Thursday, May 10, 2007

Never Mind Rock and Roll, Retail Is A Vicious Game: Tweeter Considering Chapter 11

2007 is shaping up to be the year of consolidations, mergers, and outright trainwrecks in retail electronics.

TWICE: Tweeter Considering Chapter 11; Reports $35M Q2 Loss

Canton, Mass. — Tweeter Home Entertainment Group said it has insufficient working capital to cover short- and long-term costs and may need to file for reorganization under Chapter 11 of the bankruptcy code.

In a conference call, president/CEO Joe McGuire said there is no timeframe for a Chapter 11 reorganization, and that the company is weighing its options on a week-to-week basis. He said that Tweeter’s vendors are “well aware of the risk,” and confirmed that the chain is conducting business with most manufacturers on a cash basis at this point.

I suspect that we are going to see several high-profile shakeouts in retail this year. This of course is a result of many factors. Price compression in video product gets the lion's share of the blame, but the real perpetrators are likely ineffective operations management, poor cost control, and branding challenges.

So, does anybody care to hazard a guess about who is going to be next?*

*no fair picking Circuit City. That's like shooting fish in a barrel.

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1 comment:

Flatland Pastor said...

All I know is any retail operation is in trouble when it begins to rely on volume rebates from suppliers to get to their "break even" margin point. Don't laugh, you'd be shocked to know just how many retailers don't make money until the volume rebate shows up in the mail or gets applied to the balance sheet. Beware of any CFO who answers the question, "Are we making a profit?" with "We won't know until the end of the quarter." Seriously, would you fly on an airline that only allowed their pilots to open their eyes once every fifteen minutes, and then only for 30 seconds?

There's a famous quote about baseball, "I's a simple game, you throw the ball, you catch the ball, you hit the ball, you run." Simple , right? Of course, but it's not easy. If it was easy everybody would do it.

Retail is supposed to be easy. You sell the product at a markup sufficient to cover the cost of doing business with enough left over for a healthy profit. If it's so simple why can so few do it well? Because what makes the difference is HOW it's done.

My prediction is that Visions is going to go as soon as the parent company realizes that Best Buy is a better bet and decides that's the basket all of their eggs are going into.