Evolve or Die: The Changing Face of the CE Retail Landscape

By |

Evolve or Die: The Changing Face of the CE Retail Landscape


Store-closing-thumb.pngWalk into any consumer electronics retail store aside from the most high end of home theater specialists, and there's a good chance that the product assortment you find there will be considerably different than what you saw there a few years ago--even one to two years ago, in many cases. National retailers like Best Buy and Sears have reduced the amount of space they devote to electronics while increasing the square footage devoted to appliances, a more profitable category for them. Within the remaining electronics selection at those stores, the traditional mix of audio and video has also shrunk to make room for new categories, including home automation/smart home devices, wearables, and drones.

Meanwhile, regional CE retailers--such as NATM Buying Corporation members like Abt Electronics in Glenview, Illinois, and BrandsMart USA in Florida and Georgia--have also added smart home and wearable devices to go with their electronics and appliances, while also expanding into categories like mattresses.

Although there may have been fewer cosmetic changes to the sales floors at independent home theater specialists, many of those businesses have added home automation products, while others have either tested non-traditional CE products or seriously thought about doing so. In a previous story, we talked about Starpower, based in Dallas, Texas, which is a great example of a CE retailer that has branched out into categories like flooring, appliances, and networking products. 

Bjorn's Audio Video in San Antonio, Texas, is another example. The store entered the home automation category awhile ago and has focused on Control4 products, said Bjorn Dybdahl, its president. The retailer also has considered entering non-traditional CE categories, including drones.

Bjorn's is in the process of remodeling the 1,500-square-foot home area of its store that includes a working kitchen, living room, and small home theater, said Kris Dybdahl, Bjorn's son and the store's general manager. The remodel is designed to provide an enhanced presentation of Control4 products, he said. The "next phase" of the remodel will include the addition of Samsung SmartThings devices and compatible do-it-yourself smart products, including smart light bulbs and locks.

The key thing that Bjorn's is looking at is how to make money selling product that falls in the low-cost, do-it-yourself area, since it lacks profitability from just the hardware alone, said Bjorn Dybdahl. Profitability has to come from the labor/services side of the equation.

Bjorn's is also considering a test of additional smart home products like the new Samsung Family Hub refrigerator that includes a 21.5-inch HD screen. Its built-in camera enables users to keep track remotely (via smartphone) of what items they are out of or running low on, said Kris Dybdahl. The dealer may buy one just to display it to customers, mainly to "show people what the possibilities are of all these other things that can work" with it. But "if we get a lot of good feedback," Bjorn's might consider selling it or similar items, he said.

The store dropped plans to carry drones, due in part to laws that are being put in place regarding their usage and the fact that many other retailers are already selling them, but they haven't ruled out at least bringing one in for demo purposes down the road "if there is something that we can think of that it would go with"--if it ties in with an automation system, for instance.

In general, many CE retailers have become more dependent on custom installation to generate revenue than they were in years past. For example, "100 percent" of the dealers who are members of the buying group Home Technology Specialists of America (HTSA) perform custom installation and integration work "in some way or another," said Jon Robbins, HTSA's executive director. "Straight retail as we once knew it for audio and video has probably pretty much run its course," said Robbins. "In some way, there has to be some kind of special-services component built into being a dealer," he said. And smart home and networking have become big parts of that custom installation work for 100 percent of HTSA dealers. "A lot of the content that is now coming into peoples' homes" is coming via a home network, he explained.

What's Driving the Changes?
So, what's driving all these changes, aside from the understandable desire for dealers to better compete against rivals who have already made changes to their product assortments? The answer can pretty much be summed up by three factors: the Internet/e-commerce, the popularity of mobile devices, and the commoditization of TVs and other traditional video and audio staples. At least some of that commoditization can be blamed on the Internet. After all, as average TV pricing has plummeted in recent years, not only is there little room for retailers to make much profit on them, but they must now also compete against Amazon.com and other online retailers that can charge less for products than brick-and-mortar dealers because they have lower inventory and overhead expenses.

Retail stores, meanwhile, are often now serving merely as showrooms for Amazon and other online retailers. Consumers can go to a store to see if they like a product, then buy it online if the price is lower. The retailer can either match Amazon's price (sometimes losing money in the process) or lose the sale and potentially that customer completely.

"The whole world of shopping has changed," said Robbins. "Consumers are, number one, doing a lot of research online," he said. "The idea of going out and shopping at your local stereo store just isn't as appealing as it once was."

Abt's Evolution
When David and Jewel Abt opened a small store in Chicago in 1936 as Abt Radio, the focus was on electronics. Appliances were later added to the product mix, and Abt later added several more categories, said Mark Sasicki, its TV buyer. Those other categories now include fitness, furniture, luggage, mattresses, sunglasses, gourmet cooking, watches, and home comfort including heating, ventilation, and air conditioning (HVAC), power generators, and sump pumps. Abt has a large, loyal customer base, and expanding the product categories offers "the best way to keep them interested in the store and keep them coming back for more," said Sasicki.

Electronics now make up about 25 to 30 percent of Abt's business, compared to about 40 percent when Sasicki joined Abt 25 years ago, he explained. CE is especially tricky to make a profit from now. The products have shrinking margins; and, as the average selling price keeps declining, "it's harder and harder to make any money," said Sasicki. "You have to make things exciting. And if you're going to sell just electronics, you'd have to [focus] on the higher end because if you're just going to sell the commoditized goods, you probably won't stay in business because of the small margins."

While it's still possible for independent CE retailers to exist solely on traditional audio and video by focusing on the high-end products, they "absolutely" must focus on services, including installation, said Sasicki. "Anyone can buy an expensive television and have it shipped to their house," he said. But "are they able to hang it on the wall themselves?"

If you're a national or regional retailer, it's much harder to get by on just electronics alone, regardless of whether you're focused on selling high-end products and installing them or not, said Sasicki, who pointed to mattresses as one product category that has become especially attractive to Abt and other NATM regional dealers in recent years. "What makes mattresses such a good fit for stores like the NATM members" is that "you already have large warehouses, you already have big trucks, and you already have men that can move heavy stuff, which are the three biggest expenses of the mattress business." Therefore, their "infrastructure made it a simple transition [for Abt] to take on mattresses," Sasicki said.

Within electronics, there is a lot of customer interest in the smart home, and that is helping to drive interest in TVs, continued Sasicki, pointing to the fact that Samsung and other smart TVs now often serve as the hub of many consumers' smart home systems.

New Technologies
CE retailers and manufacturers continue to hope that 4K TV technology generates enough interest to drive consumers into stores, where (they hope) customers will be so blown away by the superior picture quality that they will want to buy a new TV. However, several differences exist between now and the last time that TV resolution improved significantly, when we switched from standard definition to high definition. For one thing, TV networks and service providers quickly embraced HD, and the U.S. government mandated a switchover to HDTV. In comparison, TV networks and service providers don't seem to be in much of a hurry to shift to 4K broadcasting. It was also a lot easier to make a profit from TVs back when HDTVs arrived, in part because e-commerce was just in its infancy.

In addition to lowering the profitability of CE products, online retailing has also "made it so that it's not as exciting," said BrandsMart USA President Michael Perlman. "It used to be that people would see stories written about a new technology, and you had to go to stores to see it, but now you can go to YouTube" and other websites to check out the new technology. "More importantly, you can buy it online and just have it delivered, so it has taken the excitement, in some ways, out of our industry," he said.

Therefore, it has become much harder to sell only CE...unless about 80 percent of your business is custom installation, said Perlman. Otherwise, "the business has been compressed so much that you have to look at other categories," said Perlman. "The revenue and strong margins being generated from those newer categories are helping to offset the losses" being seen in electronics, he said, adding that one additional problem the CE industry faces is that many young consumers are perfectly happy with just one TV in their homes. In comparison, older consumers have traditionally had multiple TVs in their homes, often a TV in almost every room.

Although BrandsMart competes with CE online, that's a "tougher road for a regional against a national" dealer, said Perlman. One major problem with selling electronics online is that consumers "don't usually buy the step-up model," just the cheapest option. "They don't see the demonstration" between HD and 4K TVs that they would get in the store, for example. "Online they both look okay," he said.

"We're interested in any category that makes sense for us," Perlman said of BrandsMart. New categories that his company has added since starting with just electronics and appliances in 1978 include drones, furniture, mattresses, and wearables. It's taken on new categories "in a big way" over the past three years, starting with mattresses, said Perlman. "We'll carry anything," he said, projecting "we're going to do a couple of million dollars in watches this year." He told us: "I lost all my pride three years ago. As far as I'm concerned, I'll carry anything now. It doesn't matter to me anymore."

Meanwhile, the rise of flat-panel TVs, with their lack of space for quality speakers, has ushered in a major change in the audio category, said Sasicki, pointing to the arrival of soundbars. Their popularity has come at the expense of at least some sales of audio separates, including receivers and satellite speakers, and soundbars have cannibalized sales of home-theater-in-a-box products even more. Certain retailers--Sears being a notable example--have pretty much dropped surround sound from their audio shelves altogether to focus largely on soundbars, but that's a topic we already visited in January (see the story Is The Popularity of Soundbars Good or Bad for the Audio Industry? ).

No matter how you look at the future of CE retailing, there isn't a whole lot to be optimistic about at the moment. It's likely that online retailing will continue to hurt brick-and-mortar dealers across most product sectors. There will likely always be a physical retail space for consumers to check out the latest TVs, especially the higher-end models featuring the hottest new technologies. But it seems certain that the number of locations will continue to drop. Last year, many RadioShack stores disappeared. This year, we continue to see Sears stores close their doors.

It also seems likely that the amount of floor space dedicated to CE--especially traditional audio and video--will continue to shrink at those retailers that do remain open. The CE dealers in the best position to thrive, despite the changing nature of the CE industry and the retail sector overall, will continue to be those that can generate the most revenue from custom installation and integration services. That's where the most profit will continue to be. And it will continue to be awfully difficult for dealers to generate installation/integration dollars from bargain-priced TVs and soundbars that just about any consumer can set up on their own.

Additional Resources
Making Show Demos More Compelling for Real-World Consumers at HomeTheaterReview.com.
TVs Ruled on Black Friday 2015 at HomeTheaterReview.com.
Sorting the Sizzle From the Bacon When Choosing an AV Installer at HomeTheaterReview.com.


  • Comment on this article

Post a Comment
comments powered by Disqus

Latest Feature News Stories

Oct 09
HDMI 2.1 Is Coming Soon to AV Gear Near You We should begin to see AV gear with HDMI 2.1 hit the market soon. What does the latest HDMI spec offer, and how will it affect your current system? Adrienne Maxwell answers those questions in this week's featured news story.
HDMI 2.1 Is Coming Soon to AV Gear Near You

Oct 02
Are AV Manufacturers Finding Success Via Crowdfunding? Is crowdfunding the best way for a small or new AV manufacturer to finance a product? Have crowdfunded AV products enjoyed success? Jeff Berman explores the topic in this week's featured news story.
Are AV Manufacturers Finding Success Via Crowdfunding?

Sep 25
Room Correction Revisited Dennis Burger revisits the topic of room correction, expanding on some of the original explanations from his 2013 primer and providing an updated look at the major room correction systems in use today.
Room Correction Revisited

Sep 18
CEDIA 2017 Show Wrap-up The annual CEDIA Expo--which celebrates high-end home theater, whole-house AV, and all things custom-oriented--took place recently in San Diego. Adrienne Maxwell and Dennis Burger discuss the latest trends and new products on display.
CEDIA 2017 Show Wrap-up

Sep 11
Do You Own an AV Boat Anchor? AV technology is always advancing (sometimes quite quickly), and that means some pieces of gear inevitably get left behind. Do you own a product that became obsolete far sooner than you would've preferred?
Do You Own an AV Boat Anchor?