Writing an Obituary for Electronics Retailers

Electronic store chains lose another round to online. Where does it end? Are electronics store outlets doomed?

It was indeed a merry Christmas for online retailers. Results for the season show a strong expansion of sales in the US, fueled in part by low gas prices leaving more money in peoples' pockets. comScore reports that online sales from desktop computers increased 15% to $53.5 billion year over year, while brick and mortar (B&M) sales dropped 2.2%. Mobile sales did well, too, and overall, the expectation is for total online sales to grow better than 17%.

The electronics industry especially has a tough battle on its hands. Low-priced online retailers are well established, and the tech-savvy buyer has no fear of doing business online for even large electronic purchases. To add to the woes, the buyers that do go to the store often comparison shop online, effectively relegating the B&M retailer to a free showroom for products.

The store owners have generally offered matching price programs, but, while instant gratification may make a sale, margins are driven down, which for retailers paying rent in prime locations is a very painful hit. Add to the showcasing the fact that major B&M players have their own online presence that has to compete against the other online stores on price and perks such as free shipping, and those comparisons become a source of self-flagellation.

A further hit to the store owners is the unfair sales tax playing field. Online interstate sales are not generally taxed, and attempts to correct this situation continue to be stalled in Congress. This places the B&M retailer at a distinct disadvantage with margins.

The shipping and sales tax issues in the US are somewhat masked by the way US prices are quoted. Neither factor is included in the showcased prices, and only appear when the customer is in the final step of a multi-step online process. Nonetheless, customers are getting smarter, especially when free shipping for online sales is flagged right on the catalog pages, and the lack of shipping and tax charges makes the online deal better still. We may see a resolution of the sales tax issue in the new Republican Congress, but this is a long-debated issue and may continue on without a decision.

The impact of the online onslaught has hit the traditional leaders in the retail electronics industry pretty hard. Radio Shack, who really did start the electronics retail chain concept (in 1921!), is on life support and hasn't enough cash to close down the 1100 stores it announced would go earlier this year.

Best Buy, considered the giant of the electronics segment in the US, has also struggled. Over recent years, it has morphed its stores from being computer-centric to focus more on mobile phones, consumer electronics and big ticket durables, especially TVs. Even with this, business declined, and dire predictions floated around. The company seems a bit happier this January, with the news that Christmas season in-store sales rose 2.2%, bucking the trend for all B&M retailers and especially in electronics.  Their online sales rose 22%.

One reason Best Buy did well was that they had a very aggressive position regarding customer support, with price matching, freed delivery, fast delivery options and a strong customer facing support structure. Likely, this combined with completing a store transaction being much less time consuming than online, with a better presentation of products and with instant fulfillment to help sales along.

Whether this is sustainable in the longer term is still an open question. Online retailing is certainly not going away and, in some electronics-related segments such as DVDs, it looks like total wipe-out of B&M delivery is likely.

There are some counter-currents. Amazon is opening a store in New York, but this may really be a delivery point for online orders, rather than a sales operation.  The delivery issue is still a thorn in the online retailer's side, with theft from the doorstep a serious risk.

Let us know whether you've heard a death knell for B&M electronics, or if the reports of its death are premature.

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