The measure of intelligence is the ability to change.
― Albert Einstein
) is currently an attractively priced retailer of predominantly
appliances and consumer electronics that is navigating a very
difficult competitive environment to not only be profitable but to
steadily continue toward achieving their stated objective of
becoming a nationwide retail presence and consequently deliver
increasing value to shareholders.
hhgregg's strategy is rooted in delivering industry-leading
customer service by utilizing very highly trained and
commission-incentivized salespeople, by simplifying the product mix
and uncluttering stores through reduced SKUs and by focusing
increasingly on the sales of "large box" items like appliances,
mattresses and fitness equipment that consumers are more likely to
purchase in a store than over the Internet. Same day delivery, home
installation and private label credit card financing that comprises
one-third of sales is an important part of their success equation
Identity Crisis as Opportunity
In the past,hhgregg was a consumer electronics company that also
sold appliances. Adapting to the changing retail environment,
today appliances is their largest category
representing 42% of their business during the first nine months of
fiscal 2013. As they continue to grow market share in appliances
and other "big-box" categories,hhgregg is evolving to become a home
product store that also sells consumer electronics.
Another major differentiator is in the use of commissioned
salespeople with over 150 hours of training per employee, the
highest level of employee training in the industry.hhgregg's belief
is that better trained employees provide a better customer
experience through better service and better information. The
challenge however is that others will copy this strategy. Focusing
on building extraordinary customer loyalty is their key defense
against this challenge.
1, 2, 3, 4: Get them Coming Back for More
Below are four important elements of successful retail strategy
thathhgregg understands and is executing. When the consumer has a
choice, a business cannot survive without being excellent in these
areas. You must get a commitment to a purchase and do it well
enough so that customers return. Most business growth comes from
repeat customers and HGG is meeting the challenge by working to
provide a better shopping experience.
Get them in the door.
If customers don't come, you can't build your business. Inverting
the "build it and they will come" aphorism,hhgregg is a new name
in much of the country and like any new business, they need to
find a way to get customers to visit stores. One challenge they
have is that until you've visited their store, it kind of just
looks like another electronics box store from the outside, like a
Best Buy (
), only smaller.
To drive shopper traffic into its stores,hhgregg engages in
regular print and television advertising-but their greatest
strength in growing store traffic is through word of mouth that
something special is happening here with regards to the shopping
experience and that prices are good. Once in the door,hhgregg
understands that you need to wow them somehow so that you can
execute numbers 2, 3 and 4.
Get them to buy something.
Converting a store visit to a sale is an art best performed with
a lot of assistance from science.hhgregg takes this challenge
seriously by using their high-touch but non-invasive approach
toward creating a better shopping experience.
Simple electronics purchases can be complicated, and therein
lays the opportunity forhhgregg - to simplify and make easier
what can be an unpleasant process. If you can make a process
easier or even better, if you can make it fun, you can build
customer loyalty in a magical way, something that Apple (
) knows well. By reducing confusion and turning technology
frustration into fashion and fun, Apple has proven that consumers
are less price sensitive, willing to pay more for technology
items when they feel more educated and more comfortable about
them, and if they feel help is available if needed.
According to the "2010 Appliance Retailer Satisfaction Study,"
consumers said their overall shopping experience had a stronger
effect on their purchase satisfaction than the actual price paid
for the appliance.hhgregg's president, Dennis May
"We have found that in the places where we have opened our
stores, people already have a place to buy. What they are looking
for is another way to shop." Through a "smaller-box" store size
and an aesthetic sparseness with lower product density,hhgregg
helps customers identify potential purchases with fewer
distractions caused by too many choices on the shelves, which can
lead customers to feel like they are searching a haystack to find
hhgregg is trying to create enthusiastic customers not by
being the cheapest provider but by being the retailer with the
most expertise that leads to outstanding customer service. They
do not ignore the issue of price however, offering price-matching
against most major competitors both online and off. The most
notable exception to this policy is that they don't offer price
matching with warehouse clubs like Costco (
), BJs, and Sam's Club (
Digging deeper into these elements to create a better shopping
to sustain and increase sales, HGG employs the following
Reduce fear of buyer's remorse.
To convert store visits to sales and reduce the fear of buyer's
remorse, consumers need to have little worry that they will
find the item for less elsewhere and also feel they have
adequate time to return it without penalty. Price is addressed
through competitive pricing and the price-matching policy. A
friendly return policy is another element and is the
not-so-secret secret of Costco who knows very well that you
will sell more if the customer is not worrying about being
stuck with something they do not wish to keep.
The cost of returns is unpleasant for a retailer but behind
many returned items there is a loyal customer who will spend a
lot more with you in the future if they have comfort that they
will be able to return something that isn't wanted.
Understanding this, the volume of returns can be viewed in a
more favorable light. To reduce the amount of revenue shrink
from returns, technology can be employed to better verify that
goods were indeed purchased from their stores.
Reduce choice, reduce confusion.
Mae West wasn't thinking about electronics retailing when she
said "too much of a good thing is wonderful." The idea of
limiting choice is a vastly under-appreciated concept in much
of retail today - that is, too much choice stresses out the
consumer and stifles sales.
Psychologist Barry Schwartz calls this choice paralysis. In
, Schwartz cites research that when people are given more
options for their 401K account, they actually put off the
decision instead of making it. Too much choice can actually
work against the goal of building positive feelings about the
shopping experience. Complexity leads to indecision.
In Malcolm Gladwell's book
he cites an experiment where a store offering six types of jams
sells much more jam than a store that offered twenty-four
different types.hhgregg understands this. Upon my visit to the
localhhgregg store, they were offering only three different
models of computer keyboards. For comparison, the local Best
Buy carried thirteen models. Most people don't need that many
choices in keyboards, and if they do, they would be better
served by making that particular purchase over the
Get them feeling good about their purchase.
When the sale is complete, the work is not over yet. People like
to buy when they feel like they got the best price. Knowing that
a good deal was had makes the consumer feel important and
confident about their purchase which is the best feeling you can
give a customer who you want to keep returning forever.
Offering the guaranteed price match for 30 days helps relieve
the customer of this worry about price and allows them to focus
on the benefits of the purchase and feeling good about the buying
experience. By giving the customer these post-purchase benefits
you build customer retention and return visits.
Athhgregg, nearly 40% of their merchandise product is
delivered to the home. This is an additional opportunity for the
company to create a positive experience for the customer.
Get them to return and tell their friends.
In order to get more customers to do number one above, that is to
come through the door to begin with, you have to also achieve
number four here. Ken Blanchard popularized the term "raving
fans" which means you have achieved the kind of service
excellence that turns a customer into a lifetime customer. A
raving fan is an advocate of your products or services in the
marketplace. Raving fans will drive future sales by returning and
by telling others and is the most valuable type of marketing
there is. Raving fans sell for you.
The Road Ahead
The long-term economics of the businesses whichhhgregg competes
in will remain extraordinarily challenging as competition with
direct and indirect competitors is fierce and unrelenting. The
competition can observe what is working athhgregg and emulate it
themselves. The profit margins on most electronics merchandise are
Long-term success will hinge uponhhgregg's ability to offer the
right product mix and maintain satisfactory margins on those items
where price is less of a determinant of sales, such as in
appliances and other big-box items. The current strategy is working
in the sense that they are surviving and growing, but the revenue
growth picture is less than optimal.
Ashhgregg expands its store footprint into new regions, it will
take time for consumers to venture into the new stores and
experience them. This will result in lower than favorable revenue
growth by store in the early years of expansion. However, if they
continue delivering a superior shopping experience, the long run
has a good chance for satisfactory results. Quality management as
is in place now will be critical to this success.
Investment Implications and Some Valuation
At current price levels, selling near book value,hhgregg is an
attractive stock to buy. It has excellent management and a
compelling growth story as it brings its superior customer service
Protecting the downside risk are two quantitative factors shown
in the table below. Insider ownership is very high and CEO Dennis
May owns over a million shares personally. Also,hhgregg has managed
to grow stores without increasing long-term debt, as their debt to
equity ratio is zero:
(click to enlarge)
In the title of this article, I played upon the lyrics of a
popular song by the Canadian indie-rock star Feist. The song
continues, "Sleepless long nights, that is what my youth was for."
I'm quite comfortable owninghhgregg at current price levels and
won't be losing sleep over this position any time soon. With heavy
ownership by management and other insiders, no debt, and an
innovative shopping alternative to other electronics and appliance
retailers today, especially Best Buy,hhgregg is a very interesting
participant in the retail landscape to watch. If management
continues to be focused on adapting to consumers' needs and
behavior and providing better service and more value than the
competition,hhgregg could prove to be an attractive investment over
the longer run as they continue their nationwide expansion.
I am long [[HGG]]. I wrote this article myself, and it expresses my
own opinions. I am not receiving compensation for it. I have no
business relationship with any company whose stock is mentioned in
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