What will retailers gain from HHGregg’s loss?

Discussion
Photo: HHGregg
Apr 11, 2017
George Anderson

HHGregg isn’t looking to prolong its suffering. The bankrupt chain, which announced it was shuttering its 220 stores by the end of May, began running going-out-of-business deals this past weekend. In the short term, discounts offered by the chain may put pressure on rivals selling appliances and consumer electronics. Longer term, the removal of a competitor from the market offers opportunities for those left standing.

Best Buy, not surprisingly, is considered to be among the likely beneficiaries of HHGregg’s demise.

Mike Baker, an analyst for Deutsche Bank, released a research report this weekend, according to The Star Tribune, that estimated Best Buy could add $335 million in revenue if it were able to capture 20 percent of HHGregg’s sales. That would mean an increase of 0.9 in comparable store sales for Best Buy. While it might now sound like that much, Best Buy has forecast flat sales and profits for 2017.

Mr. Baker estimates that Best Buy picked up between 20 and 30 percent of Circuit City’s sales when that chain closed in 2009. Of course, the market has changed substantially in recent years. Amazon.com has picked up share in consumer electronics while new players such as J.C. Penney have ventured into selling major home appliances.

Best Buy reported a decline in same-store sales during the fourth quarter, but the chain pointed to 18 percent growth in online sales and a 27 percent jump in profits as positives for the company.

In an email to RetailWire last month, Charlie O’Shea, the lead retail analyst at Moody’s, wrote of Best Buy’s fourth quarter results: “We continue to believe that Best Buy is one of the brick-and-mortar ‘leaders’ in the push online, and expect the company to continue to make incremental progress in its quest to become a true multi- and then omnichannel retailer.”

DISCUSSION QUESTIONS: How should competing retailers respond to HHGregg’s going-out-of-business offers? What retailers do you expect to benefit from HHGregg’s demise?

Braintrust
"Best Buy's improvements will not come from the demise of other brands, but through their own innovation in customer experience across channels."
"My question is one that is hanging over the entire retail industry: What happens to this abandoned retail space, since the country is “over-retailed”?"
"To answer the question as to how competitors can attract former HHG shoppers, it is important to understand why HHG collapsed, seemingly overnight."

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13 Comments on "What will retailers gain from HHGregg’s loss?"

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Mark Ryski
BrainTrust

HHGregg is yet another example of retail Darwinism at work. While the business from their 220 stores may provide a small blip for competitive retailers, I don’t believe it will have a measurable impact for Best Buy or any other one retailer. Given HHGregg’s relatively small size, I don’t believe there’s much other retailers could or should do.

Charles Dimov
BrainTrust

Competitors should plug subtle marketing — hinting that they are going strong and here to stay. Perhaps a double-the-warranty period offer could help emphasize this point.

Customers will be looking at HHGregg for bargains, but the lingering concern is about warranties and what to do when something goes wrong. In the case of bankrupt firms, the consumer is on their own.

Adrian Weidmann
BrainTrust

The immediate void will most likely benefit Best Buy. The benefit will be minimal in relation to the bigger picture. The disturbing fact is that another brick-and-mortar retailer is closing its doors. How many of these closings and bankruptcy stories need to make the news before retailers wake up and realize they need to make difficult, seismic decisions to match the disruption that online shopping has created?

I’ve just started a remodeling project and have visited The Home Depot and Lowe’s frequently over the past several weeks. I would give both retailers a failing grade as far as in-store experience goes. The caliber of help in these stores is appalling. No amount of technology and robots will save these stores if they don’t wake up! The degree of conflicting policies, selection and inventory between online and store-to-store drives a shopper to simply shop online. If that is their strategy — they are right on course!

Ricardo Belmar
BrainTrust

HHGregg is closing down ultimately because of poor sales. Should we really believe that their relatively small piece of the electronics pie is going to make enough of a dent in the bottom line of other competing retailers? Doubtful. I’m sure Best Buy may see a small temporary boost as the obvious beneficiary but it is unlikely to be long-lasting. If there was that much long-lasting impact to be had then HHGregg could have survived. Their downfall is a testament to a lack of retail innovation. Best Buy’s improvements will not come from the demise of other brands, but through their own innovation in customer experience across channels.

Bob Amster
BrainTrust

The answer is in the numbers. Everyone will pick up some portion of the pie. But if the pie was not that big to start, the benefit can’t be that significant. For Best Buy, who forecast flat sales, a 0.9 percent increase is a plus.

Dick Seesel
BrainTrust

Best Buy will benefit, naturally, in those markets where HHGregg had a store footprint and market share. There are significant clusters of stores around Chicago, in the mid-Atlantic and mid-South (including Atlanta) and in Florida. But don’t expect it to compare to the demise of Circuit City — not only because HHGregg isn’t a national competitor but also because of the changing retail landscape.

Another retailer that might gain share is J.C. Penney as it pushes into the major appliance business. Keep an eye on the big home improvement chains, too. This is one business that hasn’t been dominated by Amazon (yet).

Ed Dunn
Guest
16 days 1 hour ago

The fundamentals behind accumulating inventory of low-margin, short selling-lifespan products such as electronics and appliances has to be addressed by any retailer if they want to survive, period. The retail memorial is filled with names like Fretter, The Good Guys and Circuit City while preparing to accommodate future retailers such as RadioShack and now HHGregg.

Retailers are failing due to the flawed supply chain pipeline of purchase ordering ubiquitous high-cost, low-margin products that may not sell or that become obsolete by the time they reach the sales floor. Retailers need to learn to stop holding the bag and find ways in the supply chain process to ensure they receive only what they can immediately sell. If not, it is just a matter of time.

Peter Charness
BrainTrust

Surviving and picking up share from the demise of other retailers goes right next to “hope” as a terrible strategy for the long-term health of a retail business. It’s just a deceptive bump in the road for a retailer who doesn’t figure out how to redeploy their online and physical assets to make it easy for shoppers to say yes to their offer.

Kim Garretson
BrainTrust
16 days 38 minutes ago

My question is one that is hanging over the entire retail industry: What happens to this abandoned retail space, since the country is “over-retailed”? Can others, not retailers, benefit from some of this retail? Community colleges, pop-up seasonal stores, health facilities, etc.?

Ed Rosenbaum
BrainTrust

If the forecasts are correct Best Buy will certainly benefit. But more important are the questions about vacated real estate and another large number of people looking for work. The number of people out of work seems to be growing as we are being told jobs are returning. I hope the jobs are coming back, but have serious doubts that the numbers returning will have much of a positive effect overall.

Cate Trotter
Guest

I’m not sure how much of a difference this will make to HHGregg’s competitors. Will they see a big boost as a result of the removal of HHGregg from the market? It’s doubtful — customers are still going to have a lot of options of who to shop with, so there’s no guaranteed easy move over to Best Buy, for example. I’m also not sure there’s a huge need to respond to the going-out-of-business sales. Customers will understand what is driving those, but there may be the opportunity for competitors to position themselves as the next port of call, rather than shoppers defaulting to large online only players.

Mark Heckman
BrainTrust

To answer the question as to how best competitors could attract former HHG shoppers, it is important to understand why HHG collapsed, seemingly overnight. One major factor was recent leadership were all experts at the wrong thing, namely ‘traditional’ bricks and mortar store retailing. While HHG attempted to build a point of difference around having large selections, they apparently paid precious little attention as to how to make appliance and home office needs shopping more convenient and valuable to a changing shopper base.

Consequently, to win the lion’s share of HHG shoppers, Best Buy and other smaller alternatives need to examine the entire appliance shopping process from the consumer’s perspective and improve the customer’s experience along the that path. Of course that means spending much more effort in synergizing the use of multiple shopper touch points between online and in-store offerings. It also implies that instead of offering the shopper the most choices, they offer the shopper the best choices, given the shopper’s needs and budget and then provide a means to close the deal as painlessly for the customer as possible.

Tom Dougherty
BrainTrust

Frankly, I don’t see this as having many ripples in the retail market.

HHGregg went belly-up for a reason. Their market was fragmented and between all the other options for that self-same merchandise, I doubt if there is much any surviving retailer can do to grab the slack.

I’m sure Sears wishes this was otherwise.

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Braintrust
"Best Buy's improvements will not come from the demise of other brands, but through their own innovation in customer experience across channels."
"My question is one that is hanging over the entire retail industry: What happens to this abandoned retail space, since the country is “over-retailed”?"
"To answer the question as to how competitors can attract former HHG shoppers, it is important to understand why HHG collapsed, seemingly overnight."

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