Tweeter to shut 19 stores, cut 200 jobs

Tweeter Home Entertainment Group Inc., the Canton retailer of high-end electronics, yesterday said it plans to close 19 stores with poor sales and cut more than 200 jobs.

The cuts come at a time when the retailer is facing increasing competition from mass-market rivals Best Buy Co., Circuit City Stores Inc., and Wal-Mart Stores Inc. To set itself apart from the competition, Tweeter is emphasizing service, custom installation, and a knowledgeable sales staff.

The bad news: So is Best Buy.

Just this week, the Minneapolis retailer said it plans to cater to customers seeking high-end entertainment systems by opening as many as 200 Magnolia Home Theater stores within Best Buy stores and expand services by opening as many as 50 stand-alone Geek Squad stores in the next 18 months.

''Tweeter is in a difficult position," said William Armstrong, a retail analyst at CL King & Associates in Albany, N.Y. ''Best Buy continues to increase its emphasis on installation and services. And that's Tweeter's strong point."

Joe McGuire, Tweeter's chief financial officer and interim chief executive, said the store closings and workforce reduction aren't signs of underlying weakness in the business. The stores, because of declining sales in recent years, had become a drag on the business. Together, they represent 11 percent of the retailer's 177 stores but less than 5 percent of its revenue.

Tweeter's stores do well in relatively high-income areas where people also have a high level of education. In some cases, the underperforming stores came with acquisitions and were located in areas that didn't prove a good fit for Tweeter. In other instances, changes in the demographics of the neighborhood lead to the increasingly poor performance from the stores, McGuire said.

The store closings will be in states including Pennsylvania, Florida, and California. More than half the job cuts are directly related to the closings. Since no New England stores will be closed, most of the job cuts will come from other regions of the country. But the remaining cuts will come from throughout the company, including at its Canton headquarters. The company has more than 3,600 employees.

Tweeter had hoped that its marketing campaign, ''We Can Untangle Your Mind," launched in November, would help drive traffic to its stores and boost sales at underperforming stores. But McGuire said yesterday that the campaign failed to increase traffic to those stores, leaving the company little choice but to close them.

''Our plan is to continue to grow the business," McGuire said. ''The technology of television has changed so dramatically that there's a massive amount of confusion out there. Where there has been confusion, Tweeter has done well."

Analysts are more skeptical about Tweeter's future. Sales of audio equipment -- Tweeter's traditional stronghold -- have declined industrywide, so consumer-electronics retailers including Tweeter are relying more on television sales, said Armstrong, the CL King analyst. But TV shoppers tend to bargain-shop more than their audio-and-stereo counterparts. That put Tweeter in direct competition with Best Buy and even Wal-Mart, Armstrong added.

Tweeter has lost money for the past three years, while its sales have hovered around $775 million. With everyone from Wal-Mart to Costco Wholesale Corp. selling flat-screen plasma television sets, Tweeter's reputation as an upscale retailer of entertainment systems has hurt the company. Its response was to emphasize service with a staff that can help design, build, and install custom home-theater systems.

The company reported a loss of $22 million yesterday for the six months ended March 31. Until it starts turning a profit, McGuire said, Tweeter plans to keep its store count at roughly 158. But McGuire still sees room for 300 Tweeter stores and a $3 billion market for the kind of services Tweeter provides, especially as prices of digital televisions fall and people replace their analog sets.

Meanwhile, Best Buy is challenging Tweeter at every turn. Five years ago, the company bought Magnolia Audio Video, a West Coast consumer-electronics chain that like Tweeter is known for its customer service. Last year, Best Buy began testing the concept of building Magnolia within Best Buy stores for customers who want a fancy home theater. The company is now rolling out the concept nationwide, including at its Braintree and Watertown locations, where Magnolia Home Theater sections are under construction.

''Tweeter is staking out a good segment of the market," said Michael Baker, an analyst with Deutsche Bank Securities Inc. in Boston. ''But there's also a lot more competition in that segment now."

Naomi Aoki can be reached at naoki@globe.com.