In about two weeks, my first book, Finders and Keepers will be published.
Finders and Keepers examines the profound impact of a powerful customer type. One that doesn’t buy on price but instead buys on the quality and real authenticity of a product. Finders care little for brands but do care for the discovery of the new and the lasting value of materials, technology, provenance and craftsmanship. Although Finders represent fewer than half of the adult population, their spending power and the profitability of their buying behavior represents up to 77% of discretionary consumer spending. Finders exist in stark contrast to Keepers, the more commonly pursued, deal-sensitive consumers who are only stimulated to buy by the deepest of discounts, the biggest pile of product features or the status of a brand, or a combination of all of the above. Based on a ten-year study of consumer behavior, Finders and Keepers is an analysis of the habits of these consumers and the profound economic and business impacts that they create. Yet to try to do business with both types can mean certain death for almost any organization.
In the mean time, I couldn’t resist a bit of a tease that speaks to what can only be seen as the inevitable disappearance of the electronics superstore. This excerpt from Finders and Keepers talks about the now defunct US retailer Circuit City. To read this is to perhaps gain a better understanding of what led to This Saturday’s closure of 66 Future Shop stores across Canada. The Financial Post calls this “The Amazon Effect.” They are only partially correct. Enjoy,
DUDE, WHERE’S MY CUSTOMER?
If you were in a mood to sum up the end of a business in one sentence, this one might be fitting when it comes to the end of Circuit City: Somebody had to go.
Like Linens N Things, the rise of the category of home electronics came with an equally precipitous fall. If you are old enough to remember a time before the remote control or MTV or, for that matter, HBO, you will recall that a television set was something that sat in the living room of every home in America. It was a fixture with an expected life span to match that of other household appliances. Up until the turn of the millennium, that Sony or Panasonic or even that Zenith or Electrahome TV held a place in the home where it would be expected to stay for about as long as the washer, the fridge, and the hot water tank in the basement. Then along came the flat screen TV. Suddenly every early adopting, TV watching Finder and High Status Keeper was in the market for a TV. A wave hit the electronics business that carried with it ever more technology in the form of surround sound systems and Blu-ray players. New technology had built a profitable and not very price sensitive new consumer willing to pay the big dollar. On the heels of that consumer came bigger electronics retailers and more volume. As technology matured, prices came down and a second wave of customers hit the market in search of the sub $1,000 flat screen TV and under $300 DVD player.
Factories in China, Vietnam, Taiwan, and Korea were built to take full advantage of demand. Soon that one-time $10,000, 32-inch HD TV could be bought for about $700 and everyone could have one. Surround sound packages dropped below $1,000. DVD players fell lower and lower. How was the quality? Look at it this way, for the big home electronics stores, the number one most profitable product sold during the last decade wasn’t a product at all, it was the extended warranty. Bargain hunting buyers soon learned, at their peril, that one had best shell out the 10% of purchase price for a warranty or risk a DVD player that began to skip the after the one year factory warranty dried up.
Then along came Napster. Within a matter of months, the “software” section of every megastore emptied out which meant that the part of the store that generated repeat visits from CD shoppers just didn’t anymore. It didn’t happen overnight; digital downloading, the Apple Store, and streaming would take a few more years to finish off the CD but the damage was done. The high frequency customers, those who from time to time might drop in for an old Pink Floyd CD and walk out with a new flat screen TV, had become a rarity.
The whole market continued to commoditize. Now that once-coveted flat screen, bought as a better way to watch a good movie by some and bought as a better way to symbolize success by others, could be bought EVERYWHERE. In 2005, you could go to a Best Buy or a Circuit City and pay somewhere around $1,000 for an entry level 32-inch “sort of HD” flat screen. Today you would have a hard time spending $250 on the same size unit while getting far superior performance. Which might be okay until you consider that it can be bought at Costco, Walmart, Target, Big Lots, Kmart, Sears, and, well, everywhere. And then there’s online where the buying started with Dell TVs, moved on to Amazon, and then onward to discounters like Newegg and Tiger Direct.
But, DVD had a good run. Right? Until video streaming that is. Video streaming, from conventional cable, pirated movies, video subscription streamers—including the granddaddy of them all—Netflix, and online giants Apple Store and Google Play have killed off the DVD. With the death of the DVD comes another empty software section of the store and another product line in the form of DVD players that no one wants anymore.
By 2008, this cycle had finally hit the off switch for Circuit City. Somebody had to go. It might be fair to say that the end may be near for almost everyone else left in the electronics superstore business.
Was this another case of a business caught in that deadly no-man’s land between Finders and Keepers? Interestingly, it wasn’t. It would be naïve at best, opportunistic at middle, and revisionist at worst to claim that Circuit City would have avoided death by commoditization (Napster and its progeny, streaming video, and competition on all fronts) if it had only sold its goods in some immersive, arty environment filled with unique and definitive products. This wouldn’t have and simply couldn’t have been the case; Circuit City’s problems were just too numerous and unpredictable to have been avoided. There’s relevance here that doesn’t exist within the story of that retailer’s rise and fall; it exists instead in the present and in the future where products that those megastores once thrived on are split into commodities and non-commodities.
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