Growth of E-Commerce Sales, Intense Competition Lead to hhgregg Store Closures

by Katie Sloan

Indianapolis — Electronics and home appliances retailer hhgregg’s Inc.’s decision last week to close 88 stores — or roughly 40 percent of its total outlets — and three distribution facilities over the next two months came in the wake of a rough financial stretch for the company.

Net sales decreased 23.7 percent on a year-over-year basis during the company’s most recent fiscal quarter, which ended Dec. 31, 2016, and the gross operating margin declined 4.1 percent. The net loss for the quarter was roughly $58.3 million, despite the fact that this period encompassed the holidays.

The company was recently delisted from the New York Stock Exchange for failing to meet minimum requirements. Most commonly, delisting occurs when a security trades below $1 per share for 30 consecutive business days; hhgregg had not closed at or above this level since Jan. 9 of this year.

As a supplier of consumer goods that span several different sectors, hhgregg has been hit equally hard by the rising popularity of e-commerce and competition from other multichannel retailers like Walmart and Home Depot, both of which have enjoyed upward-trending stock prices throughout the year’s early stages. Its electronics division, in particular, was hit hard by this one-two combination, says retail consultant Jeff Green, president and CEO of Phoenix-based Jeff Green Partners.

“The rise of e-commerce has had its earliest and largest effect on the consumer electronics industry,” says Green. “This is coupled with the fact that discount department stores such as Walmart and Target have strengthened their consumer electronics departments significantly over the last decade, both in selection and price.”

Another big-name player in retail electronics, Best Buy, has adopted a store-within-a-store approach to remain competitive, a strategy Green believes could ultimately contribute to hhgregg’s salvation.

“Best Buy has developed a strategy to sublease much of its square footage to electronics manufacturers — Apple, Samsung, Magnolia Home Theater — who are building their brand by operating stores within a Best Buy store,” says Green. “Perhaps hhgregg’s strategy ought to be along the lines of Best Buy.”

Several news outlets, most notably Bloomberg, have reported that the company is on the verge of bankruptcy. The Indianapolis-based retailer, which operates in 19 states, will see more than half its store closures in markets into which it recently expanded, primarily Florida and the mid-Atlantic.

Specifically, 15 locations in Florida alone will be shuttered as part of the move, followed by heavy closures in each of the three biggest states in the latter region: Virginia (16), Maryland (11) and Pennsylvania (15). The distribution facilities set to close are similarly located: one in Miami, one in Philadelphia and one in Brandywine, Maryland. All closures are expected to be complete by mid-April, and will result in the elimination of roughly 1,500 positions.

For a list of store locations closing, see here.

Taylor Williams

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