Top CE chain execs debate the industry's prospects; despite existing new products, retailers scale back - consumer electronics

Discount Store News, Feb 5, 1996

LAS VEGAS - Last month, for the first time ever, the leaders of the nation's three leading consumer electronics chains appeared together on the same stage. The setting was the Winter Consumer Electronics Show. The participants were Tandy's John Roach, Best Buy's Dick Schulze and Circuit City's Rick Sharp. The topic they gathered to discuss was the industry's prospects for the current year.

The predictions weren't pretty. Beneath the standard professions of "cautious optimism" and "a challenging year ahead for our industry' lurked genuine concern. Schulze and Sharp, it turned out, had good reason to worry; their respective stocks plunged sharply two days later on the heels of lackluster Christmas sales and analysts' concerns about future profitability.

Best Buy, which was rumored to be requesting a 60-day payment moratorium from several key vendors, was identified as a possible takeover target the next day. The company reported flat earnings in its third quarter ended Nov. 25, and an anemic 3% rise in same store sales in December.

Attendees might have been expecting some fireworks at the first public meeting of three business leaders who, at least in the case of Schulze and Sharp, have little use for each other. Apart from a few subtle digs (Sharp prefaced answers to virtually every question, no matter how unrelated, with a pitch for his commissioned sales staff's superiority to his competitors' hourly sales help; Schulze noted that only Sharp had failed to report December sales prior to CES), the panel was cordial and mainly addressed emerging technologies.

DVD (originally "digital video disc" until the technology started merging into video games, audio and computing) will be a major winner, according to all three, who together account for about $15 billion in consumer electronics sales.

"This is the most exciting product we've seen this week [at the show]," Sharp said. "It is a content-driven technology, and I'm encouraged by the studio support we're seeing."

Schulze called DVD "a catalyst in both the PC side and in family entertainment," adding that he expects to see booming sales of related products, such as larger, higher-resolution computer monitors and home theater-quality televisions. Roach congratulated manufacturers for settling on a single format for the first time since the television set and said he is looking for immediate impact in the computing side of the business, with the more lucrative settop business probably still a couple of years away.

Predictably, thumbs went down on new digital VCRs. "With high-end disc products coming to market, there is no meaningful consumer demand for a digital tape technology."

Reaction was mixed toward a hypothetical $500 Internet appliance, a stripped-down PC perfect for surfing the Net and playing games, but virtually useless for anything else. Sharp thought the subject too speculative for a meaningful response, Schulze found the concept "interesting," and Roach, while doubting such a product's appeal compared to a real PC, added that "at $500 for the right product, we'd sure like to try to sell some."

HDTV, the panel agreed, is virtually a dead issue. Sharp noted that with DVD-, DSS-and CD quality sound, all three major reasons for purchasing an HDTV" have been addressed, pushing the supertelevisions off further into the future. "We're not pursuing this technology,' Schulze said. "We're focusing on the high-quality video products available today."

Roach, the most blunt of the three, noted that 'the public doesn't even know what HDTV is."

Well, how about a PCTV, combining a personal computer and a high-end television? "No way," Sharp said. "The PC is viewed from 18 in., the television from 18 ft. For some applications, the (combination) might work, sure. But that would not be a flexible technology."

Schulze thought that 'the super high-end consumer can't get enough' and would probably snap up such a product, but the mass consumer would probably pass. Roach sees a series of home products sharing various content and networks, but not a pure blend of the PC and TV.

While retailers are keeping an eye on the Internet as a potential competitor for consumer dollars, few are worried now.

Schulze noted that the average household is spending a mere 60 cents per year over the Net so far, but cautioned that his college-age son "did all his Christmas shopping on line this year. But the offering will have to be a lot more compelling than it has been to make an impact.' Roach added that the only people making money on Internet retailing are organizations sponsoring conferences on the subject. The concept, so far, delivers "no added value,' he said.

Sharp, predictably, was certain that his highly trained staff will protect Circuit City from Internet encroachment.

Future policy issues that could endanger CE retailing include bundling by the Baby Bells and cable industry, which would link proprietary hardware unavailable through retail channels to cable and interactive services. The customer has the right to own every piece of equipment in the home,' noted Sharp, who also worried that new services like interactive networks could mute value-added features like picture-in-picture.