The news that US electronics retail Tweeter is on the verge of bankrupcy is not surprising given the state of the computer and home automation industries.
The problem for retailers is the market is largely driven by price. The large chains and big brands have discounted themselves into a corner. The only way to make a profit is to move in bulk.
While this business model is good if you are selling baked beans, technology doesn't quite work that way. It's labour intensive and has much higher overheads than a loaf of bread or carton of milk. This model only survives in the technology retail sectors while customers are in a buying frenzy.
What I suspect's happened in the US industry is the downturn in the housing market has cooled the buying frenzy. In Australia, the housing market hasn't declined to the point that it's affecting consumer buying, but it might soon.
The slim margins have already affected specialist retailers. Hi-Fi shops are closing up and I've previously discussed computer shops closing. The box movers have pretty well won the technology retailing war with only the premium, top end shops surviving.
In the consumer entertainment sector, Smarthouse News speculates on how this might affect the Australian industry. In the local sector, the bulk movers have pretty well put the specialists out of business
The problem now for the low margin brigade is maintaining their turnover. If we are seeing a slowdown in consumer spending then these guys will be caught in a pincer movement of declining margins and declining volumes.
Tuesday, May 15, 2007
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