CE Chain hhgregg Sells Couches to Couch Potatoes

There is a certain logic to it. If you’re involved in the business of selling products that people watch or listen to while sitting on furniture, why not sell them furniture as well? That’s the decision that hhgregg, a chain of consumer electronics products, made when it began looking for ways to reverse declining sales and profits.

"Last November, we introduced a limited selection of home entertainment furniture and home fitness products," Jeff Pearson, senior vice president of marketing for hhgregg, told The Indianapolis Star. "During this spring, we tested and expanded an assortment of furniture products in our Chicago stores and have been very pleased with the results."

The chain is in the process of rolling out furniture across all its stores. Category sales have gone from two percent of the company’s total last year to five percent now.

Last year, IKEA made a move along similar lines when the Swedish furniture chain introduced Uppleva, a 40-inch television, sound system and Blu-ray player built into an entertainment unit. Initially introduced last year in Europe, the system will come in various configurations and price points.

[Image: IKEA Uppleva]

BrainTrust

Discussion Questions

What is your reaction to hhgregg branching out into furniture while IKEA adds consumer electronics to its merchandise mix? Are there any specialty chains that have expanded beyond their core categories that could serve as a model for such a change in direction?

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Chris Petersen, PhD
Chris Petersen, PhD
10 years ago

Consumer electronics has one of the fastest declining margin curves in retailing. If there is little profit in selling the core device, you had better attach accessories with some gross margin.

Furniture typically has higher gross margin and longer product life cycles than most CE core devices. So if a retailer has the capacity to sell “solutions” instead of just the “screen,” then adding furniture to the mix can make a lot of sense and create incremental gross profit.

A critical success factor for adding products beyond core categories is the ability of sales associates to sell the solutions. A CE retailer like hhgregg has highly trained associates, with low turnover. So they probably have the talent to do well with the right mix of furniture.

David’s Bridal specialty store that has done extremely well in expanding beyond their core category of bridal gowns and formal wear. Take a look at David’s Bridal web site … they now sell everything from the engagement ring, to booking the wedding reception and the honeymoon. The key is that the line extensions have to fit an integrated solution for a core customer.

J. Peter Deeb
J. Peter Deeb
10 years ago

Both companies have figured out the old secret of “cross merchandising” which can lead to higher sales. The only downside could be stretching the variety of items too far. A wall of Tide would not work in an electronics store.

Ian Percy
Ian Percy
10 years ago

We continue to be stuck in old linear Newtonian thinking instead of seeing the universe as one integrated whole. Perhaps the very definition of a “core category” is far too myopic. It’s not so much a change in direction as it is an opening of the lens.

A few years ago I paid $10,000 for a weekend seminar on business development. I remember exactly two (2) words that have made all the difference to building my business mix. That’s $5,000 a word so please pay attention. The two words are:

INTENTIONAL CONGRUENCE

Selling a customer a new comfy chair in which to watch a new HDTV is fully “intentionally congruent.” Selling them a carpet cleaner is barely congruent and stocking car batteries has zero congruence.

The secret to expanding one’s business mix is in this sort of deliberate congruence or alignment. Personally I’m involved in many businesses that appear so disconnected some friends accuse me of ADD. Not going to argue that point, but I will say that in my mind, each is totally congruent and even interdependent with the others. For example, the frequency technology in the Ag business that helps double crop yield also helps hydrate seniors much better in the Assisted Living business.

The goal then is not to simply add stuff you hope will sell, but to be intentional in seeing how a mix of products and services can strengthen each other.

Mel Kleiman
Mel Kleiman
10 years ago

One-stop shopping makes it easier on the consumer. If you can provide more services that don’t dilute your brand or your ability to serve the customer, why not do it?

Craig Sundstrom
Craig Sundstrom
10 years ago

My reaction on IKEA: will customers be asked to assemble their own TVs?

The models that come to mind are Gertz and Nordstrom, the former starting as a stationery store, and the latter as a shoe store, but Nordstrom followed what is the (more) normal course for those wishing to grow: purchase an existing business and put your management/selling expertise to work with an existing infrastructure/customer base. Examples of purely internal growth are rare (at least in our era, though that’s how most department stores started out in the 19th century).

Brian Numainville
Brian Numainville
10 years ago

This makes sense given the logical compatibility of the electronic devices and the furniture. Integration of compatible products in these types of situations can work as it is the combined experience as opposed to the singular product that appeals to many shoppers.

Tom Smith
Tom Smith
10 years ago

Trying to be all things to all people will make you nothing to anyone. How are you differentiating your brand and making an emotional connection to the customer?

Roger Saunders
Roger Saunders
10 years ago

IKEA’s broader, box size, and in-depth product line makes it easier to expand categories than a furniture store, without raising inventory issues. The broad inventory provides IKEA with greater frequency of trips to thus familiarize shoppers with new products.

hhgregg’s move into furniture holds potential, given the quality of the consumer who consistently shops the chain. Their typical shopper is a Female (60%), Married (84%), Home Owner (81%), High Household Income ($71,000+) and well Educated (average 14.9 years). That shopper is a bit older (average of 56 years), so they will have a group of the customers who have made big furniture purchases.

hhgregg has to get the message across of the furniture availability. With the limited assortment, they will have to make speed work to their advantage to quickly turn around shipment. The margins improve a bit on the furniture, so if hhgregg can boost revenue and profit per square foot with furniture accounting for 8%+ of sales, they will have a winner. Anything lower, and they may be sleeping on some of those couches.

Matt Schmitt
Matt Schmitt
10 years ago

Why not sell around the “halo” of a particular lifestyle? If hhgregg is looking ahead, it’s a natural that they don’t want to be stuck in the electronics price/margin arms race. Cultivating more of a lifestyle brand identity and selling products and services that fit well together seems like a natural way to stand out, especially if they are able to leverage the physical store more strategically.