Retailing: Mixed Results
Quarterly reports from most retail chains bear out this observation. In late December, Canton, MA–based Tweeter Home Entertainment Group reduced projections for its first fiscal quarter ending December 31. For the first three weeks of the month, comparable stores sales were down 15%, and were off 10% for the quarter to date as of December 21. Digital TV equipment and flat-screen TV products are strong sellers for Tweeter, but consumers have shown little interest in audio components, according to CFO Joe McGuire. "We are just seeing less traffic across the board," said president/CEO Jeff Stone. "There appears to be less interest in the products we are selling this holiday season." The pattern seems to be consistent nationwide, he noted.
West coast retailer Good Guys posted a 13% decline in sales for its third quarter. The San Francisco–based home entertainment specialist reported net sales of $172 million in its fiscal third quarter, compared with $198 million during the same period last year. Same-store sales were off 10%. Good Guys closed seven under-performing stores in 2002. Net loss for the quarter was less than half that reported in 2001, $3.7 million vs $8.1 million. As with Tweeter, stand-alone audio sales were weak. Home theater systems, flat-panel displays, HDTV, and digital cameras were strong sellers for Good Guys, which reported flat-screen TV sales up more than 400% from last year. Good Guys posted a year-to-date net loss of $10.1 million, less than half the $22.7 loss reported for 2001.
The picture is sunnier for Eden Prairie, MN–based Best Buy, North America's #1 electronics seller. As reported last week, the company posted a 5% increase in earnings for its fiscal third quarter, $85 million, compared with $80 million for the same period last year. Best Buy has suffered from slow traffic at its Musicland stores, and is reconsidering that end of its business. The company has re-organized its product offerings by de-emphasizing office equipment and devoting more floor space to home-theater gear. The strategy has allowed Best Buy to remain profitable in a sluggish economy, according to CEO Brad Anderson. "Our success is due to our ability to shift our product mix toward higher margin products and to increase the attachment rate of accessories," he commented. His company predicts a 10% increase in sales for its fourth quarter, and a 16% increase for the year, for a year-end total of $22.8 billion. That increase could be deceptive, however, as Best Buy added 68 new American stores and the Canadian Future Shop chain to its roster in 2002.
Number two retailer Circuit City reported a $21.3 million loss for its third fiscal quarter ended November 30. That compares unfavorably to profits of $9.2 million for the same three months in 2001. The Richmond, VA–based chain attributed approximately half of the loss to $11.4 million spent in remodeling and relocating stores. Circuit City reported brisk sales of flat-screen TVs and DTV gear, as well as "entertainment software"—primarily DVDs and video games—and "entry-level products and PCs." Profits are being eroded by competition from big-box discounters, according to company execs. "Gross margins are under pressure, at lower levels than we historically have enjoyed," said CEO Alan McCollough. "We expect competition in the marketplace to be the same in the fourth quarter."
Large-scale discount stores have eaten into territory once owned by specialty retailers. In 2002, both Wal-Mart and Target expanded their electronics departments from the entry-level products in which they had previously specialized. Wal-Mart, in particular, has been very successful with flat-screen televisions, home theater receivers, and other high-tech products that it would have shied away from just two year ago.
Discounters offer no installation and little in the way of technical advice, but that hasn't dissuaded price-conscious consumers. Wal-Mart and Target both posted 11.8% sales hikes for the third quarter, with Wal-Mart's profits up 15.5%, to $2.7 billion vs $2.3 billion for the same period last year. NOTE: those numbers are profits, not gross sales. The company broke its own record for combined quarterly sales and earnings in Q3 2002, with a total of $58.8 billion. Target Stores saw a 15.4% increase in revenue for the first nine months of 2002, for a total of $25 billion, with pre-tax profits up 31%. Third quarter consolidated net earnings were $277 million, an astounding 50.2% rise from the $185 million posted for the same period last year.
The music industry continues to sing the blues about sales lost to piracy and downloading, but its executives might well profit from actually observing where young people really spend their money: video games. Sony's PlayStation 2 was one of the hottest products throughout most of 2002, and one that helped put a polish on the Japanese conglomerate's bottom line. While specialty audio retailers were standing about idly wondering where all the customers went, they needed to look no farther than their local video game store. In late December, Electronics Boutique Holdings, a company that specializes in video game hardware and software, and PC entertainment software and accessories, reported an eye-popping 55.3% jump in revenue for the third quarter. EBH hit a total of $283 million, a phenomenal jump from the $182.2 million reported for the same period last year. Comparable store sales were up 37.7%, with net income at $7.1 million, more than twice the $2.9 million reached in the same period last year. Research firm NPD Intelect reported that the total video game industry grew by 38% in the third quarter.