CE Retail Bloodbath Begins: Tweeter Liquidating

[imcarthur]

With credit & customers evaporating, the Consumer Electronics industry is set for a massive shakeup. Rumors have been flying for months about Circuit City but . . .

Tweeter fired all of their executive & administrative & warehouse staff at head office in Boston this morning. The 100 stores - Tweeter & Florida's Sound Advice stores will temporarily stay open to liquidate all product in stock. I knew it was coming but it is always a shock when it happens. I just lost 30+ storefronts in my South East US territory . . .

Ian

[gassy]

Bummer. I always liked Tweeter. Circuit City will be next for sure.

[911boost]

I met with one of my customers, a large family owned retail company, and they are expecting the worst Christmas season in their history.

[berettafan]

That is terrible Ian.

I think however that high end consumer goods simply do not lend themselves to big box business plans. Large stores in high rent areas are not the place for such things.

The fat is being trimmed. Marginal business plans are suddenly having to 'put up or shut up' with the ever toughening borrowing climate.

[imcarthur]

Originally Posted by berettafan

I think however that high end consumer goods simply do not lend themselves to big box business plans. Large stores in high rent areas are not the place for such things.

You are right but Tweeter always tried to position themselves above the other chains. Our 2 lower series were meat & potatoes for them with only 4 or 5 of their stores consistently selling better quality. Their other big brand was Polk which is just crap.

Video was their downfall. Retailers just can't survive with a < 20 point margin & pay rent. Our product (and audio in general) was a big source of income for them when compared to video. And the small shops have been evaporating for years because they couldn't be competitive with video - especially flat panels.

The prediction is that Circuit will be next. Best Buy is healthier but anything is possible. This season promises to be very grim.

Ian

[jyl]

Anyone know about H. Gregg (ticker HGG)? Are they doing okay or badly?

I think Circuit City (CC) will file BK by early next year. Not sure what their chances are to successfully restructure but I am pessimistic. I didn't know Tweeter (former ticker TWTR) was still around, was delisted long ago.

[KFC911]

Originally Posted by imcarthur

... Their other big brand was Polk which is just crap.
... This season promises to be very grim.

Ian

It's sad what Polk has turned into (I agree) from what they once were...good luck to you Ian!

[berettafan]

Is it possible that giants like walmart have driven the cost of strip center r/e SO high that many others just can't afford to do business there any more? Lots of turnover these days.

[imcarthur]

Thanks guys. I am not worried - well, not extremely worried at this point. I have been through this crap many times in the CE industry, so you just hunker down & weather it. Although this one smells like it might be a big one.

jyl: I have never dealt with Gregg. After a Chapter 11 two years ago, Tweeter has been owned by Schultze Asset Management Group.

Ian

[RWebb]

can i get a 52" flat screen fo $29 yet?

[imcarthur]

"Circuit City closing 155 stores
By MICHAEL FELBERBAUM – 27 minutes ago

RICHMOND, Va. (AP) — Circuit City Stores Inc. said Monday it is pulling the plug on about 20 percent of its U.S. stores in an effort to return the nation's No. 2 consumer electronics retailer to profitability.

The Richmond, Va.-based company said it will shutter 155 of its more than 700 stores in 55 markets, including Phoenix and Atlanta, by Dec. 31, laying off about 17 percent of its domestic work force. Circuit City also said it will further reduce new store openings and plans to work with landlords to renegotiate leases, lower rent or terminate agreements."

from Google News

The carnage continues.

Ian

[legion]

Our Circuit City store is one of the most profitable in the country. I play poker with the manager occasionally and have a friend that works there and another who used to work there. Apparently they really need to expand the current store but the troubles in the company keep getting that pushed to the backburner.

[jyl]

From what I have read, the problem for CE retailers is that they need the extended warranty revenue, and consumers don't trust a bankrupt retailer enough to buy extended warranties. Anyway I can't think of any major CE retailer that has successfully emerged from BK.

Here's list of closing CC stores - may want to check out if will be any deals . . .

http://biz.yahoo.com/ap/081103/circuit_city_store_closings_list.html?.v=2

Doesn't look like the Bloomington store is closing.

[imcarthur]

Originally Posted by jyl

From what I have read, the problem for CE retailers is that they need the extended warranty revenue,

Yes, they do. Video has been driving CE sales for a number of years & it has been accounting for a scary percentage of store volume. But video is a 20 point margin at best. No store can survive on that. The warranty added an extra percentage & the salesman (and store) often made more commission on the warranty than on the set sale.

Ian

[legion]

Originally Posted by jyl

From what I have read, the problem for CE retailers is that they need the extended warranty revenue, and consumers don't trust a bankrupt retailer enough to buy extended warranties. Anyway I can't think of any major CE retailer that has successfully emerged from BK.

Sounds like a huge opportunity to me.

If I'm understanding correctly, the CE industry has cut costs and margins to the bone, and put all of their profit into one basket: the extended warranty. Now, I've NEVER bought an extended warranty and I can't recall the last time I had an expensive CE item fail.

If someone can figure out how to shift their profit center away from extended warranties--perhaps to multiple things so that their business model is not so sensitive, then there is an opportunity here to make money.

[imcarthur]

They have other higher profit areas - speakers & electronics are better & furniture & accessories are a lot better. It all boils down to what the customer will buy. If he only walks out with a flat panel, the store breaks even.

The trend has been to move away from just selling boxes to selling control & other custom services. This also allows the business to relocate to industrial areas vs high ticket visible real estate. Have you ever seen a quote for a whole house Crestron control system? Just programming can be tens of thousands & inevitably the control portion of a sale dwarfs the equipment.

Ian

[rammstein]

So should I check out a sound advice store for deals? They had some great sounding speakers there, but WAY over my plastic spoon bank account.

[legion]

I was thinking of finally buying and HDTV for Christmas.

Might have timed this one well...

[Arizona_928]

Originally Posted by imcarthur

The Richmond, Va.-based company said it will shutter 155 of its more than 700 stores in 55 markets, including Phoenix and Atlanta, by Dec. 31, laying off about 17 percent of its domestic work force. Circuit City also said it will further reduce new store openings and plans to work with landlords to renegotiate leases, lower rent or terminate agreements."

does this mean good deals are to be had in phoenix?

[imcarthur]

And the vultures circle. Not that there is anything wrong with that. The industry depends upon inventory burns to make room for the new goods.

So, the answer is Yes. With the usual caveat that it will be probably be even cheaper after the Christmas season.

Ian