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MyerEmco's death tells larger tale of Internet's disruptive change, housing bubble's many victims

I want to draw your attention to this story that I wrote in today's Post, because even though it looks like nothing more than the bankruptcy of a seven-store electronics chain, I believe it's actually perfectly illustrative of the past 10 years or so of American consumer behavior.

Longtime Washington area high-end TV and stereo chain MyerEmco goes bankrupt after 55 years in business. Big deal, right? We just came out of a Great Recession; lots of small businesses went belly-up.

True enough, but the MyerEmco bankruptcy is a direct casualty not only of the Great Recession but of the recession's cause (the housing bubble), its attendant symptoms (people using their homes like ATMs) and of radically changing consumer behavior that has been killing off stores like MyerEmco for 10 years. And will continue to do so.

After a prosperous 50-year run, MyerEmco found itself at the confluence of several powerful forces that ended up ripping it to shreds.

Take you back a little. When I had enough money to buy my first real stereo, back in 1979, I went to a store back in West Virginia very much like MyerEmco. It was a specialist stereo store that sold audio components: stereo receivers, turntables, speakers, amplifiers, the works. I spoke to a knowledgeable salesman, same as they were everywhere: 25-year-old audioheads who swore that you could hear a discernible improvement in the sound of Pink Floyd's "Dark Side of the Moon" with the right cartridge on your turntable.

This guy knew his audio components, and we assembled the best receiver-turntable-speaker system I could afford. (I still have the Technics belt-drive turntable.)

Knowledge of stereo (and later) TV technology added value to stores like the shop where I bought my system and to MyerEmco. Indeed, as the son of MyerEmco's founder told me in today's story: "Our sales staff used to be the oracle," Jon Myer said. "People would come in and ask questions and we'd hand out our wonderful knowledge."

That was what you paid for at stores like MyerEmco and why they were able to make a prosperous business.

Flash-forward to about 1996. The Internet is taking off and consumers instantly recognize that it is a bottomless well of information about topics -- such as stereo equipment -- that used to require an oracle. Consumers could browse expert reviews of stereo equipment, look at technical manuals, even shop. Quickly thereafter, the consumers themselves began reviewing products, bypassing a company's advertising and expertise completely. Consumers -- whether they wanted to buy a car or a home-theater system -- were smarter than ever.

"Now," Myer told me, "a lot of consumers have so much education they come in more educated than the sales staff."

At the same time, MyerEmco faced the rise of the Big Box retailers, such as Best Buy and the now-defunct Circuit City, and online electronics retailers such as Amazon. Buyers were unwilling to pay MyerEmco's higher prices -- prices that were higher because they had expertise baked in.

"Everyone wants expertise," Myer told me, "but no one wants to pay for it."

It's impossible for specialist stores to compete against mass retailers on many products and, frankly, it probably should be. I remember five years ago, when friends were bemoaning that stores like Target and Wal-Mart were driving music shops, like Tower, out of business. Well, they probably ought to. They can't compete on price, they can't compete on volume and the empowered consumer doesn't need their opinion any longer on the latest Beyonce album. They've already read numerous online reviews.

Where, for instance, an indie music store can carve out a niche is selling music in a format that the Big Boxes won't touch: vinyl. If all you want to do is make a modest living running a small shop selling vinyl records, talking to your friends and loyal customers about vintage Yes or acid-jazz LPs, then you can do that.

So that's one thing that killed MyerEmco.

Here are two more: pegging its profits to flat-screen TVs and linking itself too closely to the housing bubble.

In the early part of this century, people began replacing their old, big, bulky TVs with sleek, thin, flat-screen TVs in masses. Such widespread technology turnovers are rare in an economy and MyerEmco would have been foolish to not take advantage of this one. But pretty soon, everyone who was going to buy a flat-screen TV had purchased one, and the market was saturated. MyerEmco's revenue peaked at $39 million in 2006, when the flat-screen market peaked.

Another thing that peaked in 2006: housing prices. The Washington region was a big participant in the housing bubble and MyerEmco had a contract with big area builder NV Homes to wire its new houses with elaborate home-theater systems. At the same time, because housing values were soaring, existing homeowers took out home-equity loans, essentially treating their homes like ATMs. What did they buy? Elaborate, expensive home-theater systems from MyerEmco. Because, why not?

All the fun had to end at some point. Business was already getting tough for MyerEmco. Then the Great Recession hit. "We're the first thing people don't buy in a recession," Myer told me.

With 30 percent annual sales declines, Myer couldn't even get a meeting with a banker to ask for a loan. It was over. This weekend, the 50 percent liquidation sale is on at MyerEmco.

It's cold comfort to Myer and his father -- Ed Myer, who founded the business in his Silver Spring garage in 1955 -- but the life and death of their family business may end up being the perfect illustration of the Internet's disruptive change and the bubble economy's casual carnage.

Follow me on Twitter at @theticker

By Frank Ahrens  |  February 12, 2010; 1:04 PM ET
Categories:  Crisis 101 , The Ticker  | Tags: MyerEmco, NV Homes, home equity lonas, housing bubble  
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Comments

Its a shame to see Jon and Company go out this way, they ran a nice business. The other thing that nobody ever seems to talk about regarding the NEW internet economy is that its also killing the States tax income. Most of these internet sales do not pass along any state sales tax, now that Myer Emco is gone another couple hundred employees will not send state income tax, sales tax at the register and on and on and on. The states are clearly hit the hardest by the real estate taxes but if they dont think this sort of thing is silently killing them and retail local business as we know it then people are asleep at the wheel. I do not understand WHY the congress is so worried about taxing the internet in some way...this always is a frightful thing to say. But if you only wish to have the internet as your source of purchasing something then keep on ignoring these small facts.

Posted by: HTech | February 14, 2010 7:46 PM | Report abuse

Excellent analysis Frank. I was sent this link by a colleague because I'm in the "specialty" A/V business, and your perceptions are right on.

Also, HTech, it is a shame to see M-E go down like this. And as you point out, not only has the lack of a sales tax on the internet gutted State coffers, it's really been a boon to internet retailers and given them an unfair handicap. Many consumers, after consulting the local "Oracle", buy online with free shipping and no sales tax... so the net savings is 7% to 10%, or more if it's discounted.

But for businesses like M-E, in this economy, some are too big NOT to fail. No bailout here, unfortunately. Some are too big to correct course quickly enough, though M-E tried for several years.

I don't foresee a time when the local dealer, a consultant you can trust, will go completely away. I think if you show a customer good advice, good value, good service, etc., there will still be reasons to shop locally.

Posted by: rsvp0 | February 19, 2010 3:46 PM | Report abuse

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