Tweeter Home Entertainment Group, Inc. History

Address:

10 Pequot Way
Canton, Massachusetts 02021
U.S.A.

Telephone: (781) 830-3000
Toll Free: 800-893-3837
Fax: (781) 830-3223)

Public Company
Incorporated: 1972 as New England Audio Company, Inc.
Employees: 1,400
Sales: $232.29 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: TWTR
NAIC: 443112 Radio, Television & Other Electronics Stores

Company Perspectives:

Tweeter Home Entertainment Group is a specialty consumer electronics retailer whose niche is in the better quality audio, video and mobile electronics product categories. Our differentiation in the marketplace is created through the quality of our product offerings and is a result of our totally customer focused and customer friendly organization. We are dedicated to providing our customers with a unique shopping experience through unparalleled customer service, a professional, thoroughly knowledgeable and friendly sales force and through state of the art store environments.

Company History:

Tweeter Home Entertainment Group, Inc. owns five small chains of retail stores that sell video and audio equipment in the middle to high-end price range. Having grown from a single location called Tweeter, etc. into a chain of 19 stores, in 1996 the company began acquiring similar chains around the country with the goal of becoming a national retail presence. Tweeter went public in 1998 and has continued to grow since that time. The company's marketing strategy emphasizes competitive prices, knowledgeable staff, carefully designed store environments, and the placement of its outlets near electronics discount megastores like Best Buy and Circuit City. A key to Tweeter's success is its guarantee that if a lower price is advertised elsewhere within 30 days of a purchase, Tweeter will automatically mail a refund check directly to the customer.

Beginnings

Tweeter was founded in 1972 when Boston University dropout Sandy Bloomberg and his cousin Michael opened a stereo shop near the B.U. campus called Tweeter, etc. Sandy Bloomberg's original goal may have been simply "to meet girls" as he once put it, but the store was a success and expanded to other New England locations over the next few years. Tweeter, which took the corporate name of New England Audio Company, Inc., was helped in its growth by refinements that were taking place in home stereo gear in the early and mid-1970s. The company developed a reputation for selling the higher-end brands of audio equipment and offering a well-trained and friendly staff. In the early 1980s Tweeter experienced further growth when it capitalized on the home video boom, with VCRs and camcorders leading the way. The company also was selling and installing car stereo equipment. By 1986 there were 13 Tweeter, etc. stores.

The late 1980s saw Tweeter's revenues begin to drop as sales for more expensive home audio and video equipment slowed and competition from cut-price chains became strong. In 1990 the company hired Jeff Stone, an executive vice-president for Bread & Circus supermarkets, to take the positions of president and chief operating officer. Stone's services had been sought for some time by Sandy Bloomberg, and he was finally hooked with the offer of an equity stake in the company. Stone quickly took action to improve Tweeter's situation--securing loans, trimming staff, training store managers to better understand their roles in the business as a whole, and updating Tweeter's corporate strategy. He directed the company to set clear-cut future goals, something it had not done previously.

Despite the positive changes Stone had implemented, Tweeter's sales were still being hurt by the general perception that its prices were too high. In 1993 senior Tweeter management met in Vermont at a special retreat to mull over the company's problems and work out solutions to them. They looked at customer surveys that showed that the public gave the company good marks for its quality of merchandise, knowledgeable staff, and first-rate service department, but still considered price the most important factor in deciding where to shop. To address this, the executives came up with Tweeter's Automatic Price Protection guarantee. Although the company had already been refunding the price difference to anyone whose purchase was advertised cheaper elsewhere, this required the customer to spot the ad and bring it in to Tweeter for a refund. The program took this to a new level: Tweeter would monitor its competitors' local ads and automatically issue refund checks to customers when a product was advertised for less within 30 days of a purchase. The company even included its own advertisements in the plan.

The program was started in August 1993 and was a rapid success. Some critics pointed out that Tweeter's higher-end product mix did not especially overlap with the widely advertised wares of "entry-level" audio/video retailers like Circuit City, Lechmere, Nobody Beats the Wiz, and others, but the company maintained that 75 percent of its inventory also was sold by these competitors. Tweeter was able to offer reasonable prices in part because it belonged to a cooperative of small audio retailers who purchased goods from wholesalers in bulk and thus obtained better prices than each could individually. The company expected the increased sales volume generated by interest in the new policy to far outweigh revenue losses from the automatic refunds. Tweeter had been issuing $3,000 to $4,000 in refunds monthly through its previous program, and it anticipated this figure to roughly double. Within the next three years the company issued more than 30,000 checks, most for $20 or less.

In conjunction with the automatic refunds, Tweeter cut back on newspaper advertising and increased its television and radio promotions, budgeting $500,000 for publicity in the months following the start of the refund program. The company's fortunes were buoyed by the price guarantee plan, the rebounding U.S. economy, and consumer demand for new products like home theater systems. Tweeter remained focused on home and mobile audio/video gear, choosing not to sell computers and telecommunications equipment like many of its larger competitors.

Growth in the Mid-1990s

The company had held steady at 13 stores between 1986 and 1993, but now began to expand again, opening its 14th and 15th outlets by August 1994. That year saw record revenues of $43.5 million, up from $35 million in 1993 and $25 million in 1990. This occurred despite the entry in early 1993 of "big box" electronics retailer Circuit City into the New England market. Tweeter was better able to fend off this destabilizing influence than low-end electronics retailers such as Fretter, Lechmere, and Nobody Beats the Wiz, given its significantly differentiated and higher-margin product lineup. Within several years both Fretter and Lechmere would be belly-up, while Tweeter kept on expanding, boasting 18 locations in Massachusetts, Rhode Island, Connecticut, and New Hampshire by the summer of 1995.

The company paid special attention to the design of its stores. A newly opened Tweeter outlet in Boston featured a turquoise facade, a split-level purple, blue, and turquoise interior with surround-sound and home-theater listening rooms, and other specially designed areas for display of large-screen televisions and outdoor listening systems. The 7,000-square-foot store had cost an estimated $500,000 to set up. In early 1996 the company opened a new store in Burlington, Massachusetts as a cooperative venture with music retailer Strawberries. Both companies' outlets shared a common interior space while maintaining separate outside entrances.

In May 1996 Tweeter's parent company purchased the 13-store electronics retail chain Bryn Mawr Stereo & Video, based in King of Prussia, Pennsylvania. Bryn Mawr, founded in 1965, offered knowledgeable service and much the same product mix as Tweeter and had stores in Pennsylvania, Maryland, Delaware, and New Jersey. Just prior to the $8.7 million acquisition, Bryn Mawr also had begun to offer Tweeter's automatic refund program. New England Audio announced that both chains would be expanding, opening as many as 20 new stores within three years. Tweeter intended to enter both Maine and upstate New York as part of this plan. Company executives expected to boost Bryn Mawr's per-store sales dramatically, as they stood at less than half what the company was achieving at Tweeter. Bryn Mawr sales staff were to be retrained, and advertising was to shift to broadcast, rather than print, media. Results were swift, with Bryn Mawr sales jumping 37 percent in the first full quarter of New England Audio Company ownership. Tweeter management felt that the time was right to pursue such acquisitions, as the owners of many small chains of stereo shops founded in the 1960s and early 1970s were reaching an age at which they were considering selling out and retiring.

In 1997 New England Audio made its second acquisition, this time buying the Atlanta, Georgia-based HiFi Buys chain. HiFi Buys' ten stores were larger, at about 15,000 square feet versus 7,000 for Tweeter, and focused more on lower-priced products. New England Audio announced that it would shift the chain's merchandise toward Tweeter's and Bryn Mawr's more expensive mix, institute the same automatic price difference refund guarantee, and again favor broadcast advertising over print. HiFi Buys would retain its name. The $19.7 million purchase put the combined total of stores among the three chains at 45, Tweeter having opened three new outlets since the Bryn Mawr acquisition. Funding for this growth had come from the private equity market, where the company had gone first in late 1995. Some $37 million had been raised by this method.

1998: Initial Public Offering and More Acquisitions

Seeking further capital for expansion, the company made an initial public offering of stock on the NASDAQ in July 1998. It put 2.7 million shares on the market and raised $46 million, some of which went to the investors who had funded earlier acquisitions. New England Audio Company's name was changed to Tweeter Home Entertainment Group, Inc. in the process. Revenues for 1998 increased to $232 million from the previous year's $132 million, with consolidated income from HiFi Buys stores accounting for much of the increase. Same store sales also grew companywide by 12.5 percent. Tweeter was expecting further revenue growth to be spurred by DVD video disc players and digital television sets. Tweeter, etc. had been the first chain to sell the latter, and the company anticipated an explosion in sales as high-definition digital broadcasting made older televisions obsolete over the next ten years. The company also took a stand against the DIVX video disc format in which Circuit City had invested, refusing to stock DIVX players in its stores. The company's position was validated by the marketplace when in 1999 Circuit City announced that it was abandoning DIVX, killing the controversial rent-with-the-option-to-buy digital movie format. Tweeter did not necessarily consider such giants as Circuit City and Best Buy to be its enemies, however. It was company policy to locate new stores near these less service-oriented, entry-level stores, with the expectation that many customers would be drawn away from them by Tweeter's better-trained staff, higher-quality goods, and automatic price-difference refund guarantee.

In February 1999 Tweeter finalized its next acquisition, spending $8.2 million to buy Home Entertainment of Texas, Inc. Home Entertainment had seven stores, four in Houston and three in the Dallas area, and Tweeter anticipated enlarging and adding to the chain's locations. The purchase had come about in part because Tweeter and Home Entertainment management had become acquainted through meetings of their common buying cooperative.

Tweeter expanded further westward just a few months later when it acquired DOW Stereo/Video Inc. of San Diego, California. DOW operated nine stores that focused more on the lower end of the market, and Tweeter intended to upgrade DOW's product mix to match the rest of its subsidiaries. The company also planned to relocate and remodel several of DOW's stores and eventually expand the chain to Orange County. DOW had annual sales of $38 million, and analysts considered it a bargain for the $5.5 million Tweeter had paid. Company executives announced that Tweeter had now finished its first round of acquisitions and would focus on fully integrating the new chains into its corporate structure before making further purchases. By July 1999 the company had a total of 73 stores in 13 states and expected to open as many as 24 more within the next fiscal year. In August Tweeter announced the formation of a joint venture with Cyberian Outpost, Inc. to market electronics products on the Internet.

As Tweeter neared the end of its third decade in business, the company's successful combination of guaranteed low prices, knowledgeable sales staff, and carefully designed and located stores were propelling it to success in every market it entered. The introduction of digital television, digital video discs, and the still growing home theater market also were helping to fuel its growth. The company's track record was solid, its management was seasoned, and its prospects for continued success looked bright.

Principal Subsidiaries: Tweeter, etc.; Bryn Mawr Stereo & Video; HiFi Buys; Home Entertainment of Texas; DOW Stereo/Video.

Tweeter Home Entertainment Group, Inc. History

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