Losing Competitive Edge: Sharper Image Cuts Back DC Operations
Along with announcing a 31% decrease in revenue for the first half of this year compared to last year, San Francisco-based Shaper Image this week announced that it will close its distribution center in Richmond, VA. The specialty electronics and gadgets retailer is touting the move as part of a strategic plan to cut expenses and increase its operating efficiency. The company’s other distribution centers in Ontario, CA, and Little Rock, AR, will handle the workload, which includes order processing/fulfillment and customer service.
Closing down a DC will likely not be enough to reverse Sharper Image’s sales slide. Sales have declined in all channels, with total store sales for the second quarter this year down by 11.3%, Internet sales down by 35%, and catalog and direct marketing sales down by a whopping 68%. Closing down a DC may cut some costs, but with sales losses of this magnitude, it would seem that Sharper Image will have to address other issues as well.
There are several intertwining causes for these numbers. A DM News article from last fall notes that the company has fallen behind in delivering on its brand image of providing “cutting-edge, unique, hard-to-find product,†and quotes a Sharper Image spokesperson as saying that some of the company’s big sellers, massage chairs and Ionic Breeze air purifiers, have produced weaker revenues. That is certainly an understatement in the case of the Ionic Breeze, which one analyst says made up almost 40% total sales for Sharper Image. Sales of the Ionic Breeze have now fallen to a level approaching 15% of sales—Pareto’s Law in reverse.
Sales of that particular product plunged after a 2005 Consumer Union review charging that the Ionic Breeze was relatively ineffective, and in fact might even pose a health risk because it produced ozone. The resulting class-action lawsuit has yet to be finally decided, although Sharper Image has agreed in principle to settle by issuing merchandise credits to purchasers, thereby avoiding cash refunds. It is unclear how much the settlement will ultimately be, or even what the form of the settlement will be, as 27 state attorneys general have objected to the form of the settlement, which essentially means that “the only way in which class members can obtain value from their coupons is by spending more money at Sharper Image. . . .†A report last month in the Florida Daily Business Review that Sharper Image might go bankrupt if it had to pay out a cash settlement sent stocks sharply downward.
When Sharper Image began, it did offer unique product. But over the years, the company somehow lost sight of the idea that exclusivity is even more necessary for success in a saturated market of multichannel retailers. The company now carries a low percentage of exclusive product, and at the same time carries a high percentage of product that any other retailer can sell. This kind of inattention to strategic marketing and merchandising, combined with the vulnerability that comes from over-reliance on a faulty product, has created a situation that will make it difficult for Sharper Image to polish its image again.
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Curt Barry is president of F. Curtis Barry & Co., a fulfillment consulting company assisting multichannel businesses with order management systems and inventory management systems evaluation and implementation; online at: http://www.fcbco.com.
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