Will Own Stores Help LG Gain CE Market Share?

Discussion
Apr 11, 2013

LG Electronics is bypassing the middleman. The consumer electronics manufacturer plans to open 600 LG brand stores in developing markets in addition to the 3,000 locations it currently operates, according to The Wall Street Journal.

The South Korean company is taking this step as Apple continues to expand its own store network, Samsung opens shops inside of Best Buy, and Google reportedly considers establishing a brick & mortar presence.

LG has seen its share of the global mobile phone market decline significantly in recent years, from 10 percent in 2009 to just over three percent in the fourth quarter 2012.

Besides its investment in retail operations, the company is boosting its marketing budget.

"The increased marketing spending should have some benefit for LG Electronics’ smartphone market share, especially in the mid to high end," Mark Newman, an analyst with Sanford C. Bernstein, told the Journal. "However, it will be tough to compete with Samsung and Apple."

LG is also looking to upgrade its various consumer electronics technologies to gain ground. Yesterday, LG announced it would be the first manufacturer to offer PayPal on its Smart TV platform.

"PayPal significantly reduces the number of steps the user has to take in order to complete a transaction; saving them time by eliminating the need to enter credit card and address details for each subsequent purchase," Richard Choi, senior vice president of the Smart Business Center at LG Electronics, said in a statement. "Moving forward, it will also make it possible for LG to better integrate digital commerce with first-class home entertainment."

How important is distribution through brick & mortar stores to a manufacturer’s share of the U.S. consumer electronics market today? Do you expect more manufacturers to open their own stores in the U.S. or will the emphasis, as in the case of LG, be on other markets?

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13 Comments on "Will Own Stores Help LG Gain CE Market Share?"

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Bob Phibbs
BrainTrust

The more manufacturers open their own stores, the more the dealers who built their brand will go cold on them. It can be a short-sighted decision as the dealers who made those brands and can move a customer between various levels of product are devalued. It isn’t that we need more choice, consumers want simpler choices.

Brand-specific stores in the middle like LG may find the amount of money it takes to train those employees to significantly drive sales may be much more than simply doing a better job with their existing dealer networks.

Paula Rosenblum
BrainTrust

It’s like all other segments (with fashion leading the way)—if you want to be in control of your brand identity, you need your own physical stores and other direct channels.

I think one of the beginning signs of Dell’s decline was when they started selling outside their own channel. At first I was solely concerned with a supply chain built for “eaches” suddenly turned into a supply chain built for bulk, but the brand also got diluted (along with the quality…but that’s a subject for a different blog).

LG needs direct feedback from its customers. What better way to get it? But I also wonder if this is solely about mobile phones. After all, the company makes everything from refrigerators to washing machines. An LG store could be a big deal.

Ken Lonyai
BrainTrust

Ultimately, I see this trend flopping and playing right into the hands of online retailers like Amazon. Unless you are a fan-boy and a real brand addict, there’s not much reason to go to a single brand store. For the average shopper, having to hit Apple, Samsung, LG, and whoever else’s individual stores to look for a device or appliance is a total pain. It’s why there are verticals and department stores. Reversing that proven b&m model and bucking the ease of tablet shopping that big inventory e-tailers offer, feels like a strategy waiting to fail.

IMHO, Apple is a master marketing/branding company more than a tech company. Other tech companies may be able to match them hardware for hardware, but trying to mimic their brand strategy is downright dangerous.

J. Peter Deeb
BrainTrust

Distribution through brick & mortar stores is still important to a manufacturer’s share, but the real question is, will a single brand store succeed in the current environment? LG has a wide variety of products that may support their own outlets BUT Apple is one of the few who has a successful track record. When retail outlets that offer a variety of brand choices are struggling LG will have to be very creative to get consumers into their outlets and more importantly buy enough to support the cost.

W. Frank Dell II
BrainTrust

LG’s store expansion is for the developing markets, not the United States, which is a developed market. This is a common strategy for manufacturers with large product lines, as the existing retail system is inadequate.

As the US retail landscape is evolving and changing, manufacturers must continually reevaluate their go-to-market strategies. In major cities, the idea of a manufacturer store has good value, but it can backfire as well. Remember when Kraft decided to own and operate Foodservice Distributors and existing customers simply dropped their products?

The problem is, if the store is primarily for showcasing products, it just becomes an expensive form of advertising. When products are sold, the manufacturer is now competing with existing customers. No easy answer for the US market.

Ed Dunn
Guest
4 years 2 months ago

It is very important for all manufacturers to have flagship stores to interface with the consumer. In this globally competitive world, it is critical to get direct feedback from consumers having first hand experience on existing products and upcoming product trials.

Nike is doing an excellent job in the USA with opening their own stores to target demographics that they are building products for and to understand their customer better, to provide their distribution channels with better products to sell.

Kenneth Leung
BrainTrust

In the US, electronics consumers are used to choices and selection offered by retailers. I think overseas MFG brand specific stores make more sense where retailers with efficient distribution system aren’t as dominant.

For MFG to open stores in the US, they need to offer something compelling to consumers that their dealer/distribution doesn’t offer, either exclusive merchandising or education/entertainment/experience content that the retailers won’t/can’t provide. Apple Store works because it offers the education/entertainment environment to reinforce the brand. Other MFG looking to emulate will need to come up with their own value proposition to succeed in a store model.

Ed Rosenbaum
BrainTrust

Brick and mortar always has and always will be important. But LG may be confusing their customers by doing this now and taking away the ability to see their brand vs. the competition in the current outlets. I can’t see this as successful except for the realtors looking to lease space.

Nikki Baird
BrainTrust

I agree with Paula. There’s a lot more here than meets the eye. LG is a big brand. They make a lot of consumer electronics and appliances, not just phones. And note that the 600 stores aren’t going to be on our shores anytime soon—the article says “developing markets.” That means there is a chance that they’re trying to establish presence in markets where there may not already be a strong distributor channel, rather than trying to undercut or go around distributors.

But I do agree that the model to examine is Apple—especially in terms of the service component. If you’re going to own a direct relationship with the end consumer, you’d better be prepared to support them through all stages of the customer lifecycle—and that includes post-purchase. A brand manufacturer has that responsibility even more so than a retailer.

Cathy Hotka
BrainTrust

I wouldn’t open 600 stores. I’d open 6, and study the heck out of them. If LG can create an experience in these stores that goes beyond product specs, they may be a winner.

Lee Kent
BrainTrust

IMHO Ken hit this nail on the head and believe it or not, i have nothing more to say! πŸ™‚

gordon arnold
Guest

Manufacturers review costs of goods sold and production level vs. financial planning volumes daily to insure profitability. Failure to meet production and shipping levels is the quickest way to lose money in manufacturing. It is also the most controllable of any cost factor in play.

It is no secret that the sales numbers for the majority of retail outlets are continuing a downward trend. Few retailers are looking for more inventory so manufacturers with the cash and incentive are finding real estate and labor at bargain prices. No matter what the economy the sale of any product’s entire production volume built within the limits of market acceptance levels is only a matter of outlets positioned to demographic specs.

This same method can and is being used to expand market share by many manufacturers. This is recognized by many retailers since they too have market information that clearly shows product flooding in the choicest market areas and locations. It seems apparent that it is an economy of everyone for themselves leaving no prisoners or quarter.

Ken Sucharski
Guest
Ken Sucharski
4 years 2 months ago

Will this allow the manufaturer to set the GO RETAIL pricing? We are the only industry that eats our young.

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