A Short in Electronics Market : Federated is the latest to trip up, as retailers are finding they have no hot gadgets to lure consumers into stores.
Flashy new products can quickly become old hat in the consumer electronics business. One day everyone needs a videocassette recorder, and the next everyone already has one.
“The major problem for the industry today is that there are no new hot products to replace what the VCR did for the industry from 1977 to 1985,” said Martin Brochstein, editor of Consumer Electronics Monthly, a trade publication based in New York. “There is no ‘gotta have’ product that everyone needs to rush to a store to get. And the industry needs one to get going.”
That is especially true for consumer electronics retailers in such areas as Southern California, where heated competition has led to sharp discounting and promotions that squeeze profit margins. Retailers that are slow to recognize new trends often fall by the wayside.
The latest company to learn about the pitfalls of the business firsthand is Federated Group, a retail chain founded 19 years ago in West Los Angeles that dominated the Southern California market as recently as the early 1980s.
Atari Corp., which bought Federated Group in August, 1987, for $67.3 million, announced Thursday that it hopes to sell the chain, possibly through a leveraged buyout. Atari said Federated, which has 60 stores in California, Texas and Arizona, chalked up losses of $124 million last year.
Analysts have faulted Atari for failing to improve Federated’s marketing or to expand its product selection beyond electronics goods, such as TVs, VCRs, CD players, and home and car stereo equipment.
Einola Matinkhou, president of Adray’s, a Van Nuys-based competitor, said Federated “expanded the number of stores too fast without expanding their product selection.”
Although consumers apparently still love their VCRs, more than 60% of American homes already have the devices, according to the Electronic Industries Assn., and such products as car phones and video camcorders haven’t demonstrated broad appeal. Even compact disc players haven’t achieved widespread popularity. The association says that less than 15% of U.S. households have them.
The dearth of popular new gadgets has come as competition in the consumer electronics retailing business is intensifying. Last week, for instance, Sears, Roebuck & Co., the world’s largest retailer, introduced a discount strategy and cut prices on 50,000 items, including consumer electronics products.
“With the entry of Sears we are going to see a lot more retailers--particularly weak chains like Federated and mom and pop stores--fall by the wayside,” said Linda R. Morris, an analyst at Provident National Bank in Philadelphia.
Federated once reigned almost unchallenged in Southern California--days when it had a reputation for running self-indulgent, eccentric commercials. A television spot that ran in the early 1980s, depicting a Federated spokesman shouting out special sales while battling hordes of rubber frogs, was characterized as “undeniably tasteless” by Adweek magazine.
The company has been more subdued, however, since the arrival of its Richmond, Va.,-based discount competitor, Circuit City.
Helped by Wide Variety
Backed by a $10-million television advertsing campaign that emphasized service and convenience as well as price, Circuit City quickly drew the attention of Southern Californians in 1986 when it began opening a string of 22 supermarket-size stores displaying everything from washers to compact disc players. Some Circuit City outlets even had child-care facilities for shoppers who wanted to browse without being distracted.
In fact, the sheer variety of products at Circuit City and smaller competitors such as Adray’s appears to be a big reason they have thrived at a time when Federated struggled.
Federated, for example, has never carried appliances such as dishwashers and refrigerators. And the chain’s marketing efforts left a lot to be desired, experts say.
“Circuit City had dramatically better execution than Federated,” said Eliot Laurence, an analyst at the Minneapolis investment house Wessels, Arnold & Henderson. “Circuit City did a much better job of advertising and marketing, offering appliances as well as CD players. Federated never got their act together.”
Circuit City says it expects to report, for the fiscal year that ended Feb. 28, record sales of $1.7 billion, up 27% from the previous year.
Federated, however, is hardly the only consumer electronics retailer with a big presence in California to get ambushed by fast-shifting consumer preferences and competition.
Pacific Stereo, an Emeryville, Calif., company that had 64 operating stores in 1985, shut down a little more than two years ago. Industry observers at the time said the chain waited too long to supplement its selection of audio equipment with video products. Around the same time, First Family Group, a major specialty retailer of home appliances and consumer electronics, closed its 13 Golden Bear Home & Sport Centers in Southern California after the chain’s president complained of the intense price competition here.
GADGETS IN U.S. HOMES
Percent of U.S. homes owning each electronic device, based on current estimated population of 90 million households. Figures are as of January, 1989.
All television: 98% Liquid crystal TV: 2% Color television: 95% Black and white TV: 58% Projection TV: 4% Videocassette recorder: 61% Camcorder: 7% Prerecorded videotapes: 48% Home computer: 21% Audio system: 90% Compact audio system: 56% Audio components: 47% Compact disc player: 13% Telephone answering machine: 24% Cordless telephone: 22% Radio: 98% Home security system: 11% Satellite dish: 2% Source: Electronic Industries Assn.