CircuitCityis out of business, leaving Best Buy and Walmart fighting over customer remains. But a smaller competitor, with a different business model, is quietly finding ways to access these electronics customers.
In the next 18 months, HHGregg plans to add 50 outlets to its 118-store chain, mainly in ex-Circuit City stores or regions. The chain operates differently than existing consumer electronic big box stores, using a model geared toward the experience, with better trained employees and higher priced items. Employees undergo 280 hours of training in their first year to ensure they fully understand every product in the store. Salespeople receive salaries based on commissions, a compensation structure that largely disappeared from the consumer electronics retail industry at the end of the 1980s.
These highly trained salespeople sell higher quality, more expensive products than are available at Best Buy. For example, HHGregg sells more $3500, Panasonic, 60-inch, G10 plasma televisions than any other consumer electronics chain. The higher priced models also carry a higher gross margin. With smaller stores, its square footage is more productive than Best Buy’s, and it has never featured racks of low-margin items like DVDs and CDs. Thus, HHGregg achieves a gross margin of 31 percent, compared with Best Buy’s 25 percent.
Recognizing that many spooked consumers are trading down to less expensive models, HHGregg has started selling some stable product categories, including video game consoles and notebook computers. Currently, 85 percent of the chain’s sales come from televisions and home appliances, but most consumers will not replace their new flat-screen televisions for 10 years of more. The situation begs the question: Is there really room for one more consumer electronics retailer?
- How does HHGregg differ from Best Buy?
- What theories suggest HHGregg might succeed? Which ones imply it might fail?
Matthew Boyle, “HHGregg: The Contrarian Electronics Chain,” BusinessWeek, October 1, 2009.