March 31, 2004 4:00 AM PST
Sony open for retail business
Sony Electronics is opening more retail stores, shaping up its efforts in the small to medium-size business market and broadening its Vaio line in an effort to beat up rivals.
Faced with a more competitive landscape, and the challenge of convincing people to shell out for more complicated products, the electronics giant is going directly to consumers as it hopes to replicate the success of Apple stores and avoid the pitfalls encountered by Gateway's outlets.
The problems Sony Electronics is attacking are industrywide, but they've hit the division particularly hard. Consumer electronics devices have become more complex and harder to use, and companies are finding it challenging to explain their benefits. In addition, consumers are increasingly buying on price. That's been a tough combination-punch to absorb for a high-end company such as Sony.
The entry of significant new players in the consumer electronics space, such as Dell and Hewlett-Packard, as well as the increasing influence of older rivals, such as Samsung Electronics and Matsushita's Panasonic, is also turning up the heat.
"Today's buyers don't have a lot of loyalty; they'll use a lot of different avenues to buy from, and charging more for a product is a strike against you if (customers) don't understand what (they're) buying," said Steve Baker, an analyst with research firm NPD Techworld. "Sony is trying to make sure that their brand stays in (people's) faces."
Sony Electronics has been re-evaluating and reorganizing its operations since corporate parent Sony surprised the market with nearly a billion dollar loss and the company called out the electronics division as one of the unexpected culprits. But the division has been turning things around and is becoming more aggressive in defending its turf. Its corporate parent will announce fiscal year-end results in late April, and the electronics division is expected to be a solid contributor to revenue. Executives have been touting a return to top market-share positions in a number of product categories, with the growth of flat-panel televisions and DVD camcorders leading the way.
Among other things, the division has brought nearly all the electronics operations--from marketing and manufacturing--essentially under one roof in its new San Diego headquarters. Better cooperation between groups within the electronics unit, as well as a more autonomous charter from its Tokyo parent, point to some significant changes in the way Sony Electronics does business.
Executives touted new products in the pipeline, including an ambitious expansion of the Vaio brand, which until now has been used only with PCs. In the works are new devices based on a scaled-down PC architecture small enough to be used in a variety of consumer electronics products--for, as an example, streaming video.
To illustrate that point, Sony Vaio of America Vice President Mark Hanson on Monday demonstrated for reporters a new addition to the Vaio 505 notebook line, the Extreme X505, already available in Japan. The device has a motherboard about the size of a Minidisc, making it compact enough to fit just about anywhere.
The first non-PC Vaio products will be available toward the beginning of next year.
Also due out, later this year, is a digital imaging service that will display photos on a television. Executives declined to comment further on the service.Retail checkout
Hoping to build off its strong brand, Sony Electronics plans to open more retail stores in the top 10 metropolitan markets in the United States. Sony currently has two large Sony Style stores--one in San Francisco and another in New York City--selling devices, music and DVDs. There are two other, smaller, stores in Southern California, another in Chicago and another due to open in Boston in May.
Generating revenue is not the priority with the stores. They're meant to be more of a showcase for consumers so they can come in, try out everything from DVD camcorders to DVD players to large-screen TVs, and see how different devices can be used together. Sony will be looking to sell consumers a complement of products to suit their needs, according to Hideki "Dick" Komiyama, president and chief operating officer of Sony Electronics. Executives wouldn't comment further on details.
So far, retail stores from computer makers have had a mixed track record, according to Roger Kay, an analyst with research firm IDC. Apple Computer has done well with its stores, but Gateway's stores have struggled.
Apple stores accounted for one out of every seven dollars of the company's overall revenue.
"The concept of having a place to display your wares is good, and not counting on them as a means of generating revenue to support your entire operations is astute, but you're incurring a whole lot of fixed cost. Success will be based on the amount of traffic in the stores," Kay said.
Last year, there were about 9 million visitors to five Sony stores, according to Michael Fasulo, president of e-Solutions at Sony Electronics. The company expects similar, if not greater, traffic this year.
"We're not looking at these as cash cows, they're about getting customers educated about technology," Fasulo said.
Baker added that on a small scale, in select high-traffic locations, the risk could be minimal.
"The greater risk is the impression that you're competing with (retail) partners," Baker said.
To put partners such as Best Buy and Circuit City at ease, Sony executives pointed out that the stores will have limited inventory space and will be lightly stocked. And while consumers will be able to order products at the stores, they'll also be directed to retailers if they want to have the products right away.
"We're creating demand for Sony products, and that's how retailers are looking at it," said Stan Glasgow, president of consumer and commercial sales.
Sony will also be stepping up its marketing budget to promote its products. The double-digit increase will mean more print, online and television advertising, according to Mark Viken, a senior vice president of corporate marketing at Sony Electronics.Small to medium-size business grows
The company will also increase its marketing budget for its small to medium-size business efforts as it looks to better address the needs of those customers. Sony has been selling PCs, storage and security products to that market for almost three years, but it will begin selling specifically designed versions of those products starting in the fall.
Sony is looking to add up to 10,000 new resellers in the next year or two and is beefing up service and support lines to handle increased calls. The company is looking to more than double revenue from this segment.
"A lot of people give this segment lip service and just try to jam high-end products into the small businesses, but our brand resonates here, and these customers have said we haven't been serious enough about it," said Patrick Vogt, senior vice president of e-Solutions at Sony Electronics.
The small to medium-size business market is difficult to sell to, let alone define. Each computer company tends to have a different customer in mind when it comes to this segment, from companies with fewer than 25 staff members to those with fewer than 500. And these companies all have different means and reasons for buying technology, so there is less rhyme or reason to their decisions, making it tough to address their needs.
"This is especially difficult to penetrate because businesses buy in different places for different reasons, but it looks like Sony is building a coherent strategy," Baker said.
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