Consumer Electronics Stores
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Industry Overview
The US consumer electronics store industry includes about 24,000 stores with combined annual revenue of about $50 billion. Major companies include Best Buy, GameStop, and RadioShack. The industry is highly concentrated: the 50 largest companies account for 80 percent of sales.
Competitive Landscape
Technological innovation and the need to replace or upgrade products drive demand. Profitability for individual companies depends on the ability to generate store traffic and repeat business, as well as effective merchandising. Large companies enjoy economies of scale in purchasing and marketing. Small companies can compete effectively by offering specialized products or superior customer service.
Competitors of consumer electronics stores include discount stores, warehouse clubs, department stores, Internet and mail order retailers, and specialty office and computer retailers.
Products, Operations & Technology
Major product segments include computer equipment, TVs, audio equipment, video equipment, phones, and electronic games. Computer hardware and software account for almost 20 percent of sales; TVs, audio equipment and video equipment each account for about 15 percent. Audio equipment includes stereo components, MP3 players, CD players, car stereos, home theatre audio systems, and accessories. Video equipment includes video recorders, video cameras, videotapes, digital cameras, DVDs, and electronic game devices. Other sources of revenue include installation and repair or maintenance agreements, along with resale of third-party wireless phone, Internet access, or satellite TV or radio service.
Consumer electronics retailers include national and regional chains and independent retailers. Major chains and some regional chains may offer a “superstore” format, which can exceed 30,000 square feet. Superstores are most often located in large strip malls in high traffic areas. Other chains may have smaller retail locations ranging from 1,500 to 10,000 square feet, located in indoor shopping or smaller strip malls. Chains may also offer a limited selection of products through kiosks (about 90 square feet) in other retail locations. Independent stores vary widely in size, from a few thousand square feet to larger than a typical superstore.
A typical superstore generates $15 million to $40 million annually, and averages $500 to $900 per square foot. A store that specializes in high-end products can generate $7 million annually and averages $700 per square foot. A small, mall-based store generates $1 million annually and averages $400 per square foot.
Many stores carry high levels of inventory for expensive items like plasma screen TVs and personal computer systems to avoid out-of-stocks. Inventory management and sales forecasting are critical to profitability, as rapid advances in technology can significantly decrease demand for older products. In contrast, during the winter holiday, demand for “hot” products like new video game systems and portable music systems can exceed supply. Many large chains offer private-label products to fill gaps in existing product offerings.
Most large retailers buy directly from large manufacturers like Sony, Panasonic, Hewlett Packard, and Toshiba. Independent retailers buy through established buying groups like Nationwide and Metropolitan Appliance Radio and Television Association (MARTA) to increase individual buying power. In most product segments of the consumer electronics industry, suppliers are highly concentrated: Best Buy relies on just five suppliers for 30 to 50 percent of total merchandise. For highly anticipated new products like game systems or video games, retailers may place advance orders to guarantee supply.
Large retailers use integrated computer systems to manage point-of-sale transactions and inventory management, which allow for automatic replenishment at the store level. Some systems integrate online orders, and allow for in-store pickup or direct shipment.
Advances in technology drive sales of new electronic products. For example, digital technology created the market for products like MP3 players and HDTVs. Increased microprocessor power drives demand for newer computers and gaming systems with better graphics and higher performance.
