News

The US economy took a severe downturn last year following the terrorist attacks of September 11, and this year has been hit by the stock market's decline in the wake of the accounting scandal–fueled collapse of Enron and WorldCom, Inc. Electronics retailers have ridden out the slump fairly well, buoyed by a consumer trend toward "cocooning," or putting their disposable income into their homes. For most retailers, the popularity of DVD and home theater has offset diminishing sales of stand-alone audio.

But even with the continuing growth of DVD and digital video—on September 5, the Consumer Electronics Association (CEA) reported a 66% increase in July of shipments of DTV equipment—this summer was a season to be endured rather than celebrated. Sales of consumer electronics declined 1% in July from their levels in June, according to an analysis published the same day in the Wall Street Journal. The primary competition was zero-interest financing on new car purchases, a tactic that helped the auto industry post a 4.2% increase in sales during the month of July. The sharp rise in auto sales lifted overall US retailing by 1.2% compared to the level in June.

Some retailers were hit especially hard this summer. Washington, DC area electronics chain Myer-Emco reported a 20% sales slump in July 2002 compared to the same month the previous year, the company's vice president Gary Yacoubian told the Journal 's Elliot Spagat. The nine-store chain has instituted its own zero-interest financing program for big-ticket purchases, as have several other large retail chains.

Circuit City saw a similar decline, with a 21% drop in same-store sales for the second quarter of 2002 compared to the same period last year. Even so, the Richmond, VA–based nationwide chain reported a 10% increase in total sales for the second quarter ended August 31, with stores open at least a year posting sales increases of between 5% and 6%. "We are extremely pleased with our comparable-store sales growth for the quarter," said company president and CEO Alan McCollough. Like others in the industry, Circuit City was boosted by increased interest in DTV, thanks to upgraded video departments in many of its stores.

Eden Prairie, MN–based Best Buy, Inc. reported a 20% increase in gross sales for the second quarter ended August 31, a potentially deceiving number skewed by the addition of 76 new stores and revenue from its Canadian Future Shops chain, acquired late last year. Best Buy's sales total for the quarter was $5 billion. A more accurate indicator of the company's performance was the 2% increase in same-store sales for the period. Its Magnolia Hi-Fi chain reported a 3% drop to $380 million for the quarter, attributed to "slow summer traffic" and "an economic slowdown in the Pacific Northwest," while the company's Musicland stores suffered from the continuing slump in sales of recorded music. Future Shops' total sales rose 13% overall for a $340 million total, due to the addition of 12 new stores, with comparable store sales up 6.9%. Product categories with the strongest demand were in the DVD and DTV niches.

Things are looking up for Denver-based Ultimate Electronics, Inc., which on August 7 launched six new stores in the Dallas–Fort Worth area, executives said Monday. The performance of the new stores to date has "exceeded expectations," in the words of CEO Ed McEntire. The Dallas area is the seventh-largest market in the US. Ultimate is hoping that the Dallas business model will provide a base for expansion into other areas of the US, according to chief operating officer Dave Workman. Best bets are areas where no "strong third player" competes successfully against Best Buy and Circuit City, the nation's #1 and #2 electronics retailers, respectively. In a recent press release, Ultimate Electronics said it expects to open five more stores this year, for a total of 12 openings this year. With the additional five, the company would have 58 stores overall. For Ultimate's third quarter, conservative analysts are predicting an increase of only 1%–2% in same-store sales.