In the year after 9/11, the nation, and consequently the nation's consumer electronics retailers, are still feeling the aftershocks of the terror attacks.
Despite a strong holiday rebound that carried into this past spring, sales hit a snag by summertime, and the largest publicly held CE chains were forced to lower their second-half projections.
During the interim, dealer highlights (and lowlights) included Kmart's bankruptcy, the demise of 800.com, Amazon.com's first quarterly profit, the changing of the guard at Best Buy, a potentially crippling strike by West Coast dock workers, and the widespread rollout of plasma and HD-ready TVs by Sears and Wal-Mart.
How will the year close? Although the holiday selling season got off to a robust start with record sales at Best Buy, Circuit City and Wal-Mart during the Thanksgiving weekend, the final chapter has yet to be written as retailers wait out the effects of increased joblessness, the beat of war drums and steep promotions. Stay tuned.
Strong Holiday Sales Buoy Retailers: Rebounding from the shock of Sept. 11, anthrax attacks and a war in Afghanistan, retailers attended International CES early in the month feeling blessed that sales, which all but disappeared in September, rebounded as the holiday season got closer. During a retail panel at CES, top execs from Amazon, Best Buy, Circuit City, eBay and RadioShack were all upbeat on the long-term outlook for digital product sales. "The holidays were much better than expected," said then vice-chairman/president and COO of Best Buy Brad Anderson. Circuit City's president/CEO Alan McCollough described Christmas as "extraordinary," but had reservations about HDTV. "Consumers are spending money on high definition. The question is, where's the content? We have a long way to go."
Two Guys Move On: Two well-known CE retailing executives, Tasso Koken of The Wiz and Good Guys' founder and chairman Ron Unkefer, left their respective chains during the month. Koken was retained as a consultant for The Wiz while Unkefer left to spend more time with his family in Dallas. He remained Good Guys' largest stockholder.
December Retail Performances Vary As Amazon Posts A Profit … While Best Buy and Circuit City both posted double digit sales gains in December, RadioShack and Good Guys both reported losses. Sales were mixed for Tweeter Home Entertainment Group, whose net soared 55.4 percent for the quarter while comps slipped 1.6 percent. Surprisingly Amazon.com parlayed its first-ever billion-dollar quarter and first-ever net profit due to the strong holiday season. Sales were up 15 percent for the fourth quarter, to $1.12 billion, and at the same time net profit was $5.1 million.
… While Kmart Files For Chapter 11 Protection: Everything wasn't completely rosy at retail as 2001 ended. Consider Kmart, which at the end of the first month of the new year filed for Chapter 11 protection and secured a $2 billion debtor-in-possession line of credit from several banks. Vendors were all cautiously optimistic that the chain would emerge from Chapter 11 as a stronger company and all said that their financial exposure to Kmart's problems were limited.
Sales For Fourth Quarter, January Spotty For Publicly-Held Retailers: Ultimate Electronics was pleased with its performance during the fourth quarter, while Sears and RadioShack were disappointed with their end-of-the-year business. Ultimate reported that same store sales were up 2 percent for the quarter ending Jan. 31, but overall sales were up $214.7 million. For Sears total revenue was down 2.3 percent and comp sales were off 3.4 percent, even though the chain had solid sales of projection TVs and laundry products. And RadioShack's sales for the fourth quarter ended Dec. 31 were off 4 percent, with comp store sales down 2 percent, and net income down 14 percent. The chains gave a variety of reasons for their performance, which included the cost to close unprofitable stores (RadioShack), less promotional and clearance sales (Sears), while Ultimate was pleased, given the effects of Sept. 11 and the soft economy.
Upbeat Attitudes From Buying Groups: As usual the MARTA Cooperative of America and Nationwide TV & Appliance buying groups held their biannual meetings during the second month of the year and both reported strong sales for the recent holiday season and were optimistic about 2002. MARTA executive director Warren Mann said independents like his members, those that emphasize value-added selling, will continue to gain in sales and profits. "Now let's use the sturdy foundation built in 2001 to attack 'price only' national accounts that feed off our sales efforts," Mann told his group. At Nationwide, just prior to its Orlando meeting the group absorbed the nine-month-old Retail Dealers of America (RDA) organization and its $500 million in annual sales. Executive director Ed Kelly was optimistic, pushing for more digital CE sales for his group, and readying the debut of the Nationwide Web site. When asked how RDA was going to be brought into an already varied $8 billion Nationwide group, Kelly said philosophically, "You can't change everyone, but you can show new concepts and benefits to new members. You can't be a dictator."
The Wiz Makes Some Moves: The New York-based chain, a unit of cable provider Cablevision, reported a 3.7 percent dip in sales and a $27.4 million pro forma operating cash flow loss for the fourth quarter ending Dec. 31. The loss for the same quarter in the previous year was $6.7 million. The chain blamed its poor performance on a softer-than-expected holiday season, which differed from many other publicly-held and privately-held CE retailers who reported unexpectedly strong sales during much of the holiday season. The Wiz also reported that it was moving its headquarters to Bethpage, N.Y., close to its parent's headquarters, and named two new senior execs. Laurie Clark, ex-Trans World Entertainment exec, joined The Wiz as senior VP, general manager/merchandising and marketing, replacing Tasso Koken, who continues with the company as a consultant. Another Trans World exec, Bill Shull, joined The Wiz in a new post for the chain, senior VP/sales and operations.
Best Buy's Dick Schulze Steps Down As CEO: Best Buy's founder, chairman and CEO announced that he was handing over the reins of the chain to long-time company executive Brad Anderson, who became CEO and continues as vice-chairman. Allen Lenzmeier became president and chief operating officer. In making the announcement, Schulze, who continues as chairman, said, "This decision enables me to direct more of my energy to personal interests, while ensuring that the company I founded 35 years ago remains as vigorous in the future as it is today." The formal change in titles occurred at the end of June.
Best Buy, Circuit City Report Strong Fourth Quarter Sales: The last report on 2001's fourth quarter retail sales performance was rousing from the two top chains in CE. Best Buy's total company sales soared 28 percent to $6.98 billion for the quarter ending March 2, while same-store sales grew 4.5 percent. And Circuit City was no slouch either, posting a 7 percent sales gain to $3.39 billion for the quarter ending Feb. 28. Same store sales were up 6 percent for the quarter.
Independents Continue To Ride High: Whether you talked to the NATM Buying Group, the NECO Alliance or the Home Theater Specialists of America (HTSA), all of which held group meetings in March, strong sales were reported for the beginning of the year. At NATM executive director Bill Trawick said the group kicked off the new year with better-than-expected growth in both consumer electronics and major appliances. Group president and H.H. Gregg chief executive Jerry Throgmartin said, "The industry rewards growth and punishes the status quo. Staying flat means going backward." Representatives of 40 specialty dealers who make up HTSA said at their annual meeting in Charleston, S.C., that their business had outperformed the economy thanks to the continued demand for custom installation of audio and video products. And NECO, a unit of the Nationwide TV & Appliance buying group centered in the Northeast, celebrated a fourth-consecutive year of double-digit sales gains. The group outlined plans to turn its attention to digital CE products, especially flat-panel TVs, a category it feels its members can sell effectively.
800.com Closes, While Kmart Shuts 280 Stores, Axes CEO: 800.com, the four-year-old CE e-tailing site, ceased operations Feb. 28 and sold off key assets to Circuit City for an undisclosed sum. Citing the "harsh economic climate," the privately-held company had all traffic to the site redirected to CircuitCity.com. Circuit City also acquired 800.com's 2.6 million-name consumer database, several URLs, its call center and various other elements. Kmart CEO Charles Conaway and the chain's management decided to close 284 stores, liquidate $1 billion in inventory and lay off some 22,000 store workers as part of its Chapter 11 restructuring plan. Days later the CEO himself was pink-slipped, along with CFO John McDonald.
H.H. Gregg Sets Sights On Atlanta Market In 2003: H.H. Gregg, the Indianapolis-based electronics/appliance chain and NATM buying group member, announced plans to enter the Atlanta market next year with 11 stores and a distribution center to support them. The chain, which operates in Indiana, Ohio, Kentucky and Tennessee, operated 18 stores five years ago. By the time the Atlanta stores open next year the chain will have 60 locations. Dennis May, chief operating officer and executive VP, said Atlanta was chosen because it is "a healthy, growing market that is not currently being served with our level of service. We think we'll do well there."
Tweeter Revamps Management Structure: Tweeter, which reported record revenue but falling comp sales for its second fiscal quarter ended March 31, revamped its management structure, decentralizing operations and giving top execs from its Sound Advice subsidiary a larger role in Tweeter's national operations. Among other moves, Sound Advice president Peter Beshouri now heads up all Tweeter sales, training and store design functions in addition to running the Florida-based chain. Also Sound Advice senior VP Michael Blumberg assists Tweeter president/CEO Jeff Stone in managing Tweeter's purchasing department. Along with Tweeter and Sound Advice stores, the parent company also owns and operates Showcase Home Entertainment, Big Screen City, Audio Video Systems and Hillcrest.
TWICE's Top 100 CE Retailers Post 2001 Sales Gain: According to the annual TWICE Consumer Electronics Retail Registry, despite terror attacks, war talk and recession, retail sales of the top 100 consumer electronics retailers in the U.S. advanced 6.9 percent during 2001, to just about $90 billion. (To be exact, $89.2 billion.) Based on business conditions last year, for the top 100 CE chains to register a strong single-digit sales gain is a testament to the strength of the industry. Topping the list as usual was Best Buy, with $14.629 billion in CE sales, a 12 percent gain, followed by Circuit City at $9.6 billion, Wal-Mart with $5.0 billion, Radio Shack with $4.77 billion and Target with $4.41 billion.
Sales Up, But Profits Weak For Two Leading Retailers: Ultimate Electronics and Tweeter are but two publicly-held CE chains whose sales performances were strong, but profits have been problematic. For its fiscal first quarter ended April 30 Ultimate Electronics' reported a 23 percent increase in sales to $142.2 million. But comp-store sales were up only 2 percent and net income was flat during the period, reaching $1.7 million. Mobile electronics and installation services joined previously reported growth in digital TV to help the chain during the quarter. Tweeter's revenue soared by 57.7 percent to $185.8 million for its second fiscal quarter ended March 31. However net income dropped by 31.5 percent to $2.6 million and comp-store sales were down 6.7 percent. On the plus side the sell-through of flat-panel TVs, and the transition from analog to digital, were positive signs for Tweeter.
A Tale Of Two New York City Retailers: If, as the old song goes, "The Bronx is up, but the Battery's down," in this story Harvey would be the Bronx and The Wiz would take the Battery's role. Harvey Electronics' reported its total sales were up 13.5 percent to $10.4 million for its fiscal second quarter ended April 27. The chain's comp sales climbed 5.7 percent for the period. Like Tweeter, flat-panel plasma and LCD TVs drove its business, as well as custom installation services. As for The Wiz, its parent Cablevision reported the chain had a net revenue decrease of 7.5 percent during the first quarter ended March 31. Sales reached $139.5 million vs. $150.9 million last year.
Credit Cards Drove Circuit City's Profits During 2001: The number two consumer electronics chain reported in May that 51 percent of its stores' operating profit was derived from its private-label credit card program last year, up from 40 percent in fiscal 2001 and 20 percent the prior year. The revelation surprised analysts and suggested that the chain's core CE business was less profitable than previously thought during fiscal 2002, which ended Feb. 28. Still, Wall Street remained bullish on the company's CE stores thanks to escalating sales, progress with its store remodeling program and sales force initiatives.
First Half Ends With Publicly-Held Retailers Showing Gains: Best Buy, Circuit City and Harvey Electronics all had upbeat financials for their respective fiscal quarters which ended on or around June 1, while at the same time Good Guys reported it cut its fiscal first-quarter loss. Best Buy posted a 27 percent increase in net earnings for its fiscal first quarter ended June 1, reaching $70 million, up from $50 million for the same period last year. Overall company sales for the quarter grew 24 percent, to $4.6 billion. Best Buy also opened its first store on Manhattan island in New York City's Chelsea area, a 35,000-square-foot location. Net earnings for the Circuit City Group during its first fiscal quarter ended May 31, reached $17.1 million, up from $10.1 million for last year's first quarter. Comp stores for the Group jumped 12 percent and overall sales grew 13 percent to $2.1 billion. New York City specialist Harvey Electronics saw sales increase 13.5 percent to $10.4 million for its second fiscal quarter ended April 27. At the same time net income increased to $90,609 from a net loss of $147,430 for the same period last year. And the Good Guys cut losses during its first quarter ended May 31. A net loss of $4.6 million was nearly half the loss of $10.1 million for the chain during the same period last year, due in part to the closing of seven unprofitable stores. Sales in the first quarter were flat at $171 million, reflecting those store closings.
RadioShack Plans To Increase Digital Product Selection, Revamp Stores: Len Roberts, RadioShack chairman/CEO said that the chain plans to build on its core batteries, parts and accessories strategy, while widening its digital product mix and add more gaming accessories. All of this will take place while its chain will remodel its stores to better showcase these key categories. During a shareholder meeting Roberts candidly said, "Our performance was not up to snuff last year, and the soft economy and [Sept. 11] attacks were no excuse. We weren't positioned as well as we could have been."
Tweeter To Slow Store Expansion: The New England-based chain, which acquired several regional specialty chains nationwide over the past several years, said it's time to digest its holdings. According to president/CEO Jeff Stone the chain will scale back planned store expansions from 40 in fiscal 2003 to between 15 and 20 new units and six to eight relocations next year. "The reason is straightforward," he said. "We need to spend more time integrating our acquired businesses so that all of our internal operating systems are unified, our store merchandising plans are more closely aligned, and our marketing efforts are consistent across the country."
Dick Schulze Hands Off Best Buy's Reins: In an emotional and bittersweet occasion for Best Buy's Dick Schulze, the founder and chairman of the chain officially handed over the chain's operational reins to longtime executive Brad Anderson, who is now vice-chairman and CEO. As part of the management change Allen Lenzmeier, former CFO and president of Best Buy Stores, was named president/COO of the company. During ceremonies at the University of St. Thomas in Minneapolis, where Schulze is a trustee, his voice cracked with emotion at the mention of his late wife and Best Buy co-founder Sandra. He said it was her death one-year ago, from a rare, asbestos-related cancer, that prompted his decision to leave. "I saw that they could operate without me, so I decided to go with the momentum, and go with the opportunity. I'm very proud to place the company's future in the hands of a very talented team." Schulze plans include working on the board of the University of St. Thomas Business School, travel, and spending more time with his new wife Maureen, their children and grandchildren.
Amazon.com Founder Jeff Bezos Keynotes CEA CEO Summit: A keynote address from Amazon.com founder Jeff Bezos, which seemed like more of an informal talk among friends, was one of the highlights of the CEA CEO Summit held at Coeur D'Alene, Idaho. Just days after Sony finally authorized the Web site to sell its wares, Bezos discussed several issues, one being why Amazon finally turned to CE. He said that Amazon turned to its customers for feedback. "We checked the demographics and sent out e-mails and our customers wanted consumer electronics online." He told TWICE that in the three years Amazon has sold CE products, "We have done $600 million. We are humble about our progress and are working on it."Christmas Seen As Turnaround Deadline For The Wiz: Jeffrey Yapp, appointed seven months earlier as president of Cablevision's retail group, is working under a tough mandate: making the chain profitable by the holiday season. Cablevision, which bought the chain in 1998 and has had $400 million in operating losses since then, hopes that Yapp's plan to make the Wiz format more consumer-friendly, an emphasis on digital products called Digital Solutions, and improved pay incentives for sales associates will do the trick. Things grew more critical for The Wiz in August as the chain announced that it was closing 26 of 43 locations, as financial pressures mounted for the chain and its parent Cablevision. The Wiz reported a 15.4 percent drop in sales for the second quarter to $132.1 million and a loss of $19.8 million vs. the same time last year.
Wall Street's Wild Summer Ride Effects CE Sales: The trials and tribulations of Martha Stewart, Enron, Imclone, et al, and the subsequent havoc it inflicted on the stock market, began to hurt retail sales. Earlier in the summer, sales seemed to be steady, but publicly-held retailers reported sluggish sales. Best Buy cut its second quarter outlook and said that July sales were flat, which sent its stock tumbling immediately. Ultimate Electronics' stock price took a hit despite a 21 percent gain in second quarter revenue to $142.8 million. But comp sales were soft at 1 percent growth. Tweeter reported a total revenue increase of nearly 60 percent to $175.3 million for its third quarter ending June 30, but comp store sales sagged 4.6 percent. Income dropped to $678,000 from the $3.8 million during the same time last year, and Tweeter said in late July that it would lay off 240 employees, or about 6 percent of the workforce.
RadioShack's Net Income Up, But Sales Off In Second Quarter: Wireless communications and digital product accessories helped RadioShack generate $51.8 million in net income during the second quarter ended June 30, up from $41.2 million from the year-ago period. Still sales dipped 4 percent, down to $998.1 million, compared with $1.04 billion in the same period of 2001 and comp sales for the quarter were flat.
Air Conditioner Sales Hot As Mercury Soars: No matter the gyrations of Wall Street, when you're hot, you're hot … and you will buy air conditioners. That is the lesson of the summer of 2002, because thanks to a hot, sticky July and August throughout much of the country there would be little or no AC inventory left by Sept. 1. Unlike many national home improvement chains and mass merchants, who try to get out of the category by July 1 or so with little or no inventory, independent retailers benefited from stocking up. When the big guys were out of product as mid-summer heat pumped coast to coast, independents had plenty to sell, and at a nice profit too.
Sears Launches "Thin-TV" Shops: In one of its most dramatic steps into a high-end electronics category, Sears rolled out LCD and plasma TV sections to more than 650 of its stores nationwide. "We view this as a long-term investment for us," said CE general manager Ray Brown, who expects Sears to eventually become the country's largest flat-panel TV retailer. "We are not going to play catch-up to anybody," he said.
Industry Woes Won't End With Dock Strike: Despite the court-ordered reopening West Coast ports following a walkout by dock workers — and the resumption of deliveries of critical CE products and parts — the industry's problems aren't over, warned the CEA. Addressing the situation during a briefing at the trade group's Industry Forum & Fall Conference in San Francisco, Yamaha Electronics USA VP Steve Caldero said "This is far from over," and warned of possible price fluctuations, declining orders and sales and higher shipping costs as a result of the labor dispute.
Wal-Mart Goes Wide With DTV: The world's largest retailer prepared to roll out an assortment of high-definition and HD-ready sets to 1,500 Wal-Mart locations nationwide, following in-store tests of HD plasma and rear-projection monitors. The test store assortment included four rear-projection units from Philips and Thomson, and a pair of HD plasma display panels from Sanyo.
Holiday Forecast Still Cloudy: Analysts, trade groups and retailers remained unsure of the outcome of the holiday selling season. Working in CE's favor is its continued status as a top gift-giving category, and consumer polls showing a willingness to spend. But naysayers point to the uncertain economy, the possibility of war with Iraq and sharp promotional pricing as Grinch-like factors that may dash dealers' holiday hopes.
Dealers See Decline In Value-Priced Majaps: Retailers are reporting a slump in appliance sales that is affecting the big volume, popular price point sector, as reflected in double-digit declines in Sears' mainstay majap business and the category's sub-par performance at Best Buy. The downturn was reflected in shipment data from the Association of Home Appliance Manufacturers indicating autumn declines in the core refrigeration and home laundry categories. Still, dealers say sales of high-end to luxury-level goods remain strong.