Geek Mythology

The error messages are popping up all over the consumer electronics retail business. Circuit City closed 70 stores in February, laid off 3400 employees in March and put its 800 Canadian stores on the block. In April, RadioShack announced 280 layoffs. Tweeter Home Entertainment Group is closing 49 of its 153 stores and will dismiss 650 workers. CompUSA is closing 126 of its 229 stores.

What happened? A Business Week article in April blames it all on Nov. 24, 2006, the “Black Friday” that kicked off retail’s post-Thanksgiving sleigh ride. On that Friday, Wal-Mart slashed the prices of large-screen flat-panel TVs, already predicted to be one of the hottest items for the holidays. Now, says Business Week, “it is becoming apparent that Wal-Mart’s calculated decision… triggered a disastrous financial meltdown among consumer electronics retailers.”

No one doubted that prices of flat-panel TVs would be dropped to lure shoppers into the stores. But, says Business Week, “most expected the promotions to be limited to some lesser-known brands.” Then Wal-Mart cut $500 off the $1800 price tag of a top brand name – the 42-inch Panasonic high-definition TV – and caught everybody off guard. Dozens of retailers across the country began scrambling to match price cuts: Circuit City offered the same 42-inch Panasonic at $1299. Best Buy sold a Westinghouse 42-inch LCD for $999. CompUSA gave a $500 rebate on a 50-inch Panasonic plasma selling at $2499.

By dropping the price on the Panasonics, Wal-Mart sold out its inventory nearly instantly. However, Circuit City was looking to sell thousands more flat-panel televisions than Wal-Mart for Christmas. And at that volume, the lower prices represented a massive hit to its margins. It lost $12 million in its fourth quarter, which ended Feb. 28, 2007. Though Tweeter is a much smaller company, flat-panel TVs make up more than 51 percent of sales. Its sales dropped 12 percent in its fiscal second quarter (ended March 31).

And yet, one retailer has continued to pull away from the pack in consumer electronics, thriving at a time when its competitors are gasping for breath. That retailer is Best Buy, which has been named VM+SD/Peter Glen Retailer of the Year for 2007. How has Best Buy mostly escaped this industry calamity? Not by trying to battle on prices. Rather, it has grabbed that superior high ground as the “we care about you” anti-Wal-Mart (similar to the position taken by Whole Foods after Wal-Mart hypermarkets marched through the grocery sector).

If Circuit City feels the only way to compete is to cut in-store sales staff, Best Buy insists the opposite: that it must maintain a large and knowledgeable (or at least enthusiastically helpful) group of sales associates. Its collaboration with Geek Squad has been a brilliant innovation, saying to customers, “We know you’re confused. Who wouldn’t be? But here’s some help.”

At VM+SD’s seventh annual International Retail Design Conference in Atlanta (Sept. 19-21, 2007), James Damian, Best Buy’s senior vp of the experience development group, will accept the Retailer of the Year award and reveal how Best Buy keeps its competitive edge. We’ll also have our own geek squad to cut through the confusion: a consumer electronics panel made up of strategists from Best Buy, Sony, Microsoft and Design Forum to talk about market trends, customer service and the impact of store design on success.

It’s just one small part of an energetic, high-level three days of discussion that will also include speakers from Wal-Mart, Coca-Cola, Ann Taylor, Nike, Nordstrom, Publix, Kohl’s, Neiman Marcus, Sears, Macy’s, Ikea, Cingular, Kroger and many more.

Something for the geek in all of us. Go to www.irdconline.com for more information and to register to attend.