Upscale Retailers Report Good Returns; TDK Closes US Plants

Is the consumer electronics business swimming, sinking, or simply treading water? It all depends on who's talking. Retailers don't appear to be suffering, despite widespread staffing cutbacks by large companies, but the gains are coming more slowly than they did last year.

On April 17, Harvey Electronics, Inc. reported a 13.8% increase in sales for the five-month period ending March 24, with an 11.4% improvement in comparable store sales. The Lyndhurst, NJ–based retailer reported that net sales for the five months grew to approximately $17.2 million, a gain of $2.1 million over the same period last year. Comparable store sales for the period grew by approximately $1.7 million compared to the same period last year. In March 2001, total net sales increased 1.2% compared to the same month in 2000, but comparable store sales declined by approximately $20,000 (less than 1%) due to a three-day closing of the main Harvey store on 45th Street in Manhattan after a fire in the neighborhood caused a nearby building to collapse. Public officials had closed the entire street.

With stores in New York, New Jersey, Long Island, and Connecticut, Harvey Electronics is a dominant player in the audio/video business in the greater New York metropolitan area. The company also operates two Bang & Olufsen franchises, one in Manhattan's Union Square and the other in Greenwich, CT. The nine-store operation opened its newest showroom in Eatontown, NJ, on April 10, and has been renovating its 45th Street store to update its appearance and to gain more floor space.

Home-theater products are consistently strong performers for Harvey's, which also does a solid business in custom installations. "Consumer demand for digital technologies, plasma flat-screen televisions, and home theaters remains strong, while the positive results from our custom installation services continue to increase," said company president Franklin Karp. "Harvey's sales remain strong in a difficult retail environment. There is no question that there has been a slowing of customer traffic to our stores through the end of March 2001. The company has, however, seen an increase in traffic and strong sales results for the first three weeks of April, and we are hopeful that this trend will continue."

Bang & Olufsen itself has not fared well in the slowing economy. On April 18, the Danish manufacturer reported that it posted a 15% decline in operating profits for the first nine months of its fiscal year, due largely to slowing sales in the US. "The slump in the American market has spread to several traditionally high-growth markets in Europe and has adversely impacted on the result for the quarter," according to an official B&O statement. Noted for their sleek design, B&O products have traditionally appealed to upscale buyers who value visual aesthetics and operational ergonomics.

B&O's third-quarter results included a slump in profits from 118 million Danish crowns last year to 79 million this year. The company has issued a downwardly revised financial projection for the year, but product development and marketing progress continue nonetheless. B&O loudspeaker and amplifier division PowerHouse has signed licensing and marketing agreements with Sanyo and Sony, according to the April 18 report. Sanyo will use B&O's "ICEpower" technology for some of its subwoofers. "A declaration of intent has been signed with Sanyo Electric Ltd. for a cooperation covering design, development, production, marketing, and sales of integrated and hybrid amplifiers based on ICEpower technology," B&O announced.

As reported earlier this month, Tweeter Home Entertainment Group continues its upward swing. Also on April 18, the Canton, MA–based electronics chain released a report that described its fiscal second quarter, ended March 31, as its "best ever." Among the rosy figures was a 39.8% gain in net income, a total of $3.8 million, a big jump from the $2.7 million for the same period last year. Revenue grew 36.8% to $117.8 million compared to $86.1 million in the same quarter in 2000.

With an emphasis on home theater and custom installation, as well as quality audio, Tweeter Group has a similar product lineup to Harvey Electronics, but has almost nationwide exposure as the result of an aggressive merger-and-acquisition program begun about five years ago. Because custom installations typically involve longer time periods and bigger cash outlays than individual component sales, company executives view the custom installation business as a mediating influence in an uncertain economy. "Our home installation business strategy is cemented in the notion that, at the very least, this business can be a hedge against the potential for declining margins, as television sales become a larger part of our overall business," said Tweeter CEO Jeffrey Stone. "As long as we execute our strategies around home install, digital television, and audio, we believe that we can maintain our historical gross margin levels." Tweeter anticipates revenues in the $110-$112 million range for the quarter ending June 30.

Although Kenwood Electronics and Sony Corporation have reported diminished profits, at least one Japanese giant is apparently due to hit a 10-year record. An April 19 report from Reuters news service claims that Pioneer Corporation will post a group net profit of 22.5 billion yen ($184.4 million) for the fiscal year 2001/02, exceeding 20 billion yen for the first time in a decade. The news caused Pioneer shares to leap 8.57% on the Nikkei stock exchange. The company's healthy profile was attributed to royalties from patented technologies and a growing market for some of Pioneer's newest products, such as plasma displays. Among the major Japanese electronics makers, Pioneer has invested most heavily in plasma technology, as well as in the emerging technology of organic electroluminescent displays. The company is projecting a 5% increase in sales for the year ending next March, for a total of 680 billion yen.

Finally, a sea change for venerable blank media maker TDK Corporation. On April 20, the company announced the closure of its two American plants, one in Georgia that made video tape cassettes and CD-Rs, and the other in California that produced audio cassettes and floppy disks. The plant closures are part of a $33 million restructuring plan that will concentrate the company's production in Germany and Thailand.

Demand for analog tape products has fallen off in North America, company executives said, and the market for recordable CDs is flooded with cheap products from Taiwan and Thailand. TDK claims that prices for blank CDs fell by 60% last year. (At some major market computer stores, house brand CD-Rs can be purchased in bulk for under 25 cents each.) The demand for video cassette tapes has dropped from 1.3 billion units in 1996 to 1.1 billion last year. "There is an imbalance of supply and demand and the price of these products is going down," said a TDK official. "In the current environment, business is very hard for us." The company's two US plants will be converted to distribution centers.