Sunday, February 28, 2010
Hhgregg: Making its move into local electronics market
When Hhgregg, an electronics and appliance retailer, opens in March at Valley View, will it be able to pull shoppers away from bigger competitors?
KYLE GREEN The Roanoke Times
Construction continues on Hhgregg, which will open in Circuit City's former home on Valley View Boulevard in Roanoke. The photos at top and below show the typical layout of the store, which carries a varied mix of flat-panel televisions, large appliances and more.
Courtesy of Hhgregg
KYLE GREEN The Roanoke Times
For several weeks, construction crews have been working the inside of the 33,500-square-foot storefront beside Dick's Sporting Goods in preparation for the opening of Hhgregg.
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In the retail world of laptops, flat-panel televisions and shiny, stainless steel refrigerators, Hhgregg may be considered a small player by some standards.
Despite its size and slim footprint, Hhgregg is making a big splash across the mid-Atlantic and forcing larger competitors, such as Best Buy, to take heed, analysts say.
Capitalizing on the demise of Circuit City, this Indianapolis-based electronics and appliance chain soon will count a piece of Roanoke real estate as one of its newest conquests. Hhgregg (pronounced H.H. Gregg) will open its doors on or before March 25 in Circuit City's former home on Valley View Boulevard in Roanoke.
For several weeks, construction crews have been working the inside of the 33,500-square-foot storefront beside Dick's Sporting Goods. Some walls are getting fresh coats of green, yellow and blue paint, and crews are laying new carpet and tile on the floors.
There's no doubt that Hhgregg's coming will bring more choice to consumers in the Roanoke region and beyond. But will it be enough to pull shoppers away from worthy competitors?
Poised for growth
H.H. and Fansy Gregg opened the first Hhgregg store, a small appliance retailer, in 1955 on the north side of Indianapolis. The family's first stores sold washing machines, clothes dryers and outdoor grills. Eventually, they added black-and-white televisions, color TVs and other electronics.
Now, the inside of an Hhgregg store shows off a varied mix of flat-panel televisions, large appliances, computers, cameras and more.
At 127 stores, the family-grown retail company is expanding its footprint in a big way. In fiscal 2011, it hopes to have 40 to 45 new locations, including the Roanoke presence.
Most Hhgregg stores are in the Midwest and Southeastern parts of the United States. But in the past year, Hhgregg has pushed for a stronger East Coast presence in certain states, such as Virginia, Maryland and Pennsylvania, as part of a mid-Atlantic expansion.
The Roanoke store is one of several Hhgregg stores planned for Virginia. The chain opened two stores in the Richmond area last year, and another in Colonial Heights will debut later this month. Hhgregg also will open two stores in Newport News and Virginia Beach on March 11.
The country's vast inventory of vacant Circuit City stores has sparked what Hhgregg spokesman Jeff Pearson calls an "aggressive" Hhgregg movement.
Richmond-based electronics chain Circuit City closed its doors last year, leaving more than 500 empty storefronts. In Roanoke, the former Circuit City space has housed a temporary book sale and a Halloween store.
Approximately half of Hhgregg's new stores are headed for shuttered Circuit City sites, said Bradley Thomas, an analyst for KeyBanc Capital Markets, in a research report. The company analyzed former Circuit City spots and chose the ones with the highest profitability potential, he wrote.
"We have a high degree of confidence that HGG [ Hhgregg] has not lowered its real estate standards," Thomas wrote. "We believe many of the former Circuit City sites are very good locations."
The retailer is also taking over some former locations of Linens n Things, another company that went out of business last year.
"Those stores [Circuit City and Linens & Things] are of a similar size to the footprint that we need," Pearson said. The stores are "really in a nice prime real estate location, where people are coming to shop."
Though it may seem that Hhgregg is expanding too quickly, Brian Nagel, an analyst with Oppenheimer & Co., said the retailer's bold moves make sense.
"They're getting cheaper real estate," he said, referring to the shuttered Circuit City and Linens n Things locations. "They are taking advantage of the demise of Circuit City."
Whether or not Hhgregg can fill the void left by Circuit City is yet to be seen, at least in the Roanoke Valley.
Jason Kestner of Buchanan said he'll give Hhgregg a try. Kestner, who works in sales and engineering for Gala Industries in Eagle Rock, has landed past deals on a television and a home theater system at Lee Hartman & Sons, an independent retailer in Roanoke.
He said he paid 10 percent less for a television at Lee Hartman, compared with Best Buy. Price and employee knowledge of certain products are important to him when he's shopping for electronics, he said. Kestner said he'll use those factors to determine whether Hhgregg meets his shopping standards.
"Competition's always good," he said.
Sizing up Hhgregg
On the outside, Hhgregg resembles one of its major competitors, Best Buy. Prices and general selection from computers to refrigerators and more are comparable for both chains, based on their Web sites.
But there are some differences. Hhgregg is not as large as Best Buy. Minneapolis-based Best Buy has 1,185 stores, under different brands, in the United States and profits of $227 million during the third quarter of 2009 for its domestic and international locations.
Hhgregg earned $22.7 million during last year's third quarter, while its sales at stores open for a year or longer were down. The company attributed the drop to declining prices for some electronics, including flat-panel televisions.
Some retailers had to slash prices to move televisions in the past year, said Chris Ely, a senior research analyst for the Consumer Electronics Association in Arlington. In 2009, the average manufacturer price for all sizes of digital television displays was an estimated $631, though the CEA predicts that price will drop to $587 this year, Ely said.
Also, more consumers are buying televisions for smaller areas of their homes, such as bedrooms. They're purchasing smaller, less costly TVs, which affects prices, Ely said.
Another difference between Best Buy and Hhgregg is that Hhgregg's sales associates work on commission. Best Buy has an hourly work force, Nagel said.
A Best Buy representative did not return calls for comment about Hhgregg or its sales staff. Best Buy's Roanoke store is located less than a mile away from Hhgregg's new local store.
It's not unusual to find a commission retail sales force for certain products, such as electronics, automobiles or jewelry. Selling those items often requires an employee to have specialized knowledge, said Dan Butler, vice president of retail operations for the National Retail Federation.
But though employees often can make more money earning a commission than by getting paid an hourly wage, commission sales are not always easy, Butler said.
Commission sales force associates to treat the job with "a higher level of professionalism," said Eric Bourne, who will manage the Roanoke Hhgregg store. Bourne, who lives in Evington, formerly worked as a manager for local and regional Circuit City stores.
Sears, another Hhgregg competitor, pays commission to some of its appliance and electronics sales staff, spokeswoman Kimberly Freely said. She would not comment on Hhgregg's expansion into some Sears' markets. Sears has a store at Valley View Mall, near Hhgregg's new Roanoke location.
Also, Hhgregg claims to put a large focus on staff training. Employees are required to have more than 200 hours of training a year, and they often learn firsthand from vendors about how to operate store products.
More retailers are ramping up training for sales associates, a key metric for helping to move sales and cross-sell some products, Ely said.
"For many consumers that's very important, to meet with a clerk who understands that product," he said.
Most new employees for the Roanoke Hhgregg store are in the some stage of this training. The company said it would hire 50 people to work in Roanoke, including warehouse staff, sales associates and manager-in-training positions.
Competitive edge
Side by side, Best Buy and Hhgregg seem to "coexist" together well in other markets, said Nagel of Oppenheimer. That's because Hhgregg focuses more on appliance sales, and at times it will push out higher-end electronics faster than Best Buy, he said.
For instance, Hhgregg introduced certain LED television models in its stores early last year, before Best Buy, Nagel said. He also expects Hhgregg to be a front runner in rolling out certain 3-D televisions.
If you want a lower price, you can try your hand at haggling with an Hhgregg associate. They're encouraged to negotiate prices with customers, whether that involves matching a competitor's advertisement or lowering a price, Pearson said.
But consumers should keep in mind that some retailers may not be bargaining. Often, they're honoring a former sale price that's already in the system, said Butler of the NRF.
Carroll Hale hasn't been concerned with price haggling based on past shopping trips to Hhgregg. An Indiana transplant who moved to Roanoke nearly two years ago, he used to be a regular Hhgregg shopper when he lived near one of the retailer's stores in Greenwood, Ind.
Hale, who now directs research and development at Green Earth Naturally in Roanoke, bought laptops, a refrigerator, a dishwasher and other computer supplies at Hhgregg.
Unlike other stores, where Hale said he has had to search for available sales associates for help, "the sales people were around and were fairly easy to spot" at Hhgregg, he said.
Often Hale would drive by a Best Buy store to shop at Hhgregg, but that decision wasn't based on higher or lower prices at either chain.
"Overall, for what you're getting, it's basically the same thing," Hale said, referring to prices and selection. But at Hhgregg, "I liked the shopping experience a lot better," he said.
