Why OEM-brand electronics stores are a risky strategy

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By: Wise Marketer Staff |

Posted on August 1, 2006

Why OEM-brand electronics stores are a risky strategy

Major manufacturers of consumer electronics equipment are embarking on a strategy that will disrupt traditional CE retail networks, and may expose them to new risks, according to ABI Research.

Companies such as Sony, Dell, Bang & Olufsen, Philips, and Pioneer are establishing chains of own-brand retail stores and kiosks. Apple also went down the same road years ago, today boasting some 125 Apple stores worldwide (which account for approximately 20% of the company's revenue). Dell has over 160 kiosks in malls. Sony is partnering with Zoom Systems to deploy vendor kiosks, targeting almost all the leading shopping malls in the US.

But, according to ABI research director Vamsi Sistla, "OEM storefronts and kiosks represent a major change that will disrupt the current retail ecosystem. Bypassing their existing distributors and retailers could prove successful for some, but might present challenges for others."

Benefits of going it alone Most of these vendors already have significant online sales, and continually seek fresh opportunities for expansion. They have found that they can provide a richer and more customised experience for shoppers than even the major retail chains can.

And by following an own-brand store strategy they can control and protect their brands: if consumer demand falls, an OEM can take more effective countermeasures via its own outlets, while still keeping control over margins. And if appropriate, the brand can partner with other vendors to offer complementary products and accessories.

Some risk involved But there are risks as well, according to ABI. For example, retailers' stock prices are partly determined by their bricks-and-mortar performance. Wall Street sets share prices using parameters such as the number of stores added or shut down, and how much revenue per consumer the stores generate.

By opening their own stores, OEMs (which were previously rated on their ability to design and make innovative consumer electronics products) subject themselves to new kinds of judgment from the financial markets. Also, OEM-owned outlets represent permanent cost centres, and must perform well year-in and year-out.

According to Sistla, "Stores mean ongoing operational costs as well as infrastructure. Anybody can make money when times are good but, when economies contract, retailers are the first to be tested. Some will remain profitable while others may not."

Market report ABI has published a market update report entitled CE OEMs Launch Disruptive Retail Strategy: Their Own Storefronts, as part of its Consumer Electronics Research Service. The update examines such issues and includes forecasts for consumer electronics categories such as HDTV, HD-DVD players, PVRs, game consoles, portable audio and video players, multi-room AV receivers, iPod Hi-Fi stations, and iPod bookshelf systems.

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