Humans love to shop and they love gadgets. It is - or was - a match made for marketing. Some of the earliest innovations in consumer hard goods marketing came out of this industry. EJ Korvette, Kresge and Sears. Then came the major discounters like Crazy Eddie. His prices were insane, as the ads screamed, but so was the business. And it soon demonstrated just how much, by going bankrupt.
The ease of ecommerce - comparing, buying, returning when dissatisfied - has taken the rest of the pizzazz out of going to the store. So the retail industry - with its penchant for strip malls as well as the jobs and state and local tax payments that go with them - is powering down.
The initial counter-strategy was large screen TVs. Too bad virtually everyone had the same idea, prices plummeted, margins evaporated and everyone who wanted one, got one. Plan B? Mobile phones. And, what a surprise, everyone glommed on to that notion as well. Mere humans generally need only one, prices are consistent with a band of options, packages likewise and so much for that.
There may, eventually, be a market for used devices but Amazon is already on top of that one. GameStop grabbed first mover advantage with its iPhone resale concept, but the same dynamics apply: how many of the things do we really need, or where need is not part of the equation, want?
We suspect humans will always want to shop with other humans around. The concept of the market is as ancient as civilization. Surveys continue to report that shopping is the most popular form of entertainment in many societies. But the evolution must continue. Costs must come down. Real estate prices and taxes must moderate. Reliance on the auto must be supplemented. We love to look - but we also love convenience. There's a market opportunity in there for someone. JL
Ann Zimmerman reports in the Wall Street Journal:
Is there a future for electronics specialty stores? Not long ago, retailers such as Best Buy Co., GameStop Corp. and RadioShack Corp. were outmuscling competitors across America by offering one-stop shopping for the latest televisions, computers, videogames and gadgets.
Now all three are fighting to survive. The rise of online competitors like Amazon.com Inc. that offer low prices and downloadable products have siphoned customers and sales from these once-powerful retailers
The retail chains are responding with turnaround strategies that highlight their abilities to obtain hot new smartphones and tablets, and are trying to capture those purchases that consumers still prefer to make in person.
But they concede they have to evolve fast. "There is a future for consumer electronics in retail," insists GameStop's chief executive, Paul Raines. "But in order to survive, our internal rate of change has to be greater than the external rate of change."
His GameStop, which has 6,600 U.S. stores, is adding used iPhones and tablets to its portfolio of new and used videogames. It is also beefing up its digital download services to compete against game websites like Valve Corp.'s popular site, Steam.
RadioShack, whose stock is down 75% this year, is playing down cables and connectors and refashioning itself as a convenience store for smartphone buyers. And Best Buy is shrinking its fleet of big-box stores, pushing high-end appliances and retraining workers to focus on tech support. It also is opening hundreds of small stores devoted to mobile phones and tablets.
"We're balancing secular decline in the industry with capturing growth in the areas that are exploding," said Mike Vitelli, president of Best Buy's U.S. operations.
But retail experts question whether their new tactics—particularly the push by nearly every store chain to sell more smartphones and tablets—can make up for the big-ticket products the chains are slowly losing.
"The economics of the industry have evolved—and not to the benefit of most retailers," said Michael Lasser, a retail analyst at UBS.
Best Buy recently reported profit fell 91% last quarter on the eighth sales decline in nine quarters at stores open at least 14 months. Its founder is trying to take it private.
RadioShack suspended its dividend last month after posting its largest quarterly loss since 1996. GameStop's profit fell 33% last quarter due to declining sales of game discs and consoles.
Flat-screen televisions once generated lush profits for Best Buy. Today, retailers have to sell almost twice as many TVs as five years ago to achieve an equivalent amount of revenue—and even more than that to match past profit levels.
The average price of a TV has fallen 40% since 2007 even as screen sizes have increased, while gross profit margins have tightened from about 30% on upper end models to the low teens, according to market research firm NPD DisplaySearch.
Consumers today can often find the same television models for similar prices at Wal-Mart Stores Inc. WMT +0.48%and Target Corp. TGT -0.11%as they shop for groceries and paper towels, eliminating the need to enter a specialty store.
Electronics chains were built to let consumers browse competing innovations. But unlike in the past where blockbuster products could emerge from any place, much of the innovation in consumer electronics is increasingly being driven by a single company—Apple Inc. AAPL +0.21%—which has its own stores and sells online as well as through other retailers.
The liquidation of Circuit City Stores Inc. in 2009 was expected to be a boon for surviving electronics retailers. Instead, Amazon's share of the market rose to 11% from 2% and Apple's jumped to 8% from 6%, according to This Week in Consumer Electronics, or Twice, a consumer electronics trade publication.
The danger of retailers' current reliance on a few hit makers is clear at RadioShack, which has built its turnaround on selling smartphones. Profits at the 91-year-old chain, which has 4,700 small stores dotting strip centers in the U.S., Canada and Mexico, have eroded even as its sales have held firm since devoting more space to phones and tablets two years ago.
Mobile devices accounted for 51% of RadioShack's $4.38 billion in sales last year, up from 44% the year before. But its gross profit margin has shrunk, falling eight percentage points last quarter to 37.8% from 45.9%.
The problem: margins on its iPhone sales are lower than on other phones, though the company hopes to make up the difference selling accessories like phone chargers and warranties. It is also struggling to make money from the 1,400 kiosks it runs inside Target stores.
Meanwhile, consumers still identify RadioShack with cables and connectors. "The only reason I go in there is when I need some obscure electronic part," said Diane Jaffee, a retired CPA from Columbus, Ohio.
RadioShack CEO Jim Gooch said it is working to improve its deal with Target. He alsoacknowledged that the company, named for the radio cabins on ships, has an image problem. "We need to rebuild consumers' knowledge of our brand," Mr. Gooch said.
GameStop has been the most aggressive in reinventing itself. It is also focusing on the smartphone market—but with a twist: It hopes to become known as the main reseller of used Apple gadgets and Android phones.
It already has the systems to repackage and resell thousands of items after pioneering the sale of used videogame consoles, cartridges and disks, which accounted for 27% of its sales and 47% of its profit last year. GameStop expects to garner $200 million in sales from its used mobile device business this year.
"We have plenty of challenges," said Mr. Raines, the CEO. "But the threat of losing the consumer has created a burning platform for change."
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