Tweeter Group Facing Loss

A continuing sales slump has the Tweeter Entertainment Group, Inc. projecting losses for the third straight quarter.

Tweeter announced July 3 that its results would fall short of analysts' forecasts. The Canton, MA–based retailer operates stores in the southwestern, southern, mid-Atlantic, and northeastern regions of the US. For the third quarter of the current fiscal year, sales at stores open at least a year have been down as much as 10%. A slow winter holiday season preceded a spring cutback in discounting and advertising in the Arizona and Florida markets, which combined account for approximately 25% of Tweeter's revenue. Business in those regions improved in June, but not enough to improve the company's overall bottom line, Tweeter execs explained.

Expanding from its core of stores in the northeast, the Tweeter Group went on an aggressive acquisition spree in the late 1990s, acquiring successful small chains in many areas of the country. The goal was to benefit all with improved efficiencies in product procurement and marketing. That aim appeared to have been achieved prior to the recession that began with the terrorist attacks of September 11, 2001, a slump that some analysts claim is just now beginning a turnaround. On July 3, Tweeter's stock dropped 20% on the Nasdaq exchange, or 72 cents, to $8.88/share, still far from its 2003 low of $3.34 recorded in January.

Tweeter's competitors have found that the home building industry is a valuable ally in the struggle to sustain a positive cash flow. Best Buy, Cambridge SoundWorks, and Ultimate Electronics have all formed partnerships with builders to provide "networked solutions" for new homes—computers, audio/video, telecommunications, and security systems now considered essential in upscale residences.

Big retailers are now mass-producing systems of the kind that custom installers have been designing for years. Eden Prairie, MN–based Best Buy, North America's largest electronics retailer, launched its "Networked Home Solutions" division last fall, entering alliances with six home builders in the Minneapolis and Dallas markets. Company executives claim that approximately 3600 homes have been contracted to include such networks, which include Windows XP Media Center Edition computers incorporating live TV, DVD, personal digital video recording functions, digital music, Xbox gaming, and Microsoft broadband networking wireless base stations.

Sears is likewise forming alliances with home builders with its "Sears Connected Home" campaign. A pilot program begun two years ago in Florida recently expanded nationwide. Computer chain CompUSA is developing similar services for a 3200-home complex planned for the Playa Vista area on the west side of Los Angeles. Cambridge SoundWorks is leveraging its 23 stores in New England and the San Francisco Bay area in a partnership with One Connection, a "smart home" specialist featuring Cambridge products in home theater and distributed audio systems.

Denver's Ultimate Electronics, which began its custom installation division in 1996, now contracts with builders from Iowa to New Mexico for network solutions. Ultimate will be involved in system installations in as many as 7500 homes this year, a business worth $10 million. "We are seeing increased demand for home networking solutions, especially for structured wiring packages as home buyers plan for the future," said Jerry Calder, Ultimate's director of builder/contractor sales, who told This Week in Consumer Electronics (TWICE) that the company's smart home business has tripled over the past two years. Forrester Research predicts that by next year, 58% percent of all new US homes will be networked, TWICE reported.

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