I was sitting at the breakfast table this weekend skimming through the Sunday advertisements when I came across hhgregg’s ad. hhgregg (the name of the store is not capitalized) is a second tier consumer electronics and appliances chain that serves the Midwest and eastern US with 228 locations. If you live in western states, Fry’s Electronics (34 locations) is likely your second tier consumer electronics and appliance superstore1. Fry’s differs slightly in that they also offer do-it-yourself electronics parts for tech geeks, much like the old Radio Shacks did at one time. But for the purposes of this discussion, Fry’s is in the same boat as hhgregg.
Best Buy is barely surviving in the consumer electronics and appliances retail segment in spite of the fact that they have driven all other chains other than hhgregg and Fry’s out of business. They have 1500 locations in the US (and a several hundred more international locations). So what is the Best Buy’s bug-a-boo? Well, there are actually six bug-a-boos; Amazon, Wal-Mart, Home Depot, Sears, Target, and Lowes. All of these competitors sell the same merchandise as Best Buy, and they all have the same buying power with vendors (or more) as Best Buy. Plus each have an edge that Best Buy cannot duplicate.
Amazon doesn’t have to pay for brick and mortar stores, and is controlled by a single shareholder who doesn’t care if the company makes money. Home Depot and Lowes offer complementary home improvement items to the appliances and electronics supplies that they sell. And Wal-Mart, Sears, and Target offer one-stop shopping for all consumers’ needs–not just appliances and electronics.
Which brings us back to my breakfast table and the hhgregg ad. I had this feeling of deja vu. Then I finally remembered where I had seen the same ad layout. hhgregg’s ad looked just like an old Circuit City ad. Circuit City was the number two chain behind Best Buy several years ago, but went bust for many of the same reasons for which Best Buy is struggling. With the Bug-A-Boo Six ascending, there just wasn’t room for another consumer electronics and appliances specialty chain. And as if to put an exclamation point on this whole discussion, Radio Shack went bust this year2.
So if hhgregg represents the same value proposition as a Circuit City, why is hhgregg still in business? Ultimately the answer likely lies in some combination of market agility, location, and perhaps most importantly, choice. Shoppers like more choices, not less. The market may not always accommodate this desire for choice, but the need is still there. But is choice enough of a reason for being for a chain like hhgregg or Fry’s? What’s to stop another well capitalized upstart from barging in and putting hhgregg, Fry’s, or even Best Buy out of business?
The answer is, well, nothing. Nothing at all. Which made me think: what is the new paradigm that will resurrect the consumer electronics and appliances industry? Or are the Bug-A-Boo Six going to force everyone else out?
I think it is going to be the Apple model that will do it. Apple famously bucked the trend and opened a large chain of brick-and-mortar stores during the 2000’s. And what do they sell? Well designed and supported products that cannot be bought anywhere else. A new consumer appliance company could do the same thing. I don’t mean designing the newest washer and dryer or refrigerator to compete with LG, Samsung, GE, or Kenmore. I mean actually designing a new way of approaching kitchen, laundry, and audio and visual tasks, and in a visually pleasing and intuitive way. That was really Steve Job’s genius. His contribution wasn’t in the software or the hardware of Apple iPods and Mac notebooks and the like. No, it was in his realization that the effective paradigm change wasn’t in designing the best widget that consumers wanted. It was in designing and selling products that consumers didn’t know that they needed until they saw them. And the only place that consumers could get this new stuff was at Apple. The first brick-and-mortar consumer electronics and appliances business that figures out how to employ Job’s strategy is going to be the winner.
1 For all other states that do not have a Fry’s or hhgregg, other than local independents the number one chain Best Buy is probably your only dedicated consumer electronics and appliances choice.
2 Radio Shack still enjoys a substantial international presence and maintain several hundred co-branded stores with Sprint in the US.