Radio, Television, and Consumer Electronics Stores

SIC 5731

Industry report:

This category encompasses establishments primarily engaged in the retail sale of radios, television sets, record players, stereo equipment, sound reproducing equipment, and other consumer audio and video electronics equipment (including automotive). Such establishments may also sell additional product lines, such as household appliances; computers, computer peripheral equipment, and software; musical instruments; or records and prerecorded tapes. Establishments in this industry may perform incidental installation and repair work on radios, television sets, and other consumer electronic equipment. Establishments primarily engaged in the installation and repair of these products are classified in SIC 7622: Radio and Television Repair Shops. Establishments primarily engaged in the retail sale of computer equipment are classified in SIC 5734: Computer and Computer Software Stores, and those selling electronic toys are classified in SIC 5945: Hobby, Toy, and Game Shops.

Industry Snapshot

In 2003, following years of disappointing retail sales across most industries, the economy began to pick up and consumers returned to stores. That year, this industry topped $100 billion for the first time ever, and in 2007 the value was about $161 billion, an increase of 8.2 percent over 2006. Sales of consumer electronics were expected to exceed $171 billion in 2008, according to the Consumer Electronic Association (CEA). Although the consumer electronic giants Best Buy and Circuit City retained their dominant market shares, high-end consumer merchants also saw renewed sales.

According to the Consumer Electronic Association (CEA), digital products have led the industry's growth, with digital television at the forefront. As prices dropped for digital products, more consumers entered the market, increasing the demand for more sophisticated electronic equipment. Overall, the market for consumer electronics was predicted to rely heavily on new innovations and technology. As the market saturation of electronic items rises, innovations are expected to fuel consumer purchases of improved equipment and replacement units. The CEA predicted a rise in unit shipments, particularly among home theater products and gaming software, of 173 percent to 2.8 million units in 2008.

According to industry statistics, there were an estimated 21,957 establishments engaged in the retail sale of radios, television sets, record players, stereo equipment, sound reproducing equipment, and other consumer audio and video electronics equipment (including automotive) in 2009 with industry-wide employment of 142,030 workers and sales of nearly $64 billion in 2009. On average, each store employed seven workers who generated $4 million in sales. Radio, television, and electronic stores accounted for 48.2 percent of industry share with 80,151 employees responsible for more than $57 billion in sales.

Other important industry categories were retailers of antennas and satellite dishes that held 10 percent of industry share with combined sales of $678.8 million, while automotive sound equipment retailers with 8.9 percent in market share had sales totaling $606.2 million. The 1,799 high fidelity stereo equipment retailers represented 8.2 percent of the market generating sales of $606.2 million. The consumer electronic equipment retailers, not elsewhere classified, also part of this industry had sales of almost $2.1 billion. Additionally, television set retailers were able to contribute $634 million.

From 2006 to 2007, the consumer electronics industry grew eight percent to more than $169 billion in 2007, but contracted to 7.3 percent between 2007 and 2008 with industry sales totaling over $181 billion in 2008. The trend carried over with a 6.4 percent decline from 2008 and 2009 before rebounding in 2010 with a six percent gain. New product innovation promised to increase shipment values by 3.5 percent in 2011 to more than $186 billion.

Organization and Structure

Many radio, television, consumer electronics, and music stores were chain stores in the late 1990s. This structure enabled larger companies to purchase equipment at a sharp discount and to pass those savings along to the consumer. Chain stores became more prevalent in the industry because smaller stores found it increasingly difficult to compete with the chains' low prices.

One major change in the retailing strategy of consumer electronics stores was a shift toward scrambled merchandising. This trend began in the 1970s and refers to the growing tendency for stores to become larger and to carry more diverse product lines. In 1998 there was twenty square feet of retail space per person in the United States. Most retailers expanded their merchandise lines to fill this space, and the superstore became prevalent in the industry. Radio, television, and consumer electronics stores fit into this niche nicely because their broad scope encompassed many aspects of consumer product lines. In addition to providing a wide variety of products, most large retail outlets were able to offer their goods at substantially lower prices. Such discounters reflected changes in consumer buying patterns and the need to adapt to the reality that adults between the age of forty and fifty, the largest single group of consumers, were making purchases to replace current equipment. Consequently, as middle-aged Americans began to save money and were more hesitant to purchase on credit, they purchased fewer expensive items.

Superstores typically carry an inventory of 40,000 items, compared with the 25,000 items that are carried by an average store. Because chain stores and superstores purchase such large quantities of products for their stores, manufacturers offer them substantial discounts on merchandise. For this reason, chains and superstores are able to sell their merchandise to consumers at prices substantially lower than those found in small stores. Additionally, the largest chains cut back on sales staffs, and stores display merchandise in a warehouse style without expensive displays.

Background and Development

The Industrial Revolution that began in the late 1700s was the genesis of modern retailing. The mass production of saleable items began as factories started to manufacture formerly handcrafted goods. The western frontier and the movement of railroads also created a demand for goods, and marketplaces helped to distribute merchandise to remote locations. The general store was the first outlet that offered a variety of merchandise. As retail became more sophisticated in the mid-nineteenth century, the general store was replaced by specialty stores grouped together. The chain store, a configuration utilized by most modern consumer electronics outlets, had its beginnings in the late nineteenth century when the concept was pioneered by such retailers as F. W. Woolworth.

The discount store became popular when the population shifted from cities to the suburbs after the end of World War II. The demand for household items increased, and new homeowners were anxious to purchase goods at less-than-retail prices. At the same time, the trend toward reducing customer services also developed. Discount stores kept their costs low by maintaining low-rent facilities and a minimum sales staff. Suburban consumers were receptive to this opportunity to save money, and discount stores grew substantially during the 1980s and early 1990s.

Technological advancements made consumer electronics equipment available to the general public at an affordable price. Consumer electronics proliferated in American homes and became less costly as new developments drove the prices for existing technology downward. The formerly prohibitive costs for television sets and radios became affordable to almost all households, and the development of videocassette recorders and compact disc technology placed sophisticated electronic equipment into the hands of all interested consumers.

The retail sales of home electronics equipment continued to grow slowly and were less sensitive to changes in business conditions than were durable goods. During 1991, for example, sales of nondurable goods, such as those included in this category, increased by 2 percent. During the same period, however, total retail sales of durable merchandise decreased by more than 1 percent.

Overall, the sales increases that were once seen in this industry dropped because of market saturation. Approximately 98 percent of American households own at least one color television set, and future sales growth was expected to result from replacement and upgrading. Similarly, more than 77 percent of all U.S. households that own a television set also own a videocassette recorder. Consequently, this product line also was nearing saturation. Despite an abundance of electronic equipment, the sales of the top ten best-selling consumer electronics products totaled nearly $28 billion in 1990. These products included televisions, car stereos, home computers, and VCRs. The potential for increased growth existed as new technology was refined and enhanced.

While sales continued to rise slowly, future growth depended upon technological improvements. Long-term growth depended on such promising innovative products as home theater equipment, compact discs, large-screen televisions, and high-quality loudspeakers. The demand for camcorders, televisions, videocassette recorders, and auto sound equipment was expected to decline as these technologies reached their saturation points.

There were more than 10,000 radio, television, and consumer electronics stores in the United States in the early 1990s. Many of these stores were owned by nationwide chains, such as Tandy Corp., the parent company of more than 7,200 Radio Shack stores.

A mini-shakeout of firms took place in the early 1990s as market saturation became more prevalent. Some companies began dropping out of the U.S. electronics market, and some chains were similarly closing their doors. Highland Superstores Inc., for example, pulled out of the Chicago and Midwestern markets after performing as the area's largest-grossing electronics and appliance retail chain. Competition in many markets continued to pit superstores against each other and led to increased price wars.

At this time, the retail trade sector accounted for more than 20 percent of all jobs in the United States, according to U.S. Industrial Outlook 1993. Radio, television, and consumer electronics stores sold nondurable goods, a category that accounted for 60 percent of all U.S. retail sales in 1991. These establishments were included in the department stores category, and 1992 sales totaled $189 billion. Between 1987 and 1992 the industry grew slowly but steadily, with annual sales increasing an average of 5 percent.

Overall retail sales improved in the mid-1990s, after battling the recession of past years. Consumer electronics retailers reported an increase in sales during the 1993 holiday season, with the highest sales in large screen TV and CD players. Profit margins were affected by intense competition between retailers, which resulted in below-cost retailing, according to Television Digest. Smaller retailers were the hardest hit, with the giants like Best Buy and Circuit City benefiting most.

Tandy Corp. started another trend during the mid- to late 1990s with new Gigastores. Tandy opened its sixth Incredible Universe Gigastore in Hollywood, Florida, attracting 35,000 shoppers on the opening day. This store had 185,000 square feet of retail space and featured a forty-foot magazine department and an in-store McDonald's restaurant.

However, Incredible Universe Stores steadily lost business. The factors that led to this failure included customers' dislike of the theme-park atmosphere, a nationwide consumer slowdown, and an overly aggressive expansion strategy. Tandy Corp. reorganized management, reduced expansion plans, and changed its advertising campaigns. The Incredible Universe superstore chain was redesigned with baby boomers as the target audience rather than teenagers, focusing on products rather than the store itself. The efforts of Tandy did not pay off, however, and Incredible Universe was sold in the mid-1990s.

During the mid- to late 1990s, large superstores started increasing their product lines to include retail computers and related products, resulting in a growth in their clientele. The evolution of new technology resulted in a great demand for new electronics products like Web TV, digital satellite television systems, and home theater systems.

Toward the late 1990s, consumer electronics once again were seeing profits. According to Electronic Business, "Consumers increased the amount of discretionary income spent on televisions, stereos, computers, telephones and emerging new technologies like digital cameras and DVD players."

Among those consumer electronic stores reaping the benefits of the stronger economy and consumer confidence were large superstores such as Best Buy and Circuit City. Sales at Best Buy increased 21 percent in 1998, and a 25 percent growth was predicted for 1999. Circuit City increased its electronics sales by 48 percent in 1998, and the store expected to see a 20 percent gain in 1999. Tandy Corp. also was turning a profit with its Radio Shack stores. In October 1999, sales increased by 15 percent, the tenth consecutive month of double-digit gains.

These profitable stores were growing in size, too. In 1998 Circuit City opened thirty-seven new superstores and also focused on targeting smaller markets. Best Buy added twenty-eight new stores to its business--up from thirteen in 1997--and planned on opening forty-five stores in 1999. Radio Shack also was growing in size. According to Tandy Corp., 94 percent of Americans lived or worked within five minutes of a Radio Shack store or dealer.

As new technology was being introduced, many stores teamed up with high-profile electronics companies. In 1999 Radio Shack agreed to sell Sprint PCS phone service in its stores as well as DirecTV satellite service. It also struck a deal with Microsoft in 1999 to offer Microsoft's Internet services to Radio Shack customers.

The Internet played a role in the consumer electronics industry. Offering products online--e-tailing--became more popular in the late 1990s. In October 1999, Tweeter Home Entertainment Group and Outpost.com offered audio, video, and consumer electronics to online shoppers. Circuit City also opened an E-Superstore in 1999. The Web site was fully integrated with its stores, allowing consumers to purchase items online and pick them up at the closest retail outlet. Radio Shack and Best Buy also were online-shopper friendly. With online sales expected to increase dramatically by 2003, consumer electronics stores focused efforts on remaining competitive with online sites that offered electronics products.

While sales gains were seen in 1998, there was consolidation and bankruptcy as a result of the success of the larger chains. Tandy revamped its image by renaming itself RadioShack Corp. and sold its Incredible Universe as well as its McDuff Computer Chain businesses. Campo Electronics, Lechmere, and Sun TV closed. Smaller regional stores that had survived the hard economic times of the early 1990s and the onslaught of the superstores either changed ownership or decreased in size.

By the early 2000s, consumer electronic sales were being led by DVD players. According to the CEA, in 1997 approximately 350,000 DVD players were sold in the United States, for a total market value of $172 million. By 2001 sales reached 12.7 million DVD units, for a total market value of nearly $2.5 billion. Sales were expected to continue to rise, reaching nearly 20 million units sold per year by 2005. However, because the DVD unit saw a rapid decline in price from an average of over $400 per unit in 1998 to under $100 in 2003, units grew at a much faster rate than total market value. In an attempt to stem the price erosion, DVD player manufacturers were adding new features and upgrades to push prices back up. DVD players that have the capacity to record hit the market, with a price tag between $700 and $1,500 per unit.

The future of the videotape and videocassette recorder (VCR) brought mixed reviews. Some in the industry saw the rise of the DVD player as the death for the VCR. For example, Circuit City, the industry's second largest performer, stopped selling videotapes, focusing strictly on DVDs. However, others predicted a continued long life for the VCR alongside the DVD player in U.S. living rooms. According to Video Software Dealers Association (VSDA), although 35 million U.S. households owned a DVD player by the end of 2002, 94 million U.S. households owned a VCR. Even though DVD sales were expected to outperform VCR sales in 2003--with an estimated 45 million DVD players in U.S. homes--95 million households were expected to own VCRs. The recording capabilities of the VCR as well as well-established public and private libraries of videocassettes would keep the VCR a viable product in the near future.

Shipments in the consumer electronics industry were $161 billion in 2007, an increase of 8.2 percent over 2006, according to the CEA. The group predicted a growth rate of 6.1 percent in 2008, resulting in revenues over $171 billion. The largest contributor to consumer electronics industry sales were television displays, which represented about 16 percent of overall revenue. TV displays were expected to increase 13 percent in 2008 to more than $29 billion. The group also expected next-generation DVD players to take off in 2008, increasing 173 percent to 2.8 million.

The gaming category set revenue records throughout the early twenty-first century. Revenue from gaming hardware grew 50 percent in 2007 to $6.6 billion, and gaming software was expected to grow 26 percent in 2008 to reach $11.5 billion.

Sales in the mobile video and navigation category were expected to double in 2008 to reach more than $3.1 billion, largely from skyrocketing sales of portable navigation devices, particularly those with traffic and data functionality.

Current Conditions

The largest industry development occurred in early 2009, with the announcement that the second-largest consumer electronics retailer, Circuit City was going forward with the liquidation of its 567 U.S.-based stores after failing to secure a potential buyer, a harsh reminder of the weakened economic conditions. The announcement came on the heels of what was called the "worst holiday shopping season since at least 1969," cited from The Huffington Post in January 2009.

Following sluggish sales in the consumer electronics sector during the first half of 2010, new product introductions such as tablet computers and 3D displayers were expected to propel sales going forward increasing three percent to $174.9 billion compared to 2009. Other electronics slated to spur growth were 3DTVs with an estimated shipment of 2.1 million for 2010 reaching a total of six million units by 2011 valued at $7 billion. Smartphones, Blu-ray players, and eReaders will also be top performers when it comes to the industry's bottom line.

Elsewhere, laptops, netbooks, and tablet computers will add an additional $26 billion to the electronics industry's total shipment value for 2011. Furthermore, the industry was on target for shipment values to grow four percent to more than $182 billion by 2011, according to the semi-annual U.S. Consumer Electronics Sales and Forecast released in July 2010.

Industry Leaders

Each successful industry leader has taken its own road to success. Best Buy succeeded by using barebones display techniques and relying on consumer knowledge, while Circuit City focused on in-house efficiency and knowledgeable salespeople. RadioShack Corp. blanketed the United States with stores that stocked the company's own merchandise.

In 2007 Best Buy Company, Inc., headquartered in Minneapolis, Minnesota, was the largest retailer in the industry with sales revenue of $35.9 billion from 780 stores and 140,000 employees. Salespeople did not work on commission, and merchandise was arranged by brand name instead of by price range, both unusual practices in the superstore industry. Additionally, Best Buy limited the number of brand names it carried to keep costs down. The success of this chain was largely attributed to the rollout of its Concept II, III, and IV stores. These concepts highlighted marketing features, increased store size, reduced expenses, and increased sales.

Circuit City Stores, Inc., the nation's second-largest specialty retailer of brand-name electronic equipment and consumer appliances, operated more than 600 Circuit City Superstores and reported $12.4 billion in 2007 sales.

Founded in 1949, Circuit City was run by Richard L. Sharp, whose computer programming skills helped the company to design a sophisticated inventory system that provided for efficient movement of equipment in addition to trimming shrinkage losses by as much as 30 percent. By working to reduce theft to less than half of the industry average, Circuit City added as much as one percentage point to its pre-tax margin of 4.5 percent. Other strategies that contributed to the firm's success included knowledgeable salespeople and a wide product selection.

RadioShack Corp. (formerly Tandy Corp.) was America's third-largest retailer of consumer electronics, with a 2006 sales revenue of $4.8 billion and 40,000 employees. The company's operations in the mid-2000s included more than 5,100 company-owned and 2,000 franchise operations.

Tandy was incorporated in 1960 and purchased Radio Shack in 1963. The company became a leader by emphasizing the importance of gross profit margins and focusing on a small inventory of its best-selling items. In addition, Tandy worked to keep Radio Shack's prices competitive by limiting its inventory to private-label items and investing in advertising. Finally, the firm paid its workers a modest salary and used bonuses as incentives to promote hard work.

Tandy has a strong history in the electronics industry despite a miscalculation in the personal computer market in the 1980s. Radio Shack's 19 percent share of the PC market dropped to less than 9 percent in the early 1980s because Tandy's TRS-80 computers were not able to run IBM software. Tandy built its name by focusing on improving others' developments rather than on innovation, and by utilizing its own in-house manufacturing divisions. However, the corporation began changing its original focus in the early 1990s by funneling money into research and development to keep abreast of new computer developments.

Additionally, Tandy reevaluated its focus on computer manufacturing and securing its roots as a retailer. Incredible Universe outlets and mini-malls that imitated the European "hypermarkets" were Tandy's latest venture. The huge emporiums contained karaoke contest areas, childcare facilities, restaurants, and extensive product lines, including more than 300 types of television sets and 40,000 audio and video titles. The stores had to sell $100 million annually at each location to be profitable, and their focus was expected to remain on maintaining the lowest prices.

Unfortunately, the concept never caught on. Tandy sold its Incredible Universe and focused on its Radio Shack stores in the late 1990s. With the company's alliances with Sprint PCS, Microsoft, and Compaq, its sales were seeing strong gains in 1999. To accentuate the company's new direction, it changed names to RadioShack, Inc.

In the late 2000s, Best Buy Company, Inc.'s revenues reached $45.0 billion in 2009 and $49.6 in 2010 with a reported 180,000 employees. The company operated more than 1,400 stores throughout the U.S. and Canada, as well as another 2,600 stores in Europe, China, and Turkey.

In 2009 the assets of Circuit City Stores, Inc. were acquired by direct marketing firm, Systemax Inc. after exhausting any possible means of survival. After several attempts to turnaround the company, including searching for a possible buyer. In 2007, Circuit City shed 3,400 employees and replaced them with cheaper help as

RadioShack Corp. posted revenues of $4.22 billion in 2008 and $4.27 billion in 2009 with 36,700 employees. The company reported about 4,475 stores throughout the U.S., Puerto Rico, and the Virgin Islands. RadioShack also caters to third-party services such as wireless calling plans and direct satellite service.

Workforce

The radio, television, and other electronics industry boasted 25,300 establishments and employed 280,000 people in 2004, according to the U.S. Census Bureau. The total employment in electronics and appliance stores, of which group this industry is a part, in 2004 was 458,000, with a total payroll of $11 billion. Of the total, more than one-third of the positions were filled by retail sales associates, who earned a mean annual salary of $21,840. All sales-related positions accounted for more than 56 percent of industry's workforce. Nearly 15 percent of the workforce was in office and administrative support positions, with a mean annual salary of $23,990, and nearly 5 percent were management positions, with a mean annual salary of $70,660. Like other retail environments, consumer electronic stores depended heavily on part-time sales associates and cashiers and tended to hire additional help during busy seasons, such as Christmas.

According to the U.S. Census Bureau, 294,536 people worked in radio, television, and other electronics stores in 2008 earning more than $6 billion in 2008. Also part of this industry, automotive parts and accessories employed 303,113 people who earned more than $7 billion in 2008.

Research and Technology

While technology advancements and research focused mainly on e-commerce and the Internet, the need to rely on functions at a store level remained strong. According to Bruce Van Kleeck, a vice president of the National Retail Federation, "the Internet and electronic retailing, as well as other back office enhancements, are occupying a lot of attention and investment, but retailers can't afford to neglect their stores. They should be thinking about what technologies are available to beef up their store-level productivity and improve the shopping experience for the customer."

Some technologies that retailers were taking advantage of were traffic counters, designed to analyze consumer traffic in stores; shrink reducers, which gave details on customer-employee ratios; wireless networks, which utilized Ethernet systems that enhanced in-store networking and extranets, as well as simplifying upgrades and inventory checks; and digital video ITEC, a network designed for digital video and audio programming within the stores.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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