Why The National Consumer Electronics Superstore Model Is Obsolete

Barbara Thau

Contributor

And then there was one.

With the demise of Radio Shack as we know it and Circuit City in 2009, Best Buy BBY -0.03% is the last national consumer electronics retailer standing.

The dissolution of these chains highlights a model that appears to be headed for extinction: The national, consumer electronics superstore.

And while online shopping (translation, Amazon,) has no doubt voraciously siphoned market share from physical stores on everything from computers to TVs, e-commerce isn’t the only reason consumer electronics no longer appears to work as a single product category at a national big box chain.

Over the past 15 years, “There’s been a proliferation of competition, from mass retailers to highly specialized retailers, as more and more retailers are carrying electronics since it’s more important to consumers,” said Stephen Baker, vice president of industry analysis, consumer technology, for market research firm The NPD Group, listing chains as diverse as Wal-Mart,Staples SPLS -0.89%, Kohl’s, Big Lots and Costco, which have dramatically expanded their electronics assortments both in store and online.

At the front of a BJ’s store these days, you don’t see displays of socks, “you see big-screen TVs given prime real estate,” Steve Koenig, senior director of market research for the Consumer Electronics Association, told Forbes. “You’re seeing a merchandise shift. What’s playing to the mass merchants strengths are competitive pricing and convenience, people generally don’t have more time these days, and they’re shopping at a lot of these stores anyway. Stores like Walmart, Target TGT +0.81% and Costco saw the opportunity to ramp-up their tech assortments to get that business, and they’ve been very successful.”
And while big box consumer electronics chains have always been challenged by the category’s “razor-thin profit margins,” before they didn’t have to contend with competition from the Walmarts and the Amazons of the world, Koenig said.

To that end, Best Buy has shuttered locations, shrunken their store footprint, and diversified their product mix with appliances, for example. “Today they sell everything from ovens to car stereos.”

A retailer starting a consumer electronics superstore today would be inviting the struggles Best Buy has faced in recent years “with shrinking margins and trying to maintain store traffic in an Internet age,” Koenig said. “It would be a very backwards strategy appropriate for 20 years ago.”

Indeed, there’s no question that e-commerce has cannibalized a chunk of the business.

Amid the rise of online shopping, electronics was the first product category to make the earliest and boldest leap to the web, “as technology was synonymous with being online,” Baker said. “If you needed a computer, [for example], those were the people who would naturally be [inclined] to purchase technology-oriented products online. That’s why technology was the first big category to see a big jump in online sales.”

Today, about 20% of consumer electronics sales are generated online, Baker said, citing NPD estimates.

Innovation and disruption in the electronics retail sector has also seen the rise of single brand stores such as Apple AAPL +1.63% and Bose , Koenig said.

Subhead: Still Viable?

But intensified competition aside, Charles O’Shea, vice president and senior analyst for Moody’s Investors Service, says the notion that a national consumer-electronics-only chain is no longer a viable retailing concept is simply wrong.

Circuit City went under largely due to self-inflicted wounds, he said.

As for the survival prospects for a national consumer electronics chain, “Best Buy is demonstrating its viability.”

“There were many out there who thought Best Buy was in serious trouble. We have a stable outlook: Their stock is over 40 and their operating performance has been solid for the last couple of years,” O’Shea said.

Meanwhile, “Best Buy is transforming from a brick-and-mortar retailer into a bonafide, multi-channel retailer” — which is key to its staying power. Today, “over 20% of Best Buy’s online sales are now picked up in store [by shoppers].”

Its support from suppliers was a key sign “that Best Buy would be okay,” he said, noting that Samsung, Microsoft and Sony selected the retailer for their store-within-a-store concept. “That’s powerful. Those vendors want to showcase their products and preserve some of their pricing proposition.”

What’s more, brick-and-mortar consumer electronics retailers will always have a leg up on their online counterparts because if a product doesn’t work, you can return it to the store, he said. “There’s no product support at a lot of these online retailers.”

While regional players like New England’s Lechmere, The Wiz in the New York metropolitan area and Highland Superstores in the Midwest ultimately closed shop because they had trouble competing with the pricing power of the national chains, local electronics stores like hhgregg, Conn’s and P.C. Richard are still around, he said.

Nonetheless, online shopping has forced brick-and-mortar stores to come up with distinct and unique displays, for one, to grab shopper interest, Shane Broesky, co-founder of Färbe Technik, a global manufacturer of mobile accessories for Apple, Blackberry and Samsung, told Forbes. “Typically consumers can find the exact product they need by looking through multiple online sources to receive a better price than what they would get if they visited a retail location. This has created a smaller demand for traditional brick-and-mortar purchases,” he said.

“Consumers today are inundated with more products than they could imagine and the choices are almost endless, which has created a very hard task for not only the retailer but also the brands trying to promote their products.”

Färbe Technik, a global manufacturer of mobile accessories for Apple, Blackberry and Samsung, says its eye-catching, colorful displays help brick-and-mortar stores sell consumer electronics in the Internet era.

But a little eye candy can go a long way— particularly as consumers are “shying away from the typical black and white products that are most common in the [electronics] marketplace. We cater to the uniqueness of people by providing product and color options to suit each person individually.”

The Canadian firm says its product displays of items like USB charging cables and ear buds at Best Buy Canada for example, trigger impulse purchases as well as multiple purchases in a variety of colors.

“By creating very eye catching displays that draw customers attention towards your product line, the chances of a successful sale increases as well as the opportunity to sell more than one SKU per customer visit increases,” Broesky said.

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