Middle or Mediocre?
While middle-market dealers suffer from the industry’s new realities, those at the top should be prospering. But what if they’re not?
January 2007 By Robert Ain
In the world of electronics retailing, being in the middle is being mediocre to many consumers.
The prevailing, reassuring view for years has been that of the consumer market as a pyramid, with fewer buyers and dealers at the top and more of each at the bottom. In my long-held view, however, the market is becoming hourglass-shaped, with the middle getting sucked out.
At the bottom, Best Buy and Circuit City, each generating tens of billions of dollars in sales, dominate the consumer electronics business. At the top, higher-end retailers with less than 10 storefronts are doing quite well. In the middle, however, are retailers like Ultimate Electronics and Tweeter, which have experienced significant problems over the past several years. These middle-market dealers are in fact caught in the middle; they struggle with the challenge of providing their potential consumers enough reasons to visit and buy at their shops. The most recent quarter was telling: Best Buy showed growth, while Tweeter reported double-digit negative numbers.
The retailers caught in the middle will continue to have problems. The “free ride” they were getting due to high video display prices stalled in the past 12 months, and matters in that area will only get worse. If you sold plasma displays three to four years ago at an average price of $6,000, you’ll need to sell three times the number of customers at an average price of $2,000. How many of these middle-market retailers are prepared to do that? They can add other products to the mix, of course, but the video display typically has been the most expensive part of the system for middle-market retailers.
Although retailers at the top and bottom of the hourglass are also affected by flat panel price erosion, they’re affected in different ways.
The entry-level retailers are now selling a category that they weren’t selling as successfully before; it’s all part of a new and growing business for them. Meanwhile, more players are entering the flat panel market at the bottom—Wal-Mart, Home Depot and Target, to name a few—and that will adversely affect the middle-market dealers.
At the top of the market, dealers who for years have sold high-end front projectors like those from Runco have no problem selling expensive flat panels; it’s just another high-end product category for them. Very few middle-market retailers sold projectors; they got free entry, then, into the higher-ticket prices of early adopter plasma sales.
The prevailing, reassuring view for years has been that of the consumer market as a pyramid, with fewer buyers and dealers at the top and more of each at the bottom. In my long-held view, however, the market is becoming hourglass-shaped, with the middle getting sucked out.
At the bottom, Best Buy and Circuit City, each generating tens of billions of dollars in sales, dominate the consumer electronics business. At the top, higher-end retailers with less than 10 storefronts are doing quite well. In the middle, however, are retailers like Ultimate Electronics and Tweeter, which have experienced significant problems over the past several years. These middle-market dealers are in fact caught in the middle; they struggle with the challenge of providing their potential consumers enough reasons to visit and buy at their shops. The most recent quarter was telling: Best Buy showed growth, while Tweeter reported double-digit negative numbers.
The retailers caught in the middle will continue to have problems. The “free ride” they were getting due to high video display prices stalled in the past 12 months, and matters in that area will only get worse. If you sold plasma displays three to four years ago at an average price of $6,000, you’ll need to sell three times the number of customers at an average price of $2,000. How many of these middle-market retailers are prepared to do that? They can add other products to the mix, of course, but the video display typically has been the most expensive part of the system for middle-market retailers.
Although retailers at the top and bottom of the hourglass are also affected by flat panel price erosion, they’re affected in different ways.
The entry-level retailers are now selling a category that they weren’t selling as successfully before; it’s all part of a new and growing business for them. Meanwhile, more players are entering the flat panel market at the bottom—Wal-Mart, Home Depot and Target, to name a few—and that will adversely affect the middle-market dealers.
At the top of the market, dealers who for years have sold high-end front projectors like those from Runco have no problem selling expensive flat panels; it’s just another high-end product category for them. Very few middle-market retailers sold projectors; they got free entry, then, into the higher-ticket prices of early adopter plasma sales.
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