Technology

Shopping for Electronics, Peacefully


Shopping for consumer electronics may have reached its nadir the day after Thanksgiving, when shoppers at various Wal-Mart (WMT) stores, in a scene reminiscent of Spain's running of the bulls, rushed the aisles in search of a $29 DVD player. For those willing to walk instead of run -- and who have a little more cash to spend -- a laid-back alternative in electronics retailing exists.

Consumer-electronics manufacturers are increasingly opening their own, far more Zen-like stores. They aim to create a new kind of shopping experience in which they not only sell merchandise but build brand loyalty, reap a higher profit margin, and persuade customers to purchase a bundle of digital products that all work together. Stores from the likes of Apple (AAPL), Sony (SNE), and Gateway (GTW) are sleek, spacious, and staffed with highly trained sales associates. Interactions are meant to be soft-sell, and customers are encouraged to lounge on couches, take classes for non-geeks, or simply surf the Web.

A working model for all of this is the bright and busy Apple store in New York's trendy SoHo district. It's a gleaming modern space where 300 to 400 shoppers an hour can browse comfortably, take in a tutorial, or cozy up to the "genius bar" to tap into the wisdom of a Mac expert. Even though the high-rent space, free training, and expert staff mean a higher sales hurdle to reach profitability, "our SoHo store is printing money," says Ron Johnson, senior vice-president for retail at Apple.

MESHING THE PIECES. Apple's strategy is based on "a future view of retailing, where the manufacturer controls the environment, controls the selling message, and masterminds the margin equation," says Michael Silverstein, a senior vice-president and head of the retailing practices at consulting firm Boston Consulting Group in Chicago. Offering a branded shopping "experience" is a general retail trend, but it makes increasing sense for consumer-electronics makers. For one thing, shoppers in this category tend to need some advice at the point of sale, even though they do a lot of research before stepping into stores, says Anne Marie Luthro, director of research at retail consulting firm Envirosell.

Manufacturers also want an opportunity to persuade shoppers that products such as a flat-screen TV, digital camera, and personal video recorder work together and are easy to use (claims that shoppers have good reason to be skeptical of). Electronics discounters typically provide staff only for the purposes of helping shoppers locate items, and they arrange products in categories so that customers can compare prices and features -- not figure out how to set the stuff up and get it running.

When it debuted its new stores in mid-2001, Apple's original goal was to gain more opportunities to interact with its customers, says Johnson. Now, with 73 stores, including its newest five-floor operation in Tokyo's Ginza shopping district, Apple has hosted more than 25 million visitors.

JUST LIKE AT HOME. Even better, its retail division is newly profitable on a stand-alone basis. In the quarter ended in September, the stores generated $1 million in profit (which doesn't include $35 million in manufacturing profits on the products they sold). Sales at the stores totaled $193 million (out of Apple's total of $1.7 billion), an 89% jump from a year earlier. Says Johnson: "We're making a lot more money on every sale through our stores than through other retail outlets."

This approach is working for other consumer-electronics makers as well. Gateway, which in 1996 pioneered the concept of the proprietary PC showroom, has tweaked its retail model several times since then. Lately, it's revamping 185 of its stores (while closing about 80 underperforming ones) to give them sleek designs that better showcase its expanded line of consumer electronics goods.

"Customers can walk in and get a feel for the way the merchandise would look in their house," says John Long, who heads consumer marketing at Gateway. "It's a much more intimate experience."

FEMININE SENSIBILITIES. Sony recently opened two new Sony Style stores at upscale malls in Costa Mesa and Beverly Hills, Calif., in addition to its three flagship locations in New York, Chicago, and San Francisco, and its assortment of outlet stores. The new stores are intended to showcase the design of such Sony products as home-theater systems and flat-panel TVs, and to do so in an environment aimed particularly at women. Sony spokesperson Rick Clancy notes that women are having a much greater say in purchasing decisions as consumer-electronics products increasingly "become design pieces in the home."

Even Dell (DELL), the king of direct-order sales, has experimented recently with putting staffed kiosks in malls, having recognized that "some customers need a little hand-holding," says spokesman Venancio Figueroa. These stores don't hold inventory, but they do display Dell products, including its new flat-panel TVs and digital music players -- and staffers can help customers place orders online. "We don't have any plans to get into the brick-and-mortar business," says Dell's Figueroa, who adds that the approach wouldn't fit with Dell's build-to-order business model.

Even consumer-electronics discounters are getting into the act. Merchants such as CompUSA, Circuit City (CC), and Best Buy (BBY) are newly emphasizing their knowledgeable sales staffs, says Luthro. "The onus on the store is to provide an associate who has time and arms to help all these people make decisions," she says. But the need to compete on price with other discounters limits how much they are willing to spend on staff and training. "Unfortunately," adds Luthro, "when stores cut back, staff is the first place they cut."

That approach is giving manufacturers an opening to satisfy customers' desire for a pleasant environment and salespeople who know what they are talking about. "You won't see rows and rows of computers lined up here," says Clancy of the new Sony Style stores. For holiday shoppers unwilling to be trampled in a scramble for cut-rate goods, that promise may be pretty alluring. By Amey Stone in New York


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