The Shakeout Continues

WOW! the consumer electronics and electrical store chain fails. WOW! Another one bites the dust. Predicted by many and not the last to fail in that category. Dick Smith Electronics is up for sale. Harvey Norman is being pounded by critical commentary. Even JB Hi-Fi – the market darling – has been hit by comparative store losses and profit downgrades. And we haven’t seen the last of the pain in this category as the stresses of change and re-alignment manifest.

This category of retail is a text book learning experience for all of retail.

Why? Because it is failing to adjust fast enough to the new consumer paradigm and the competitive forces that this has unleashed. The consumer electronics category is reliant on branded goods – Sony, Panasonic, Samsung etc. etc. etc. Almost all of the brands that compete in this space are over-distributed, over-supplied, easily benchmarked and totally lacking in price integrity.

Most have either no comprehension or no desire to adjust to the global transparency and global reach that is afforded the consumer through retail and commercial technology.

As I have said before, while online retail only represents around five per cent of retail sales, it affects one hundred per cent of pricing decisions. This is particularly true of consumer electronics where consumers do the price comparisons as part of their ‘hunting’ process and present printed verification of the best price they have obtained to ask the store to match or better it.

With price point and margin deflation at an all time high because of this phenomenon, retailers in this category are struggling to invest in service they cannot monetise. Even JB Hi-Fi’s once almighty foot traffic driver of the largest store available inventory of DVD, CD and gaming software is being beaten by in-device software downloads embedded into the very devices they stock rendering it impotent.

The standout in the category continues to be Apple. Their stores are over-staffed relative to conventional wisdom. But their staff cost to sales ratio is the most productive in the category. Their product is not over-distributed. They control their pricing strategy and they continue to contrive margin inflation not deflation. Their pricing is transparent and while some local country variance does occur, the consumer that they focus on tolerates this for the very simple reason that they buy-in to the support offered to them through Apple Care and The Genius Bar.

In every category of retail today the distribution paradigm has been changed – forever. Perhaps not in some cases physically. But product information, pricing, availability and access have all changed. That means retailers need to re-think their negotiations with suppliers and their merchandise mix. They need to re-think service and what it is that the consumer values enough to pay for.

WOW! aren’t the first to fail and won’t be the last. You don’t have to follow them. It won’t be easy – adaptation never is. It takes clear thinking, massive amounts of tenacity and huge reserves of energy. But it is the ONLY alternative for survival.