Tweeter's Mark Richardson is a prime example. Richardson, senior vice president and chief brand officer of the specialty high-end CE chain, argues that Tweeter's 154 stores benefit from each wave of new, sophisticated CE devices in the retail market because shoppers then need greater product education, more installation help, greater advice and more hand-holding.

"When consumer confusion goes up, we do better," Richardson said. "As consumers get more confused, we give them more information."

Likewise, CE distributors and other industry experts see intriguing possibilities for smaller, specialty audio/video shops to compete effectively against the big-box stores as flurries of new computing, video, audio, gaming and other technologies enter the retail market in 2006.

For instance, Jeff Davis, vice president of sales for D&H Distributing, argues that this year will bring a rare confluence of major new products from several prime sectors of the computer and CE industries. Just for starters, he notes, Microsoft plans to introduce a new operating system (Windows Vista), Sony aims to launch a new gaming console (PlayStation 3), and many leading CE manufacturers intend to come out with next-generation DVD players during the next few months.

"There are a lot of cool technologies that haven't been renewed in five years," Davis said. "We're coming on a new life cycle of major technologies... There are just a lot of opportunities for everybody."

MARKET CONFUSION
Not everybody sees exactly the same opportunities, though. Some independent retailers believe that the new crop of HD-DVD and Blu-ray Disc players will spur greater sales for them as early adopters and other technophiles flock to the stores and try to sniff out the differences between the two dueling HD formats. 

"That (high-def DVD player) will be huge for us," Yacoubian said. "Those are the kinds of things we'll feast on." With consumer confusion about the new devices now running rampant, he predicts that "plenty (of new players) will be bought and not connected."

"You can't compete on price, you don't want to compete on price. That's not the customer you want to have." - Stephen Baker, director of industry analysis at NPD Group
But other electronics retailers aren't so sure. They fear that consumer confusion about the conflicting HD-DVD and Blu-ray formats may be so great that most potential buyers will simply not purchase either type of product. So they're holding their breath while reluctantly stocking samples of both sets of players.

For instance, Richardson notes that Tweeter usually prides itself on "taking a stand on technologies that will win." But, burned two decades ago when it sided with Sony in the agonizing Betamax-VHS wars, the specialty retailer is taking a more cautious stance this time around. "We'll carry both," Richardson said.

Other retailing experts think that new TV sets of all types offer the most promising chances for the specialty A/V shops as the digital TV boom continues. With sales of HDTV-capable sets, home theater systems, rear-projection sets, LCD TVs, flat-panel TVs and other big-screen TVs all climbing rapidly, they see few limits in sight.

"We're very excited about the opportunities this year," said Stephen Baker, director of industry analysis at NPD Group. "The big-screen market was up a lot last year. We expect sales to be through the roof this year."

CONNECTING THE DOTS
Still others contend that the greatest promise for smaller retailers may lie in all the new interconnections, peripheral devices and attachments that the next generations of TV sets, computers, radios, music servers, game consoles and other electronics products are spawning as consumers try to hook up everything in one grand, whole-home entertainment system.

"There are just going to be a lot of new, emerging attached and peripheral products," Davis said. "That's good for the smaller reseller... The real opportunity for the reseller and for us is to drive a lot of the attached products."

But, no matter what hot new electronics products they see as the most promising, retailing experts agree that the specialty A/V stores must take advantage of what they do best, not try to ape the successful sales and marketing strategies of Best Buy, Circuit City, Target, Kmart and the other general electronics chains and mass merchants. In other words, the experts say, the Mom-and-Pop A/V stores should keep concentrating on their niche areas and fill the gaps left by the big chains.

In a study released by CEA last June, consumers cited the "quality of products" as easily the biggest reason why they shopped at specialty, high-end electronics stores. In fact, nearly half or 46 percent of specialty store shoppers gave this as a reason.

"There are just going to be a lot of new, emerging attached and peripheral products. That's good for the smaller reseller... The real opportunity for the reseller and for us is to drive a lot of the attached products." - Jeff Davis, vice president of sales, D&H Distributing
Consumers also cited the reputation of the store, knowledge of sales staff, quality of in-store demonstrations, information provided about products and level of customer service as key reasons for favoring the specialty shops over other stores offering electronics products. As a result, the study recommended that the high-end electronics stores do a better job of promoting these advantages to shoppers.

"Focus on your strengths," said Yacoubian, who's also chairman of CEA's PARA Division. "You're not going to out-big-box the big-box people. We can do more compelling product demonstrations. We have more training and expertise."

This approach also means studiously steering away from any serious price competition with the giant chains. The experts stress that price wars simply cannot be won by small retailers, particularly ones specializing in high-end electronics products that largely appeal to big-spending, affluent consumers.

Indeed, the CEA study found that consumers overwhelmingly see specialty electronics stores as expensive places to buy goods. Some 51 percent of respondents cited "product pricing is too high" as the reason for not shopping at specialty stores in the past 12 months.

"You can't compete on price," Baker said. "You don't want to compete on price. That's not the customer you want to have."

Moreover, it means avoiding going head-to-head with the mass-market giants in splashy TV, radio and newspaper advertising. Taking this lesson to heart, Tweeter is cutting back on costly newspaper ad circulars, as well as expensive TV and radio commercials in prime-time. Instead, Tweeter is now concentrating on direct mail solicitations and targeted commercials only during TV newscasts and select radio programs in its markets.

"We're moving away from trying to compete," Richardson said. "We realized that it was a share of voice war we couldn't win."

But that doesn't mean shunning all promotional activities either. Far from it. In the same CEA study, the authors called on specialty electronics stores to promote their "value proposition" better by developing "competitively appealing marketing materials with less emphasis on price and more emphasis on service and quality of products."

The comprehensive study also recommends that specialty electronics retailers address at least some consumers' price concerns by inviting them to store sales and sending out weekly circulars highlighting product sales. In addition, the study suggested that retailers do a better job of promoting their store locations by inviting consumers to new store openings.

"It's just not enough to carry the product and sell it," said Steve Koenig, senior manager of industry analysis at CEA. "You've got to go beyond that."

PARTNER WITH OTHERS
Beyond the promotional moves, the experts urge the smaller, independent electronics retailers to forge relationships with new, non-traditional product suppliers, even if those suppliers have never served the CE business before.

Both Tweeter and Myer-Emco have done exactly that in forming sales partnerships with Sonos Inc. A Santa Barbara, Calif.-based start-up, Sonos makes a wireless "multi-zone" digital music system that lets consumers play and amplify songs all over the house using a handheld device with a full-color screen.

"We sought them out," Yacoubian said. "Don't rely on the same old partners you've always relied on. Be willing to look in unusual places."

"We really get a lot of custom high-installation business against the chains... We're building our business model around service and installation and the complete solution." - Mark Richardson, senior vice president  and chief brand officer, Tweeter
Retailing experts also advise specialty stores to stay at least one step ahead of the large national chains by keeping abreast of the newest, trendiest electronic products, whether they be video iPods, Slingboxes or MediaCenter PCs. As last spring's CEA study showed, consumers look to the specialty stores for the latest and greatest technologies.

"Sometimes people think they know about something and they really don't," Baker said. "You don't necessarily have to be the price leader to get people to buy."

In line with this, the experts emphasize the ever-increasing importance of creating a strong team of knowledgeable, well-trained sales people. With the big-box stores also seeking to boost their customer service levels these days, the experts contend that specialty shops need to keep raising the service bar, transforming salespeople into customer consultants.

"It's not about product and price," Koenig said. "It's really about the service, both before and after the sale... The larger value proposition is in the service."

SERVICE IS KEY
In addition, the experts stress that independent retailers take advantage of their small size to be more nimble than their larger competitors. Among other things, that means keeping merchandise stocks low enough so that it's easy to switch from one hot product to the next when sales begin to tail off.

"The independent retailer is increasing turns, from three times to six times a year," said David Lorsch, president and CEO of DBL Distributing. "They're tending to buy short, sell it, replenish."

Finally, retailing experts recommend that the specialty shops focus more on custom installation jobs, helping consumers integrate their new electronics products into their home entertainment or computing systems and even bundling home delivery and installation charges. Although the big stores also are doing more installation work now, smaller retailers have the natural advantage here because of their greater ability to offer personal service and maintain quality control over installation work.

Tweeter is one of the independents blazing the path in the installation business. The high-end retailer reports that custom installation work now accounts for more than 10 percent of its sales revenue, up from single-digit percentages just a couple of years ago.

"It's the fastest growing part of our business," Richardson said. "We really get a lot of custom high-installation business against the chains... We're building our business model around service and installation and the complete solution." V

By Alan Breznick
May/June 2006