hhgregg — The Appliance Chain That Couldn’t Win the Price Tag

Summary

hhgregg was a regional appliance-and-electronics chain across the South and Midwest, and on April 7, 2017 it announced it would close all 220 of its stores and go out of business. Founded in Princeton, Indiana on April 15, 1955 by Henry Harold Gregg and his wife Fansy — the name is simply the founders' initials and surname — it grew over six decades from a single appliance store into a publicly traded chain operating across 21 states, headquartered in Indianapolis, with fiscal-2016 revenue of about $1.96 billion. For a long stretch it was where households in two dozen states bought the refrigerator, the washer, the flat-panel television, and the extended warranty to go with them, talked through the choice by a commissioned salesperson on a polished showroom floor. When the liquidation was done in late May 2017, all 220 stores were dark and roughly 5,000 people had lost their jobs.

The detail that defines the collapse is that hhgregg sold the two categories least suited to its model and most exposed to its killers. Commodity consumer electronics — televisions, especially — are precisely the goods a shopper can price-check against Amazon and Best Buy from the showroom floor, and hhgregg's higher-cost stores could not win on the tag. Appliances, the more defensible half of the business, came with thin margins and a heavy reliance on in-store financing, which tied the chain to the volatile rhythm of big-ticket household spending.

What killed hhgregg was the ordinary e-commerce squeeze that flattened a generation of electronics retailers — falling prices on high-tech devices, a price-transparent internet, and an Amazon that did not need a showroom at all. The chain had gone public near the top in July 2007, at $13.72 a share, just as that squeeze was tightening; for the next decade it fought a slow, losing margin war. By early 2017, with a term sheet and more than 50 prospective buyers explored, no one would keep it whole.

So the verdict is a clean liquidation. hhgregg filed Chapter 11 on March 6, 2017, failed to find a going-concern buyer, and converted to a wind-down on April 7. The brand's afterlife is the licensed-website kind: Valor Group bought the name and intellectual property for about $400,000 in June 2017 and relit it online — a logo, not a chain.

Timeline

The Showroom Floor

hhgregg's original business was a good one, and an old-fashioned one. Appliances are a considered purchase: a refrigerator or a washer is expensive, infrequent, and freighted with anxiety about installation, delivery, and what happens when it breaks. A showroom with the units lined up, a salesperson on commission who could explain the difference between the models, and an in-house financing offer to spread the cost was a genuinely useful proposition, and for decades it scaled steadily out from Indiana across the South and Midwest. By the mid-2010s the chain spanned 21 states and just under $2 billion in annual sales — large, regional, and recognizably itself.

The trouble was the other half of the store. Consumer electronics — and televisions above all — were the traffic driver and the growth story of the late 2000s, as flat panels replaced tube sets in tens of millions of homes. hhgregg rode that boom, and the boom betrayed it. A flat-panel television is the most price-transparent object in retail: identical units, identical model numbers, sold everywhere, with the lowest advertised price one phone-screen away. As panel prices fell year after year, the category turned from a high-margin novelty into a low-margin commodity, and a higher-cost regional chain had no way to win the tag against Best Buy's scale or Amazon's no-store economics.

So hhgregg was structurally caught. The defensible category, appliances, carried thin margins and leaned heavily on in-store credit, exposing the chain to the swings of big-ticket household spending. The exciting category, electronics, was exactly the one its rivals could undercut. The chain had built a showroom for products that increasingly needed only a price.

The Decade-Long Margin War

hhgregg went public in July 2007, at $13.72 a share, at almost precisely the wrong moment — just as the e-commerce price squeeze was beginning to bite the entire electronics aisle. What followed was not a sudden death but a long, grinding contraction. The chain tried the standard moves: it expanded its footprint to chase scale, then pivoted to add furniture and home products in an attempt to find categories where Amazon's price could not follow it onto the showroom floor. Neither move solved the underlying problem, which was that its two main lines were either too thin to profit on or too transparent to defend.

By fiscal 2016, even with revenue near its peak, the company could not make the arithmetic work. As the bankruptcy coverage put it, "market trends that have diminished profit margins on high-tech devices" had quietly hollowed out the business. The chain was a higher-cost operator selling commodity goods in a price-transparent market — the same vise that had crushed Circuit City a decade earlier, applied more slowly and to a smaller chain.

When the end came, it came in the now-familiar two-step. In early March 2017 hhgregg announced it would close about 88 stores in 15 states, a triage meant to shrink to a survivable core. Days later, on March 6, it filed Chapter 11 with a term sheet for a potential sale. The reorganization depended entirely on finding a buyer willing to keep the chain running.

The Five Factors

Aftermath

The human cost was concentrated and regional. Roughly 5,000 employees across 21 states lost their jobs in the spring of 2017, in communities — many in smaller Southern and Midwestern markets — where hhgregg had been a significant employer and a familiar fixture for the big appliance purchase. The going-out-of-business banners went up across 220 storefronts, and the distinctive boxes joined the lengthening inventory of vacant big-box retail that defined the period's "retail apocalypse."

The brand's afterlife is the licensed-website kind, the most literal afterlife a dead retailer gets. Valor Group's roughly $400,000 purchase of the name and intellectual property turned hhgregg from a chain of showrooms into a logo on an e-commerce site. The stores that had been the entire proposition — the floor, the salesperson, the delivery and install — were exactly what the new owner did not buy. What endures is the pattern: a competent regional chain, profitable for decades, ground down not by a single blunder but by the slow arithmetic of selling price-transparent goods from higher-cost stores against rivals who did not need stores at all.

Lessons

References

• HHGregg Will Close All 220 of Its Stores After Failing to Find A Buyer Fortune
• hhgregg, Inc., et al. — bankruptcy case administration (Case No. 17-01302-11, S.D. Ind.) Court-appointed claims administrator (Donlin Recano / Angeion)
• The Retailer Hhgregg Is Closing a Lot of Stores and Cutting a Lot of Jobs Fortune
• H. H. Gregg Wikipedia