Electronics Retail Up?

It's widely acknowledged that the American economy is in a downturn, but some economic indicators point otherwise.

The confusing numbers: The US Commerce Department recently reported a 1.3% decline for the last quarter in Gross Domestic Production, a measure of the value of all goods and services produced in the country. The retreat was the first in eight years and the most pronounced since a 2% drop in GDP in the second quarter of 1991. Corporate profits for the quarter declined by 6.8% on an after-tax basis, following a 1.7% decline in the second quarter. Profits overall were down 18.5% from the same period the previous year, according to figures published in the Wall Street Journal. Personal spending declined by 0.7% in November, after a 2.9% gain in October. Personal income in November was down a scant 0.1%, but the savings rate was up 0.9% compared to October. Spending on nondurable items—defined as commodities other than automobiles or large appliances—dropped by 0.7% in November. Consumer spending was "the slowest since the 0.8% gain recorded in the first quarter of 1993," the Journal reported.

Despite the negative impression conveyed by such figures, some retailers are reporting excellent results as consumers rebound from the shock of September 11. Upscale retailer Saks, Inc. saw its stock rise 12% in late December; clothing chain the Gap, Inc. is also doing well. Both stores specialize in non-essential personal items. Sales of such "comfort wares"—home electronics also fall into this category—have increased as travel expenditures have declined. Retail is strong, according to Prudential Securities analyst Wayne Hood, and appears to be improving.

Results from two major electronics chains are evidence of this trend. The New York metropolitan area's Harvey Electronics reported December 18 that same-store sales rose 15.6% in November, thanks to increasing demand for DVD players, high definition digital televisions, and flat-panel plasma screens. Harvey's total sales for the month rose 26.6% to $3.3 million, according to a company press release. Sales at Harvey's renovated flagship store on 45th Street in midtown Manhattan increased 34%; sales at its Paramus, NJ store rose 20%.

Minneapolis-based Best Buy, Inc. posted even better results, with net income increasing by a whopping 40% for its fiscal third quarter. The growth was attributed to Best Buy's acquisition of Musicland stores late last year and Future Shop stores late this year. The mass-market electronics chain reported net income of $80 million for the period ended November 25, compared to $57 million for the same period a year earlier, with same-store sales up 1.6% for the most recent quarter. CEO Richard M. Schulze said that Best Buy's New York area stores "led the country with double-digit same-store sales growth." Quarterly revenue for Best Buy, Inc. rose from $3.73 billion to $4.76 billion, an increase of 27%.

The company now has 478 stores operating under the Best Buy name, 65 of them added in the past 12 months. Musicland locations total about 1300; there are 95 Future Shop stores in Canada. "Our 40% increase in earnings feels simply extraordinary in light of the challenges in the quarter," Schulze stated, predicting that his company will continue to gain market share.

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