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The Year That Was: TWICE’s 2001 Retail Retrospective

For all of us, 2001 will be forever shadowed by Sept. 11. Within the collective consciousness, the tragedy has largely blotted out events that predated the terror attacks, and has indelibly shaped those that have followed it.

Which is why the following edition of TWICE’s annual retail year in review is more pertinent than its predecessors. In the breathtaking onrush of international news, it’s easy to overlook some of the essential developments, transactions and insights that have informed our industry this year, and will lay the groundwork for next year and beyond.

Among the patterns that coalesced in 2001 was the consolidation of e-tail (say goodnight etown, Egghead and; cross channel partnerships (RadioShack meet Blockbuster, Amazon meet Circuit City); and Tweeter’s unceasing appetite for other A/V chains.

As we hurtle toward the close of one of the most extraordinary years in our history, we can take solace in CE’s indomitable drive to develop and sell innovative new products, and the consumer’s irrepressible eagerness to buy them.


Big Boxes, Big Problems? During an upbeat International CES, RadioShack chairman/CEO Len Roberts asserted, “Big-box retailing is a dying business.” Taking a shot at rivals Best Buy and Circuit City, he declared, “If retailers had to do it over again … they would all go to small stores.” At the same show Best Buy president/chief operating officer Brad Anderson was upbeat about the potential synergies between the Musicland acquisition and the chain. And the other member of the Big Three, Circuit City, announced that its extensive remodeling campaign announced last year would be trimmed. The campaign was due to the chain’s decision to drop out of major appliance retailing and focus on CE. Under the latest plan, 20 to 25 stores will be remodeled at a rock-bottom price of $1.5 million each, according to chairman/CEO Alan McCollough. While sales were supposed to be soft in December, reports show that Best Buy’s same-store sales were up 3.7 percent, Circuit City’s same-store total was up 1 percent, and RadioShack’s same store sales were up 8 percent at company-owned units.

CE, Majaps Drive Sears’ Business: Sears reported in early January that solid sales growth in hardlines, including major appliances and consumer electronics, increased its fourth-quarter revenue by 3.1 percent. Sales in the sector, which include Sears stores, hit $11.2 billion for the three months ended Dec. 30, 2000, compared to $11 billion in the previous year’s three months.


What If They Held a Downturn… and independent electronics/appliance retailers did not participate? While some publicly held chains seemed to cry the blues in January, independent retailers who gathered at the MARTA Cooperative of America and Nationwide buying group meetings said basically the same thing, “What slowdown?” Members of both groups had the same mantra, namely that the departure of Circuit City from major appliances and the demise of Montgomery Ward benefited them greatly. Nationwide’s executive director Robert Weisner said the departures put $2 billion back into the market. “We think it is the most positive change for the independent appliance dealers in America,” he said, adding that sales of his members should increase 10 percent to 20 percent. MARTA’s executive director Warren Mann said, “Business has shifted to [independents]. Our advantage is having an informed sales force that can sell on the sales floor.” But continued growth won’t be easy, since as Weisner pointed out, “Sears is our biggest enemy when it comes to battling for this additional business.”

Plenty of Questions, Opinions About New Year: How can CE retailers survive the economic downturn? Will tough times claim more chains? And how will dealers meet the needs of a savvier consumer while remaining true to their brand franchise? Those were just some of the issues discussed during the annual TWICE Retail Roundtable, which featured top executives from Best Buy, RadioShack, Tweeter, Good Guys,, Ultimate Electronics, and the MARTA Cooperative of America. In one of the more salient comments during the roundtable, Dave Edmondson, president/COO of RadioShack, said, “If [retailers] approach [their] business like Groundhog’s Day instead of everyday being a new day, you’re going to have problems.”


NATM Sees Sales Revival in Second Half: While national chains were reporting slower sales growth for the previous month and the Good Guys cut 450 employees, or 10 percent, of its employees, the NATM Buying Group had its annual meeting in Florida and took the current industry environment in stride. The group expected growth in digital CE sales for the year, across a wide area of categories. And Jerry Throgmartin, NATM president and president of group member H.H. Gregg, acknowledged that January and February sales were “so-so,” but he expected 2001 to be “a decent year with a rebound in the second half. It isn’t a ‘jump in the foxholes’ situation.”

E-Commerce Becomes a Permanent Retail Fixture: That’s what top e-tail-only and traditional retailers told TWICE in a special report. After almost two years of conjecture, with some running around like Chicken Little expecting the sky to crash with e-tailers taking a large chunk of the electronics/appliance business, many see a role for the new type of outlet. The role of e-commerce in this industry will be one of consumer education and making traditional retailers click & mortar operations. As Mike Linton, senior VP of Best Buy, said, “We believe that the site really helps the store and vice versa.” And Frank Sadowski, senior VP of, added, “This is a crossover year for e-commerce, where it goes from being a novelty to being an accepted channel.”


Tweeter on the Move: Tweeter Home Entertainment continued its expansion with the purchase of San Diego’s Big Screen City, as well as Audio Video Systems of Charlotte, N.C. Big Screen City bolsters Tweeter’s investment in DOW Stereo/Video, also based in San Diego, which the company acquired two years earlier. With these two acquisitions Tweeter now operates more than 100 stores nationwide.

March Sales Mixed, Along with Results of Major Chains: March retail sales results from a variety of chains were mixed, with RadioShack and Tweeter showing gains, while Sears had a 5 percent drop for the month. Meanwhile, Best Buy and Circuit City closed their fiscal fourth quarters at the end of February. Best Buy’s fourth quarter comp sales were up 1.8 percent and net earnings increased 16 percent. Circuit City’s comp store sales for the quarter were down 11 percent, while earnings for the company’s CE operation dropped more than 50 percent, from $326 million to $115 million. And embattled California-based retailer Good Guys reported that its net income for the five months ended Feb. 28 was up 15 percent and net sales were up 6 percent.

Double-Digit Sales Gains for Top-100 CE Retailers: According to the TWICE Consumer Electronics Retail Registry, a slight slowdown in sales toward the end of 2000 did not dramatically hurt the top 100 retailers’ overall performance. The retailers on the list generated $86.49 billion in sales, a cumulative gain of 13.4 percent over the previous year. While the economy slowed some in the final quarter, and the industry lost such stalwarts as Montgomery Ward, Heilig-Meyers and Roberds, the remaining regional and national powerhouses had strong sales volume.


Mixed Signals in the Merry Month: While major chains reported during May that comp sales were down for April, there were still some optimistic signs in the market. RadioShack’s same-store sales were down 2 percent in April, Ultimate Electronics’ sales for the quarter were flat, and Sears sales increased by 1.7 percent. Home office specialist OfficeMax reported a 4 percent drop in sales during its first quarter, which ended April 28, while it registered a loss of $16.6 million. Meanwhile, in a show of confidence in electronics/appliance retailing and its own expertise, Sears announced it would open in June the first of what might be as many as 100 freestanding CE/majaps specialty stores. The strategy was to leverage the chain’s strength as the No. 1 major appliance retailer and the boom in digital CE products.

Independent Retailers Are Still Optimistic: Electronics/appliance retail buying groups, organizations that usually represent the thousands of local independent dealers across the country, continued to report that their members were bullish about 2001 prospects. Most of the organizations contacted for a TWICE special report, such as Associated Volume Buyers (AVB), Nationwide, MARTA and NATM, predicted that even though there were some slow sales during the first months of the year that business would pick up by the second half. Meanwhile, a new buying group, Retail Dealers of America, appears on the scene, formed from what had been the old Key Southwest chapter of AVB.


Upheaval in Major Appliance Retailing: The surprise departure of Circuit City, the demise of Montgomery Ward, Heilig-Meyers and Roberds during 2000 hurt sales of the top 100 major appliance retailers, according to the TWICE Major Appliance Retail Registry. Sales for white goods for retailers on the list totaled $12.28 billion, a scant 1.5 percent increase. The cumulative merchandising strength of Lowe’s, which took over from Circuit City as the No. 2 white goods retailer behind Sears, and Home Depot, which debuted on the list at No. 10, helped convince Circuit City to stress CE and helped put the other aforementioned chains out of business. But what wasn’t shown in the report was that plenty of local independent appliance/electronics retailers benefited from Circuit City, Ward’s, et al dropping out of the business.

Tweeter Buys Another, While Industry Sales Continue Slump: Tweeter Home Entertainment does it again, buying the 33-store Sound Advice of Dania Beach, Fla. The deal makes the chain a subsidiary of Tweeter. The company’s expansion this year includes San Diego’s Big Screen City, as well as Audio Video Systems of Charlotte, N.C. Meanwhile national retailers begin to report their sales for the first half, which are disappointing. Best Buy’s comp-store sales fell 3.1 percent for the quarter ended June 2, due to weak PC demand. Circuit City’s comp-store sales dropped 25 percent for the quarter ended May 31, due to slow PC sales and general softness. Comp sales at RadioShack were flat; Good Guys had an 8 percent drop in comp sales; and Sears’ comp-store sales were down 3.3 percent, all citing basically the same problems.

It’s Insane: The legendary and notorious Crazy Eddie reappears online, with founder Eddie Antar on hand as a “director of marketing and strategic relationships,” who is an employee and not an owner or director of the privately held firm. Also back with the company is former pitchman Jerry Carroll, who will star in TV, radio, print and Web advertising in the New York area during the second half, using the same style as the old Crazy Eddie ads with the tagline, “His prices are insane!”


New Logo, New Marketing Push: Circuit City changed its logo in the days leading up to July 4 and began a brand new marketing campaign to jump-start sales. The new logo was timed to coincide with the chain’s redesigned stores to become more energetic and emphasize its customer-first “We’re with you” tag line for its humorous new TV ad campaign.

White Box Blues: Major appliance retailers say supplies of refrigerators have become scarce, the result, they argue, of a less-than-seamless shift to new energy-efficient models that have been mandated by tougher federal standards. Indeed, the new lines required manufacturers to retool their plants and build new assembly lines, causing some production hiccups as the changeovers began. Conversely, mild summer climes resulted in a glut of room air conditioners, leaving merchants hoping for a last minute heat wave.

Tweeter Continues to Grow, Profitably: Tweeter Home Entertainment continued to ride its acquisition strategy and its mid- to high-end digital CE product mix through its fiscal third quarter with net income growth of 18.3 percent for the period. Revenue rose 17.7 percent in the quarter to $110 million, but comp-store sales were almost flat, off 0.6 percent. Projection TVs and direct-view TVs, both analog and digital, drove the business, said Jeff Stone, president and CEO.


Dealers Plan for Lean Q4, Look to High-End TVs for Profits: Leading retailers told TWICE during August that while they were planning a lean holiday season and conservative buy-in patterns for the period, they still thought key categories such as high-end TVs would help generate profitability. Typical of retailer opinions was this one from Cathy Stauffer, VP/merchandising for Good Guys, who said that step-up DVD players, HD and HD-ready TVs and others will be a core strength during the fourth quarter. “Everyone is cautiously optimistic that improvement is coming, if not for the holidays, then early next year,” she said.

Northern Exposure: Best Buy has reached an agreement to acquire 88-store Future Shop, Canada’s largest CE chain, for about $377 million in cash. The deal greatly accelerates the company’s goal of conquering the Canadian marketplace before turning its attentions to offshore pursuits.

Vendor, Retailer Partnerships Proliferate: New partnerships between leading manufacturers and retailers were evident during the dog days of August. CompUSA, in an attempt to generate strong sales outside of the sluggish PC category, turned to Samsung for high-end consumer electronics products. The first Samsung store-within-a-store department opened in the Miami area featuring about 30 Samsung products ranging from digital audio to DVD players to a 24-inch HDTV-ready LCD monitor. And Philips Consumer Electronics unveiled a strategic partnership with Nationwide TV & Appliances at the buying group’s convention in Las Vegas. It is the first such deal between the vendor and a buying group, but others are expected to follow. Philips’ reason for the deal is to get more distribution for its upscale digital CE products.


September 11: In our Sept. 17 issue we were to highlight the usual events of the month, namely the Brand Source/AVB buying group convention, CEDIA Expo and Fall RetailVision. Those events were completely overshadowed by the terrorist attacks on the World Trade Center and the Pentagon. The initial effects on retail and the industry were devastating. Retailers were closed from one to several days after the attacks, and even when they reopened, the public stayed at home, glued to their TV sets. Two stores will not reopen, namely the RadioShack and Sam Goody outlets that were located in the World Trade Center. J&R Music World, which operates five stores next door to each other on Park Row, just two blocks away from Ground Zero, was closed for more than a month after the attack due to it being located in a “frozen zone” near the disaster site. While its stores were not damaged, it needed weeks to clean them from dust and, with help from its vendors, replace damaged stock.

Immediate After-Effects: While the long-term effects on the nation’s economy and the electronics/appliance industry are still being measured, the immediate effects of the terrorist attacks were apparent nationwide. Consumers slowly returned to stores, with many buying products that could be useful in another crisis or useful in watching it unfold on television. Cellular phones, notebook PCs, battery-operated radios and big-screen TVs were among the more popular categories. Some retailers dispassionately pointed out that retail sales were already slow prior to Sept. 11, and that this is traditionally a slow time of year, so the effects of the attack were magnified. As Deryl Sewell, president/CEO of Retail Dealers of America, put it, “Yes, we’ve had a major tragedy, but it is time to move on. We need to get back to business.” One way the industry, both manufacturers and retailers, got back to business was to contribute millions of dollars to agencies set up to help those effected by the heinous attacks.

Cancellations and Indicators: Among the retail events that were cancelled or rescheduled were the MARTA Cooperative of America buying group meeting, which took placed the week of the attack in Nashville. As executive director Warren Mann put it, “We shifted into a support organization. We needed to get people out of there,” which was no small task, given the fact that all air travel was out by the late morning on Sept. 11. The Retail Dealers of America postponed its inaugural buying group meeting set for Dallas. It was rescheduled for November. And to give indications as to where the industry was headed just before Sept. 11, Best Buy reported that its fiscal second quarter ended Sept. 1 net earnings were up 10 percent. Comp-store sales were up 2.8 percent. And rival Circuit City reported a loss of $12.5 million for its fiscal second quarter, due to problems with its Circuit City Group. Comp-store sales with that unit dropped 21 percent during that quarter.


The Digital Divide: In a pre-holiday season effort to raise consumer consciousness about better, margin-rich digital devices, Best Buy and Circuit City turned the spotlight on the sector through in-store and road show promotions. The former took its high-tech message on the road via a 53-foot Fun Zone Technology Truck that contains interactive kiosks and home vignettes for the music, gaming, home office, major appliance and home theater categories. Meanwhile, Circuit City mounted a month-long Expo 2001 campaign, which highlighted high-tech products and services via in-store signage and live demonstrations of broadband, digital imaging, handhelds, movie editing, SACD, satellite radio, wireless and Ultimate TV.

A Long Row to Hoe, Hoe, Hoe: The outlook for holiday sales was grim, according to retailers, analysts and suppliers, based on heightened consumer anxiety and slower discretionary spending in the wake of Sept. 11. Much of the dour forecasts were predicated on a 16.4-point plunge in The Conference Board’s consumer confidence index for September, which represents the biggest drop since the Gulf War. The figures, argued one analyst, reflect a “bunker mentality” that could finally lead the economy into a full-fledged recession. But Robert Verdisco, president of the International Mass Retail Association, said he has faith in consumers’ willingness to spend. “We believe that people are anxious to return to the marketplace,” he said. “The collective power of consumer is truly astounding, and this power will contribute to our nation’s strength.”


Pie in the Sky? Retailers were in a quandary after Charlie Ergen’s EchoStar wins out over Rupert Murdoch’s News Corp. in their bid for General Motors’ Hughes Electronics subsidiary and its DirecTV unit. Although it was not at all clear that the $26 billion deal will pass federal muster, CE merchants began sorting through the implications of the proposed merger. Pros include improved programming, advanced services and more HD channels, which could spur sales of subscriptions and HDTV sets and provide a more compelling argument against cable. But the biggest con is competition, or lack thereof. As former Satellite Broadcasting Communications Association chairman Buddy Davis warily noted, “The only one who’s gonna benefit from this deal is Charlie Ergen.”

Open the Starting Gates: For retailers still reeling from the aftershocks of Sept. 11, November’s launch of Microsoft’s new Windows XP operating system couldn’t come soon enough. Merchants were hoping that XP’s promise of a better multimedia experience and home networking nerve center would convince consumers to upgrade to this heavily revamped version of Windows. Clearly the industry was locked and loaded: about 100,000 pre-orders had been taken at $99 each; almost 35 million XP-ready PCs had been shipped since June; and Microsoft was ready to unfurl a $200 million worldwide marketing and advertising campaign under the musical auspices of Madonna’s “Ray of Light.”

Video Game Viagra: Retailers were anticipating that this month’s double-barrel debuts of Microsoft’s Xbox and Nintendo’s GameCube will generate the same pre-release frenzy seen this time last year for Sony’s PlayStation2 rollout. Although the hordes of hardcore gamers were likely to goose stores’ top line performances, the similarity to PS2 mania also extended to tight supplies of hardware and software, which would limit their ultimate contribution to fourth quarter coffers. Disappointed enthusiasts will be able to take some solace, however, in a surfeit of titles for their PlayStation2 consoles.


And They’re Off: The holiday selling season got off to a promotional start, with retailers slicing prices to new lows for their post-Thanksgiving Day sales. Among the categories hardest hit: DVD players, where $69 became the new opening price point to beat, while Blockbuster was virtually giving them away with a commitment to 52 weeks of rentals. Nevertheless, some upmarket merchants reported runs on big-ticket, high-margin merchandise, including better DVD players and large screen TVs. “They showed amazing strength,” said Tweeter VP Bernie Sapienza of sets priced between $5,000 and $15,000. “There’s nowhere near enough supply. And Sony’s 40-inch XBR is selling to beat the band.”

Go with the Flow: Playing up its strength as the nation’s No. 1 majap merchant and leveraging its explosive growth in digital CE products, Sears opens its second and third freestanding brown and white goods stores near Chicago in time for the holiday crush. Although the 20,000-square-foot units have the same floor space and merchandise mix as a full line store’s combined CE and majap department, the new units are ensconced in high-volume strip centers, far from Sears’ traditional indoor mall base. Strip malls provide “more shopping convenience” and “neighborhood locations,” claims hardlines president Lyle Heideman, although the unspoken corollary is that indoor malls are losing both market share and the post-teen shoppers.