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HHGregg's new push: Selling treadmills alongside TVs

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Greg Andrews

In HHGregg stores of the future, shoppers may be able to purchase a couch and elliptical trainer in addition to the chain’s appliances and electronics.

The company is quietly launching a test of furniture and fitness equipment, with rollouts scheduled for 31 of its more than 200 stores. It’s the latest move by the Indianapolis-based retailer to bounce back from a deep slump in the all-important video category.

That slump—spurred by a lack of exciting innovations in the TV business and the growing prevalence of “showrooming,” where consumers check out merchandise in stores but then buy online—has some investors questioning whether the company’s business model is broken.

That uncertainty has short-sellers—investors who bet shares will collapse—swarming, even though the stock already is off 58 percent since December. HHGregg’s short interest as a percentage of its float, or shares available for public trading, is now the highest of any New York Stock Exchange company, according to FactSet Research Systems.

Which helps explain why HHGregg management would be willing to mess with the product mix in its stores. Some analysts are praising the move, in part because the company is tightening up its product displays, rather than bumping any current merchandise, to make room for the tests. HHGregg says home entertainment furniture and home fitness equipment will fill about 4,000 square feet, or 13 percent, of a typical store.

“We view the furniture category positively, given our positive outlook for home-related spending,” KeyBanc Capital Markets analyst Bradley Thomas said in a report.

“The new product categories leverage HGG’s competency in large-ticket items that require distribution, customer service and home installation,” he wrote, referring to the company by its ticker symbol.

But Stifel Nicolaus analyst David Schick fears the move dilutes the brand. While he likes that HHGregg is looking for alternatives to video to fill stores, “we think fitness equipment risks HGG’s positioning as an electronics expert to either consumers or vendors,” he said in a report.

In a conference call with analysts this month, HHGregg CEO Dennis May made the case that the new products—from recliners, sofas and sectionals to treadmills, elliptical machines and recumbent bicycles—play off the company’s strengths.

“We believe these are a great complement to our current business model as they are a natural fit for the home entertainment room that centers around the large-screen TV,” he said.

And it’s not unheard of for HHGregg to veer beyond big-screen TVs, washing machines and the like. The company, for instance, has been selling mattresses since 2006. It’s a small segment, but one the company aims to expand.

For May, the product line extensions all make sense—and provide a compelling way to eke out higher sales as the TV market sputters. In fact, he said, more new product lines may be on the way.

“We believe there is an opportunity for HHGregg to broaden its product assortment into home products that require delivery or installation,” he said on the conference call.

“We believe HHGregg puts big-box products in the home better than anyone. These types of products could leverage our consultative sales force, home delivery service and private-label consumer credit card.”

A favorite of short-sellers

Short-sellers’ game is to sell borrowed shares of a stock they think is in trouble, in a bet the price will fall and they’ll be able to return the shares later by paying a lower price.

As of Aug. 15, the short position in HHGregg was 8.6 million shares, which represents a whopping 53 percent of the company’s float. Based on HHGregg’s average daily trading volume, it would take 18 days for short-sellers to unwind their positions, according to FactSet data.

Another local company—for-profit educator ITT Educational Services Inc.—has the second-largest short interest among NYSE companies as a percentage of float. Investors are rattled over ITT’s falling enrollment and the company’s struggles to provide student financing.

A big short interest isn’t necessarily bad for conventional investors, whose stock holdings can pop higher if shorts race to cover all at once. But large short positions also can make investors thinking of buying a stock wonder if they’re missing something.

“I would say at times we would shy away from companies like that because they tend to be more controversial,” said Mark Foster, chief investment officer of Kirr Marbach & Co., a Columbus, Ind., money management firm.

“And the shorts aren’t stupid. A lot of times they are smart investors who have done their homework and know the issues really well.”•

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  1. With Pence running the ship good luck with a new government building on the site. He does everything on the cheap except unnecessary roads line a new beltway( like we need that). Things like state of the art office buildings and light rail will never be seen as an asset to these types. They don't get that these are the things that help a city prosper.

  2. Does the $100,000,000,000 include salaries for members of Congress?

  3. "But that doesn't change how the piece plays to most of the people who will see it." If it stands out so little during the day as you seem to suggest maybe most of the people who actually see it will be those present when it is dark enough to experience its full effects.

  4. That's the mentality of most retail marketers. In this case Leo was asked to build the brand. HHG then had a bad sales quarter and rather than stay the course, now want to go back to the schlock that Zimmerman provides (at a considerable cut in price.) And while HHG salesmen are, by far, the pushiest salesmen I have ever experienced, I believe they are NOT paid on commission. But that doesn't mean they aren't trained to be aggressive.

  5. The reason HHG's sales team hits you from the moment you walk through the door is the same reason car salesmen do the same thing: Commission. HHG's folks are paid by commission they and need to hit sales targets or get cut, while BB does not. The sales figures are aggressive, so turnover rate is high. Electronics are the largest commission earners along with non-needed warranties, service plans etc, known in the industry as 'cheese'. The wholesale base price is listed on the cryptic price tag in the string of numbers near the bar code. Know how to decipher it and you get things at cost, with little to no commission to the sales persons. Whether or not this is fair, is more of a moral question than a financial one.

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