All Was Not Bright in Consumer Electronics

Consumer electronics retailers will end a disappointing holiday shopping season in the same fashion it began--with zealous price-cutting and financially painful promotions. Though Best Buy Co. and Radio Shack rebounded from a difficult 1996, most of their competitors have been hurt by heavy discounting on merchandise and the absence of buzz-worthy new products.

The field of retail players was smaller this holiday season. Checking out for good a year ago were Southland retailers Adray’s and L.A. Tronics, along with five other chains that could not survive fierce competition and a 4.1% decline in sales.

Sales have improved this year, rising 3% to 5% by some estimates. But analysts said those gains are not impressive following last year’s performance.

“It’s a sluggish market with no pent-up demand and a deflationary price trend,” said New York-based industry analyst Mark Mandel of ABN Amro Chicago Corp. “There is little new technology on the market, and the new products that have been introduced aren’t generating excitement yet.”

The new item this year--the digital video disc player--provides higher visual resolution than VCRs. But industry analysts say there was little demand, because consumers decided to wait for the inevitable drop in price and for a larger library of DVD film cassettes.

Demand for color televisions--normally a dependable source of sales growth--has declined 3.4% this year. And the laserdisc player flopped in 1997 as sales dropped a whopping 68%.

There are, however, some positive industry developments. Strong-selling items such as cellular phones and appliances are bringing some cheer, and the major chains are making some promising adjustments in store design and inventory.

Best Buy--the nation’s leader in consumer electronics sales--is profitable again partly because it now offers consumers a more diverse inventory. The Minneapolis-based company had earnings of $30.4 million for the nine-month period ended Nov. 29 compared to a loss of $6.7 million for the same period a year ago.

The turnaround is partly due to sales of new merchandise offerings--including an expanded inventory of furniture and magazines and books, said company spokeswoman Susan Hoff. The new items were added in the summer and fall.

To make room for the new merchandise, Best Buy reduced its CD selection by a third, removing slower-selling discs.

“The new merchandise has been very popular,” Hoff said.

Tandy Corp. says it is encouraged by early consumer response to the installation of Sprint mini-stores in its Radio Shack outlets. The Fort Worth, Texas-based Radio Shack, which ranks fourth in electronics sales nationally, has about 6,000 stores nationwide, and 90% of them have Sprint stores.

The mini-stores offer products such as telephones and pagers and services such as Internet access.

“We’re at a record pace with wireless phone sales,” said Rick Borenstein, the company’s senior vice president of merchandising.

The outlook for the rest of the industry remains grim.

Electronics chains are facing new competition from mail-order operators such as Dell Computer and Gateway 2000, which offer computers and other electronic equipment.

“The mail-order operators have been getting more of the holiday-season sales dollar the past three years, and holiday business is very important to this industry,” said Richard Giss, a trade retail analyst with Deloitte & Touche in Los Angeles.

Meanwhile, there is no end in sight to the price cutting. Prices on some digital satellite systems for home television have dropped by 50% the past year, eating into profits. For example, the Richmond, Va.-based Circuit City Stores Inc. is offering deals on WebTVs, which offer integration of television and Internet programming. WebTV Plus has a retail price of $199 after rebate, compared with $99 for the older version, which sold for more than $300 last year.

“We don’t have the irrational price-cutting excess of a year ago,” said Circuit City spokesman Morgan Stewart. “But it’s still a very promotional environment.”

Shrinking profit margins have resulted in lower profits for Circuit City, which has opened dozens of new stores this year. The company, which ranks second in home electronics sales, had earnings of $51.9 million for the nine-month period ended Nov. 30 compared with income of $68.1 million for the same period a year ago.

Good Guys, a regional chain based in San Francisco, has also been hurt. The company had a loss of $12.2 million for the 12-month period ended Sept. 30 compared to a loss of $6.2 million the previous year.

In a bid to boost sales, the Good Guys recently began to redesign its stores, creating “expo” areas and alcoves for various merchandise categories and installing furniture for customers who would like to relax while examining products.

The company has converted three stores thus far and eventually plans to remake all 76 of its existing stores, said Robert Gunst, chief executive of the Good Guys, which operates in Nevada, Oregon and Washington, as well as California.