Conn’s Consumer Electronics Strategy: Quality, Margin Focus, and Customer Centricity

“We have three primary categories – consumer electronics, major home appliances and furniture and mattresses – and we wouldn’t say any one category is more important than the other,” COO Mike Poppe emphasizes. “We have a significant marketshare with our core customers in all three of those categories in each market we operate in. Our focus in consumer electronics is primarily big-screen TVs along with home office products.”

Market trends are reinforcing the products Conn’s has chosen to emphasize in its consumer electronics departments. “More of the mix is shifting to larger screen sizes and premium-featured smart TVs,” Director of Merchandising Aaron Trahan points out. “The same thing is starting to happen to the home office side. Tablets are starting to get more functional with more premium feature sets and are making up a healthy part of the PC business. Focusing our PC assortment at the high end, there is no cannibalization of tablets for us.”

More Profitable

Conn’s was encouraged by an analysis of its customers that it undertook after the last recession to concentrate on product quality and higher margins instead of lower prices on lower-quality products. It stopped selling small electronic items, inexpensive MP3 players, musical instruments and similar electronics products that customers could pay cash for at a mass retailer. This has enabled Conn’s to increase its average selling prices 20 to 30 percent while remaining competitively priced in electronics.

“If you went back two to three years ago, we would have had much thinner margins in consumer electronics,” Poppe concedes. “Today, we’re running mid- to upper-20 percent retail gross margins in TVs and high teens to 20 percent margins in home office. So for us, they are a solid contributor to profitability. Certainly, the weaker TV market has impacted sales trends, but we have recently had positive same-store sales in the TV side of the business.”

Most of Conn’s sales are in-store rather than on its website, which primarily gathers credit customers with its online application process who then come into the stores to buy. Its stores are located in Texas, Louisiana, Oklahoma, New Mexico and Arizona, with additional stores opening over the next couple of years and next in Colorado, North and South Carolina and Tennessee.

Conn’s customer analysis after the recession encouraged the company to concentrate on serving its credit customers. “Our core customer is a consumer who without our financing product doesn’t have the best ability to buy the latest products,” Poppe emphasizes. “They’re really going to be focused on Ultra HDTV when it gets to a really great price point – a $1,000 to $2,000 price point. Then our customer becomes interested in products and affordable monthly payments. They’re generally not early adopters. They do want the top brand names and the best quality products at an affordable price.”

That is what Conn’s provides for them in the 6,000 square feet it sets aside on average for consumer electronics in its stores, which range from approximately 25,000 square feet to 35,000 square feet in size. “The flat panel has really changed how we merchandise now,” President of Retail David Trahan emphasizes. Because flat-panel TVs are displayed on walls, many can be hung in a small amount of space.

Conn’s has several reasons for its success in selling televisions. “Most of our business is being derived from screen sizes larger than 60 inches,” Aaron Trahan notes. “For the last 18 to 24 months, our average selling price of a TV has been more than two times the national industry average, which is $450. Ours is just over $1,000. It’s because our mix is in much bigger screens, and we have a much smaller percentage of our TV sales from small TVs.”

An important adjunct to consumer electronics sales are accessories. “We don’t have customers walking in for an HDMI cable,” David Trahan declares. “For that small purchase, we do a pretty good job of attaching it at the point of sale. We believe in being a full solution for customers at the time of purchase. That’s when the customer is likely to buy from Conn’s.”

Consumer electronics accessories are sold in the categories of television, personal computers and tablet computers. “TV being such a larger category and a much more mature category for us than home office, you will see a wider assortment of accessories there,” Aaron Trahan says. “We look at it as audio accessories and disc players – any type of home theater experience we can attach onto the TV, from surge protectors to cables to accessory bundles and mounts and TV stands.”

Although Ultra HDTV is beyond the budget of most of Conn’s customers, it still has Ultra HDTV models on its website and displays them in 15 percent of its stores. “We don’t think it’s a game-changer for the industry, but by having the best product you’re going to sell, it’s going to help pull your entire mix up,” David Trahan says.