NATION Number of electronics stores increases as prices decrease

As those retail prices drop, electronics stores face falling profit margins.
DALLAS MORNING NEWS
Consumer electronics sales leader Best Buy Co., which already has 600 stores nationwide, is opening 60 a year. Computer retailer CompUSA has broadened its offerings to include televisions and other home electronics.
Meanwhile, smaller chains such as Fry's Electronics and Conn's Inc. are continuing to expand.
Consumer electronics stores are proliferating even as sales are increasing only slightly and as competition from discount chains and others is growing, said Tom Edwards, senior industry analyst with The NPD Group.
"Are we over-stored?" he said. "Probably, I'd have to say."
From 1997 to 2002, mass merchants such as Wal-Mart Stores Inc. increased their share of all consumer electronics sales in the United States from 19.9 percent to 24.9 percent.
During that time, specialty electronics stores saw their share of the $110.6 billion consumer electronics industry fall from 8.8 percent to 8.6 percent. But during the same time, those stores grew from about 18,000 locations nationwide to 20,700, a 15-percent increase.
Competition heating up
Consumers will have their choice of products and prices this holiday as the competition, evident in the barrage of retail advertising, heats up.
Whether they will buy is less certain. An NPD Group survey found that fewer people plan to give electronics as gifts this year than last, though the company says impulse purchases could pad the results.
Geoff Wissman, vice president at consulting and market research firm Retail Forward Inc., is slightly more optimistic.
"It's going to be better than last year, but it's not necessarily going to be a fantastic year," Wissman said. "We're predicting that for the fourth quarter, sales of consumer electronics will be up a little over 3 percent. That's nothing necessarily to write home about."
The competition, however, is sure to mean smaller profit margins for retailers, Wissman said. One example is DVD players.
The Consumer Electronics Association said in mid-November that, year to date, 15 million standalone DVD players had been sold, a 25-percent increase over 2002. But the prices were so low that the DVD buzz didn't help retailers much, said Dave Workman, president of Denver-based Ultimate Electronics Inc. Retail Forward said in July that the price of the cheapest DVD players had fallen to $49 from $125 just two years ago.
"The problem we have in many categories in consumer electronics is that prices have come down so far that the unit growth cannot make up for the dollar decline," he said.
Many shoppers have taken bargain hunting to an art form, thanks to the Internet, experts say.
"We have found that nearly 50 percent of the people who walk into our store have already been to BestBuy.com doing research on the products they want to purchase," said Lisa Hawks, a spokeswoman for Minneapolis-based Best Buy.
Circuit City Stores Inc. said in September that its profit margin in the second quarter fell to 22.6 percent from 23.7 percent a year ago, as the retailer had to match price cuts at other chains.
Wissman said that a weak holiday season for ailing Circuit City might force the chain to shrink or rethink its business model.