CompUSA 2014 Annual Report Download - page 34

Consumer sales:
On March 10, 2015 the Company announced that its Technology Products business segment would be exiting the retail store business in order to
accelerate its focus on its business to business (“B2B”) operations. This exit plan includes the closing of substantially all of its retail stores
,
closing a distribution center ,
and implementing a general workforce reduction to align available resources with a B2B focus as well as
transitioning retail customers to online consumer sales.
The North American Technology Products consumer sales decline resulted from the closing of retail stores in 2013 that contributed
approximately $36.2 million in sales for the year 2013, and from continued softness in television shopping, internet and retail sales. Consumer
channel sales declines were primarily the result of declines in sales of personal computers and televisions driven by both volume and selling
price erosion. On a constant currency basis, North American Technology Products consumer sales declined 11.0%.
The decline in consolidated B2C channel sales in 2013 compared to 2012 resulted from continued weakness in our internet, television and retail
stores sales in North America. B2C channel sales declines, similar to many in the industry, were the result of sales volume and selling price
erosion in certain core product categories. The Company believes that the decline in sales and price pressures for consumer electronics is
attributable to a variety of well publicized industry and market trends. The strategic decision not to chase promotional product pricing in the
fourth quarter of 2013 also contributed to the sales declines. On a constant currency basis, worldwide B2C channel sales declined 16.7%.
GROSS MARGIN
The consolidated gross margin decline in 2014 is related to Technology Products segment reduced selling margins in Europe, particularly in the
United Kingdom and slight decline in the Industrial Products segment drive
n by product mix as we have begun stocking more domestically
sourced products.
Gross margin is dependent on variables such as product mix, vendor price protection and other sales incentives, competition,
pricing strategy, cooperative advertising funds required to be classified as a reduction to cost of sales, freight discounting and other variables,
any or all of which may result in fluctuations in gross margin .
The consolidated gross margin increase in 2013 is due to Industrial Products sales contributing a larger percentage to gross profit dollars as
compared to 2013, improved freight margins, and the benefit from the utilization of the New Jersey distribution center. Technology Products
gross margin increase is due to improved freight performance in North America and maintaining product pricing, even though net sales declined.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”), EXCLUDING SPECIAL CHARGES
SG&A expense increases for the year ended December 31, 2014 are primarily attributable to our Industrial and European Technology Products
B2B business, partially offset by expense decreases in North America Technology Products compared to the year ended December 31, 2013.
Significant expense increases related to the Industrial Products segment include increased salary and related costs of approximately $5.6 million
due to increased sales and product management headcount, and increased internet advertising spending of approximately $8.5 million compared
to 2013. The Industrial Products segment is expected to increase its advertising spend, in particular internet advertising, as it continues to
expand its online product offerings and increase its ecommerce presence. In Europe, the Technology Products segment also had increased SG&A
expenses due primarily to a continued overlap in costs as we transition functions from individual country operations to our European shared
services center. The significant expense increases include approximately $4.4 million of increased salary and related costs of additional sales
personnel and additional headcount for the shared services center, partially offset by $0.6 million in reimbursements for shared service center
salaries under the incentive agreement with the Hungarian business development agencies, recorded in the second quarter of 2014. Additionally,
in Europe, for the year ended December 31, 2014 we had less vendor supported advertising revenue of approximately $3.7 million, increased
computer and telephone maintenance of approximately $1.1 million and insurance, rent and related expense increases of approximately $2.6
million, offset by reduced internet advertising spend of approximately $1.9 million. The Technology Products segment in North America had
reduced SG&A expenses due to the closing of underperforming retail stores in the second quarter of 2013 and $2.3 million from the favorable
resolution of the review of a professional service provider's billings recorded in the third quarter of 2014. Significant expense decreases for the
North America Technology include reduced salary and related costs of approximately $7.8 million, reduced rent and related costs of
approximately $2.7 million, and $2.3 million from the favorable resolution of a the review of a professional service provider's billings recorded
in the third quarter of 2014.
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