Info & Answers
Big Changes Coming to Electronics Stores
Electronics retail industry enters “survival of the fittest” mode.
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Only the best electronics retail stores will survive the next 18 months, according to an industry leader. Shown is Pyramid Audio/Video in Anchorage, Alaska.
May 13, 2009 by Tom LeBlanc

The way people shop for electronics is changing. No, we’re not referring to how people are increasingly buying electronics products online; we’re saying that the stores themselves are changing.

Consider Best Buy. Its competitive landscape has changed dramatically over the past year. The consumer electronics industry is watching the prolific big-box retailer closely, speculating on how it will react and how the customer in-store experience will change.

Meanwhile, leaders of the specialty electronics industry say big changes are afoot for the smaller stores that often offer better-performing products.

All this leads one to wonder what shopping for electronics will be like a few months from now. 

For instance, with Circuit City and Tweeter out of the picture, Best Buy has indicated that it will reposition itself to take on Wal-Mart. Since nobody wants to enter a price battle with Wal-Mart, Best Buy supposedly intends to create differentiation by playing up its product demonstration ability.

As to whether or not that will actually happen, there is evidence to the contrary.

We recently reported that Best Buy intends to reduce hourly wages from $17 to $12.56 for some experienced personnel in its Magnolia Home Theater division. It also closed seven of 13 Magnolia stand-alone locations and shifted executive management of that specialty chain to Best Buy corporate.

Moves like that have a way of encouraging experienced sales people to leave the company, worsening the customers’ store experiences. Just ask Tweeter and Circuit City, both of which tinkered with lowering sales staff salaries before ultimately going out of business.

Best Buy isn’t necessarily cutting back its sales team’s salaries across the board, spokesperson Justin Barber clarified, adding that the changes at Best Buy, as well as its Geek Squad and Magnolia franchises, are “not that cookie cutter.”

The big-box retailer did cut back on advertising last year, a move that could be consistent with shifting focus toward in-store experiences.

It reduced its media buying by 17.7 percent to $298.3 million, according to Minneapolis St. Paul Business Journal. Wal-Mart, meanwhile, increased its media spending by 62.4 percent to $863.9 million, but it sells a heck of a lot more than electronics.

Changes Afoot for Specialty Retailers
For Best Buy, the writing is on the wall, according to Richard Glikes, executive director of Home Theater Specialists of America (HTSA), a buying group of specialty electronics dealers. He doesn’t see Best Buy shifting toward a more consultative or interactive sales model; in fact, he suspects that Magnolia is soon to be shut down.

“I don’t want Magnolia to fail,” Glikes says. “It’s very important for consumers to have a step-up buying opportunity that eventually leads to an HTSA member. It’s also important for vendors to have a company like Magnolia to fill their capacity. [However] when you’re going to offer $12.50 per hour to your sales people, you’re not going to get an educated sale. Quite frankly, the next step will be to shut the whole thing [Magnolia] down.”

Another specialty electronics dealers buying group leader, Jim Ristow of Home Entertainment Source, doesn’t want Magnolia to fail either. He says it would be a good thing for his specialty dealer members if Best Buy does move toward a more consultative, interactive model. Also, he thinks Best Buy has no choice but to shift its approach if it wants to avoid losing a head-to-head price battle with Wal-Mart.

“If Best Buy can step into the mid- to upper-space, that will keep our space viable,” Ristow says. “If it’s just a small sub-section promoting [specialty audio/video], vendors will stop making those sorts of products.”

Regardless of what Best Buy does, Ristow expects the electronics retail landscape to look a lot different a year and a half from now. Given the economy and the cash flow challenges faced by small- to medium-sized companies, he speculates that specialty electronics dealers will experience a Darwin effect over the next 12 to 18 months.

The good news for electronics enthusiasts, if Ristow is correct, is that only the strongest in-store experiences will survive.

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