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HHGregg tuned into growth

June 23, 2008

Undeterred by a rocky economy, locally based electronics retailer HHGregg is trailblazing into new markets on a quest to quadruple in size.

The firm's "price and advice" mantra seems to be catching on--even in new markets unfamiliar with the Gregg name. That's no surprise to Jerry Throgmartin, a 33-year veteran of Gregg who has served as the company's chairman and CEO since 2003.

Throgmartin recently spoke with IBJ about the firm's outlook:

IBJ: You guys reported some solid numbers recently--sales up almost 19 percent for the fiscal year, same-store sales up about 5 percent. Are shoppers dropping in with their stimulus checks?

Throgmartin: We don't cash the checks in-store, so it's difficult to tell. What we do know is we're a nation of spenders and not a nation of savers. We can speculate that consumers will spend the money, and they've got a lot of places they may spend it. Our advantage is some of the top items consumers will purchase are things like flat-panel TVs and GPS systems. It's good to have products like that.

IBJ: In your earnings call, you also talked of concerns about the economy, including expectations for a single-digit same-store sales decline this year. How are you planning to ride this out?

Throgmartin: Economies are good and economies are bad. Our focus has always been on execution. Do our job, provide a good customer experience and make sure we get our fair share--or maybe unfair share--of what business is out there. We're not unaware there are challenges out there, with gas at four bucks and food prices going up. We're a company that's always focused on things that are within our control, how we execute our plan, serve the customers. Our performance shows that.

IBJ: You guys now have about 90 stores, but your plan envisions about 400. Is there a risk of becoming too big?

Throgmartin: There's a risk at any size that, as you grow, you allow your level of execution to be diluted. We monitor that very closely with the way we promote store managers, open new markets with existing store managers and the way we train our employees. We've had a saying: We don't sacrifice execution for expansion. It helps ensure that, as we grow, we continue to deliver. We're confident if our core values remain the same, there's a long runway for growth.

IBJ: You have plenty of name recognition in your core markets. But how are shoppers in the new markets warming up to the Gregg name?

Throgmartin: We now operate in nine states. Our business model is being embraced by the consumer in the new markets we go to as an alternative way to shop. It's exciting for our staff and employees as they look at their growth opportunities.

When we enter a market, we enter with a bang. We enter with a lot of advertising that talks about who we are and what we do, with points of differentiation, including customer experience and price. We're finding we can get our name out in the market pretty quickly.

IBJ: Let's talk about Circuit City, which has about 700 stores. The company's in deep trouble; Blockbuster has made an offer to buy it out. What went wrong here, and what opportunities does that open for you?

Throgmartin: First of all, I'm not qualified to talk about what went wrong. We really don't know what's going on. We read the same things everyone else reads.

The opportunities for us really are all around our business model, what we provide for the consumers, and we really don't worry about where that comes from. We look at what the consumer wants and their shopping experience. What are the services they want that make the shopping experience not inconvenient?

IBJ: Do you find it satisfyingly ironic that some of the troubles began when Circuit City jettisoned its trained associates?

Throgmartin: I don't know. That's the reason it's difficult to comment. You don't necessarily know those were bad decisions. I wasn't privy to their business. We look at what we do and how we do it. We're not in all the products they carry or some of the products the others carry.

They traveled down a different path. The world of retail, in many cases, has evolved to a limited-serve and self-serve environment. I'm a believer that the consumer didn't raise their hand and say they wanted less help and less information. We believe we can provide that and still be price-competitive. We believe they're not mutually exclusive.

IBJ: So the idea is, the store service is the same as it was 53 years ago when Gregg was founded. Only the products have changed?

Throgmartin: The products are changing. The rate of change with both the product and the consumer is faster. Basically, for as long as I've been around, the focus has been on the consumer, figure out what the consumer wants and find a way to do that for them.

IBJ: You've been at Gregg for a while. What technological advance most impresses you?

Throgmartin: Oh, wow. There was a time when I thought remote-control TV was pretty impressive. I had been told about and was aware of high-definition television. In the beginning stages, manufacturers described what it was like. But then you see it. It's pretty impressive. When you look at pre-digital television now compared to high-def, that's pretty impressive. Look at appliances. I'll take laundry: high-efficiency fabric care and laundry.

The good news for the consumer is they continue to get good pricing on dramatically better product. But that's been a part of this industry for a long time. It's a pretty exciting industry, and a very good value.

There's a product life cycle that begins at introduction when a product is very new and very few people can afford it. Then it goes up the curve and becomes more affordable. And over time it commoditizes. The key for us is that there are always new product innovations in the pipeline. Our suppliers have a real vested interest in that being the case.

IBJ: You've been walking the walk, too. You bought about 170,000 shares of the company in March, after the stock dropped well below the IPO price. (The stock debuted in July 2007 at $13 and had fallen below $10.) You must see some value here?

Throgmartin: Well, I always look for good investments. I feel good about this company and the way it executes and its value system.

IBJ: I see you gave some money to Mitt Romney. Are you hoping for a McCain-Romney presidential ticket?

Throgmartin: I won't go into my politics, other than to say whoever the leadership of the country is, I hope we continue to make improvements, and obviously I'd like to see our economy get a little better. Our job is to be there through the good times and the bad. We believe the back half [of 2008] will be better than the first half.

IBJ: What kind of TV are you watching for all your political coverage?

Throgmartin: It's a very large flat screen, and I have multiple brands in my home. I have multiple constituencies to keep happy. But I can tell you they all come from HHGregg.

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