The Impact of 2009 on Independent Retailers

Circuit City, Best Buy, aggressive pricing, LED, Green and other factors left their mark on consumer electronics retailers

November 25, 2009 By Nancy Klosek

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Terry Oates, president of Kings Great Buys Plus, Evansville, Ind., is worried that the impending tug-of-war between Best Buy and Walmart for electronics share won't benefit anyone, including customers. "As the battle for share rages on, and the vendor community cannot make a profit, then innovation will suffer," he said. "Innovative products, clearly, have to be introduced somewhere other than at venues like Walmart and, to a lesser extent, Best Buy."

The Consumer
Burt Krieger, president of the Reading, Pa.-based Boscov's, noted that one of the most dramatic events over the past year has been the change in consumer attitude toward shopping. Buyers, he said, have turned into 'frugalistas.'

"That's the approach of consumers today: buy now, wear now, I need this now-they're buying much more functional, practical items. There isn't a survey anywhere that doesn't say there's some segment of the population is intending to spend less this year."  He added that unemployment levels, more than any other factor in his region, have tainted consumer confidence. "What we saw that was different this year was that the high-end clientele used to buy through economic dips," Glikes said. "They didn't buy as much in this dip. The consumer is in hibernation."

This year also shattered the notion that the luxury class of consumers was recession proof. "We've seen a bit more demand-destruction at the top end of the market," Workman said. "The luxury segment has taken it on the chin a little harder than the mainstream."

Flat Panels & the Digital Transition
The drop in ASPs was even worse in 2009 that it had been in the past. Inventory issues throughout the year also drove dealers crazy. But it was more than pricing that fueled the TV roller-coaster ride. "First, we were having a hard time getting TVs, and then when we got them we were selling them at ridiculously low prices," said Eddie Maloney, president of Cowboy Maloney's Electric City in Jackson, Miss.

Reductions in flat-panel pricing over the past year have also hurt comp store increases for many dealers. "The good old days of retailing, where you could expect a three-percent inflationary number to help you make comps, haven't been around for a long time," said Boscov's Krieger.

But one positive for future TV sales, strangely enough, was the better-than-expected sales of DTV converter boxes. "Estimates were for 12 million to 15 million, but 40 million were sold," Workman said. "That's somewhat of a blessing in disguise because they're a placeholder for future HDTV purchases. How far down will it affect TV sales? It depends on general consumer sentiment. The upsides will come when the consumer is a lot more confident about spending."

Another positive is that LED TVs have not yet reached commoditization. "Eventually, I think 90 percent of what we see in LCD will be backlit-but that hasn't quite happened yet," Glikes said.

Favorable Events
2009 wasn't all doom and gloom, delivering a few events that dealers could be thankful for. Jetson's Thofner said the government stimulus package made the difference for his company in getting through the roughest months. "Without it, it would have been scarier. But with it, there was a bit more consumer confidence," he said.

Boscov's Krieger said that what made business click for his stores was event marketing around Valentine's Day, Easter and Mothers' Day. "In between, without special events and special effort, it's been pretty slow," he said.

The increase of consumer interest in "green" was also a bright spot. "Dealers are just now scratching the surface in LED lighting, whole-home control and solar," Glikes said. "There's a lot of opportunities in these, but they require change and diversification."

Alan Guyes, owner of Roanoke, Va.'s Audiotronics, said Control4's rise as a key supplier of whole-home management solutions was a positive in a sea of 2009 negatives. "It's amazing to see the number of specialty dealers who have hugged Control4," he said.

"They've really come into their own. They integrate everything at an affordable price point, and you don't have to have a programming guru on staff.  They've also made many strategic partnerships; they're brand-agnostic and that allows me to sell more stuff and sets me apart from the box guys, who are precluded from selling other things off it. It's a lifeline."

While 2009 was rife with change and unknowns, one thing was sure: The industry can no longer count on home-run product categories to carry it into next year and beyond, as it had in the past.

"There will be four or five things that will come into the market and be relevant to our business; base hits rather than home runs," Workman said, basing his observation on a recent visit with Japanese and Korean suppliers. "But base hits add up. It will mean dealers capitalizing on those small increments and expanding their boundaries beyond where their comfort zone is. That kind of creative evolution is what's going to allow retailers to prosper in the next years." DS

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