This week, premium CE retailer Tweeter announced a restructuring plan aimed at improving its profitability and cash flow. According to the company, the restructuring will allow Tweeter "to consolidate and reinvest its resources to expand upon its popular ‘Consumer Electronics Playground’ concept stores."

Aldo Cugnini
Analyst

Tweeter’s plan includes closing 49 stores and two regional facilities. It will close all of its stores in California, Tennessee, Alabama, New York, and most of Georgia within two to three months, resulting in layoffs of approximately 20% of its total company personnel. The stores to be closed were expected to contribute negatively in the next six months.

Tweeter Home Entertainment Group President and CEO Joe McGuire said, "Since our Playground stores are clearly resonating with consumers and articulate our vision so well, we will continue to execute this concept in our remaining 97 traditional stores by taking what we have learned from our current Playground stores and rolling it into our existing fleet. Stores that don’t physically fit our model will be remodeled into our Playground store format going forward." At the same time, the company will be taking steps to "increase the development and knowledge of its team."

Earlier, the chain reported total revenue from continuing operations for the quarter ended December 31, 2006 decreased 12% to $234M, from $266M the previous year. According to the company, the bulk of the revenue decline came in the projection television category, which decreased approximately $22M on a year-over-year basis. In addition, net income from continuing operations for the three-month period was $2.3M compared to $14.7M for the same period the previous year.

Connecting the dots over the last 12 months clearly shows the need for corrective action. Industry chatter seems to support the move as painful, but coming with the right timing. The sharp plunge in flat panel pricing last year wounded Tweeter’s holiday sales and earnings, and McGuire was quoted as saying he prefers Tweeter to be a profitable smaller company rather than a struggling larger one.

Earlier, competing retailer Harvey Electronics had been dealing with its own woes. The company received notification last year that they would be delisted from the NASDAQ, as their stock closed at less than $1 per share for 30 consecutive days, and minimum equity rules were apparently violated. After being granted a conditional listing by NASDAQ, CEO Franklin Karp resigned and stockholders approved a $4M equity investment led by Trinity Investment Partners and a reverse stock split.

Harvey stock, nonetheless, is continuing a slow two-year slide, and is currently at around $1.43 - not the greatest leeway. New Harvey CEO Martin McClanan stated, "The Company is moving forward aggressively on all fronts with initiatives to put Harvey back on a course of growth and profitability." He further detailed their strategy, saying, "For fiscal 2007 we are in the process of putting in place new marketing and merchandising initiatives … in the high-end custom installation market."

It would appear that Tweeter’s direction is thus to look at bit more like Harvey - at least physically so - by further narrowing its niche. With growing numbers of consumers purchasing high-end products from Internet or mainstream brick-and-mortar stores, it may be that the one thing the high-end guys can hold on to is service.

Meanwhile, mainstream PC retailer CompUSA recently learned this the hard way - closing 126 stores and earning a poor reputation (so say the blogs) for customer service. These days, customers want good price AND good service, but most of them are unwilling to pay extra for the latter. Nonetheless, high-end stores can offer a better experience for the discriminating buyer, and can serve as a benchmark for the industry. Let’s hope they aren’t marginalized out of existence.