||Electronics Retailers Scramble to Adapt to Changing Market
Even as Best Buy insists it can get out of its current predicament, competitors are circling, as everyone tries to prove one point: that electronics stores can thrive.
Best Buy is closing 50 of its big-box stores, and its sales at stores open at least a year are falling. Brian J. Dunn, its chief executive, recently resigned after the board found he was having an inappropriate relationship with a subordinate. Richard Schulze, who founded the company in 1966, said this month that he would leave the board immediately, a year ahead of schedule, and is trying to sell his 20.1 percent stake in the company.
Now, Walmart is running ads going after Best Buy consumers; a Chicago-area competitor is expanding amusement park attractions in its store to lure shoppers; and Target is selling Apple products -- all in an effort to make buying electronics in a store appealing again.
The trends are not favorable. People are increasingly buying electronics online, even if they go to stores to examine product features. The price of televisions is sliding, and CDs and DVDs are not nearly as popular as they once were. Retailers are stuck with lots of space as products shrink or go digital. And because many manufacturers are not allowing retailers to advertise below minimum prices for their products, stores cannot publicize sale prices the way they once did.
Sales at physical electronics stores have declined an average of 2.6 percent a year in the last five years, according to the market research firm IbisWorld. Sales of electronics online have risen an average of 14.7 percent a year in that period. Chains like Circuit City and CompUSA have collapsed under the pressure. (CompUSA has been revived in some locations.)
So the stores that hope to survive must change.
Take Abt Electronics, which has a 350,000-square-foot store in Glenview, Ill., a Chicago suburb. "People think that’s crazy these days," said Jon Abt, co-president of the store, but "if you're going to have a showroom, you need to make sure you're having a unique experience."
"We're seeing more people shopping on their phone and on their computers, but that doesn't mean store retail's necessarily dying,” he said.
Because shoppers often have their children with them on weekends, Abt has installed lots of activity stations for children and adults.
At one machine, children can pull a cord and surround themselves in a giant bubble. Other attractions include a flight simulator, video games and a 5,000-pound granite ball that floats on water that children are allowed to push around.
A 150-inch screen simulates colorful butterflies landing on viewers' shoulders, and an aquarium filled with exotic fish and even a leopard shark distracts children and serves as a subject for customers shooting test footage with Abt's video cameras. On weekends, employees serve fresh-baked cookies and coffee to shoppers.
"You'll always see the construction sign somewhere in the building," Mr. Abt said. "People get excited when they come in and see something new and different."
Abt also emphasizes customer service. It trains employees for two to four weeks before they go on the sales floor. Once they do, they wear shirts that are color-coded to their department, so shoppers looking for a cellphone can find someone wearing red. Mr. Abt said he gives employees the authority to offer on-the-spot discounts, without checking with a manager.
And Abt pays employees a salary and bonuses, rather than hourly wages. Mr. Abt said that an all-commission staff would "try to sell what they're going to make money on," rather than what the customer wants, while hourly rate workers would be concerned only with their wage. So, he said, a combination is best.
Bonuses increase when employees do good things, and decrease when they do bad things, Mr. Abt said. If, for instance, a consumer brought in a damaged product and the salesclerk handed the person off to a customer service representative, that would decrease a bonus, he said. "It's passing the buck, and not taking care of a customer."
Still, Abt is not betting its future on electronics.
The store recently began carrying other merchandise, including exercise equipment, furniture, luggage, home-security products and high-end watches. Soon it will add mattresses and bedding.
It has created boutiques, separated by walls and with distinct shelving and lighting and branding, for products like the watches, gourmet foods and Apple merchandise.
Mr. Abt said sales and profits in 2011 were up from 2010, but he declined to give specifics.
He said the Best Buy closings, which included six stores in Illinois, would have a mixed effect.
"Best Buy brings a lot of awareness of the category -- they advertise significantly, and they are all over the country," he said "We've got customers every day that come in with Best Buy ads."
Other retailers are more aggressively pursuing Best Buy customers.
This spring, after Best Buy announced the locations it was closing, Walmart began running ads in print, on radio and online encouraging customers to get electronics at Walmart. "Did your local Best Buy just close? We have the top brands and low prices," one ad reads.
While most of Walmart's categories turned in improved numbers domestically in the first quarter compared with a year earlier, the category including electronics declined in the midsingle digits. The prices on televisions and video games keep going down, the company said.
"There's been a lack of innovation, quite frankly, since we saw the flat-screen TVs, tablets," said Duncan Mac Naughton, chief merchandising and marketing officer for Wal-Mart United States. Walmart is adding Apple stores-within-a-store and pushing a service that uploads customers' DVDs to a cloud-based portal.
Other electronics stores, rather than trying to profit from Best Buy's troubles, are looking hard at the impact from Amazon. "A lot of people think this is a category -- electronics -- that Amazon will crush just as they did bookstores," said Robin Lewis, chief executive of industry newsletter The Robin Report. Target, for instance, recently dropped Kindles from its lineup after warning about online vendors' aggressive sales tactics, and has been emphasizing its Apple products.
Best Buy is scrambling to reinvent itself with better e-commerce, smaller stores and a wider array of products. "Not that long ago, Best Buy was the authority in this market," the interim chief executive, G. Mike Mikan, said recently. "Not anymore."
"We need to change substantially," Mr. Mikan said.
Some shoppers, like Mark Bisaillon, still prefer visiting physical stores. After two decades of working in marketing for companies like USRobotics and 3Com, Mr. Bisaillon is an avid researcher when he buys electronics. He looks at PriceGrabber, StreetPrices and Amazon, studies circulars from Fry's Electronics, Best Buy and H.H. Gregg, and goes into a store knowing what he wants to buy and the market price.
Mr. Bisaillon, who lives in Palatine, Ill., goes to Abt for its customer service and willingness to negotiate. Though it, like other stores, is restricted by manufacturers to advertising certain prices, it recently gave him a $300 discount on a freezer when he bought it with a refrigerator, he said.
He goes to Fry's to get the latest consumer electronics, orders commodity products like camera batteries from Amazon, and recently bought a tablet from Costco after realizing it had a lower price than Best Buy. In general, he said, he would not miss the Best Buy stores that are closing.
"The same model of TV is available here or there," he said. "Retailers like Abt are finding interesting ways of working around that by giving away something of value to someone like me. Best Buy hasn't."
(Source: The New York Times, 06/19/12)
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