Tweeter Closes 49 Stores
By Wes Phillips April 1, 2007 — Tweeter Home Entertainment Group announced a massive "restructuring" of its operations on March 22. The chain will close 49 stores, including all operations in California, New York, Alabama, and Tennessee, and trim its workforce by 20%. The chain's remaining 104 stores will be remodeled to conform to the chain's current "CE playground" theme.

Industry analysts generally hail this as a positive move for the company, although a few saw it as a portent of doom for "an outdated business model," to quote Eric Haruki, a research director at technology analysis firm IDC. Haruki told The Boston Globe that the retrenchment will help the chain by de-emphasizing its competition with the big box stores where an increasing number of consumers are purchasing entry-level products. "There is a market for a kind of ultra high-end consumer," Haruki said. "[Tweeter] is selling a niche product at high prices to a limited, more aware audience."

Stereophile's own ultra-secret, industry executive blind source pointed out that, while the move was triggered by this past Christmas season's plummeting flat-screen television prices, it was long overdue. "Tweeter has been growing through an aggressive acquisition policy since the 1990s, but the writing has been on the wall for a while," Deep Throat told us. "Most companies adjust all the time—they open a few new stores each year and close the ones that aren't doing well. Most of Tweeter's locations were performing just fine, but the bottom third of the list was sucking up all the money the others were generating."

Throat also pointed out that Tweeter's first step in January was to restructure the corporation and reduce its headquarters staff by 20%. President and CEO Joe McGuire then announced that the company would undertake some consolidation, although the scale of the move was unexpected.

Tweeter employs 3100 people and will lay off 650 in the restructuring. For three days in April, McGuire and the corporation's human resources executives intend to answer a dedicated toll-free hotline to help ease the transition for the redundant workers. "As big as it got, Tweeter remained, at heart, a small company," Deep Throat said. "That's probably why it took so long to do this even after the writing was on the wall."

TWICE reports that the consolidation will reduce annual revenues from $735 million to $555 million, but will improve the corporation's profitability and cash flow. The company's most profitable stores have been its "CE playground" stores, which demonstrate electronics in situ in full-scale dioramas resembling kitchens, bedrooms, family rooms, and other real-life whole-home or home-automation scenarios. Tweeter has secured five-year financing to upgrade its remaining stores to the CE playground theme. Part of that scheme includes investing heavily in staff training and education—a remarkably different tack than that taken by Circuit City last week.

Consumer electronics industry insiders weren't as surprised as the analysts by the move. One sales rep told us that his sales figures revealed which stores were performing and which ones weren't. "I'd say they got it about right," he told us. "The stores they've kept will perform well."

Tweeter CEO Joe McGuire told TWICE, "I'd rather be a successful $500 million company than a struggling $800 million company."