dealers burn through their allotments of the white-hot PlayStation2 hardware within hours, minutes, and for online entities, even seconds of its debut this month. Although they eagerly await fresh supplies, due later this quarter, retailers say they anticipated the shortfalls and factored them into their fourth-quarter planning, thereby blunting expectations for a holiday home run.
MAXED OUT: OfficeMax says it may close up to 50 underperforming stores in an effort to boost its ailing bottom line. The moves, explained the company, are “integral to [our] long-term strategy to significantly improve shareholder value and allow management to fully focus on key initiatives.” The office products chain lost $26.2 million in the first half of the year, compared with net income of $24.4 million during the year-ago period.
DOT COMINGS AND GOINGS: Cyber stores are gearing up for what’s expected to be another busy fourth quarter. Among CE e-tailers, Amazon.com has broken out its imaging offerings into a separately tabbed Camera & Photo department; Roxy.com 800.com has acquired chunks of wireless e-tailer Global.com; and Walmart.com, Kmart’s BlueLight.com and Target.com all temporarily shut their sites for massive pre-holiday overhauls. Also getting a makeover, albeit without any disruption in service, is pure player 800.com, which simultaneously launches a humorous radio campaign that plays up the unpleasantness of shopping for CE products.
STORM WARNINGS: Following a similar stunner from Circuit City, Best Buy issues an earnings alert for its fiscal third quarter. Like its No. 2 rival, the Eden Prairie posse says the softer economy and consequent promotional pricing will likely cut earnings to about 17 cents a share from Wall Street’s anticipated 44 cents a share. “We are experiencing lower gross margins as retailers fight to gain market share in a more cautious consumer environment,” explains CFO Allen Lenzmeier.
SANTA’S MIXED BAG: Most CE retailers started the holiday selling season off with a bang, although promotional pricing may ultimately take a toll on many a bottom line. Enjoying an early wave of buying frenzy was Best Buy and RadioShack. The former reports a nearly 6 percent gain in same-store sales for the third quarter on top of last year’s 9 percent rise, while the latter saw its November comps grow 12 percent over last year’s record 17 percent gain. But a sour note was struck by Circuit City, which cited sharp pricing, remodeling disruptions and bargain hunting by consumers for its 7 percent decline in third-quarter revenue while warning of a stiff earnings shortfall.
THE MAJAP MODEL: Sears’ new president/CEO Alan J. Lacy says he plans to use the company’s peerless major appliance business as the blueprint for improving the performance of its lagging retail operation: “With breadth, depth, the offer of all major brands plus the one private brand, Kenmore, a knowledgeable sales staff, as well as being part of Sears online, we have a $5 billion business.”
BEST BUY BUYING BINGE: In a controversial bold-stroke move, Best Buy announces plans to purchase Musicland Group and Magnolia Hi-Fi in a cash deal worth more than $760 million. The purchases will place the 1,331 stores in the Musicland stable-including Sam Goody and Suncoast video-and Magnolia Hi-Fi’s 13 Pacific Northwest locations under Best Buy’s corporate umbrella. Best Buy also reveals plans to penetrate the Canadian market with upward of 65 stores within three years.
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