Blown Tweeter

It's no surprise to see Tweeter (Nasdaq: TWTR  ) go smaller.

Its announcement that it will go from 153 consumer electronics stores to a more manageable 104 locations shouldn't leave you scratching your chin. That is essentially the same Band-Aid that the company has been tugging away at over the years. It was watching more than 159 shops a year ago, and 179 units the year before that.

If there is any reason to invest in a double-take, it's that the shares were trading as much as 38% higher a couple of hours into the trading day on the news. Listen up, Best Buy (NYSE: BBY  ) and Circuit City (NYSE: CC  ) ! The way to the market's heart is apparently by shrinking, not expanding.

This doesn't mean that I think that Tweeter's retreat is a bad move. Bowing out of California, Tennessee, Alabama, New York, and nearly all of Georgia will help the struggling retailer focus on its core stores.

The stores that will be closed over the next few months were ringing up an average of $3.7 million per year. The 104 survivors are generating a healthier $5.3 million in annual sales per store. The move will involve laying off 20% of its workforce, with a $50 million to $60 million mostly non-cash charge to account for the restructuring process.

So why is the market so excited? Well, Tweeter has been working on a CE Playground concept at seven of its stores that it plans to incorporate into its existing stores. Playground -- the CE stands for Consumer Electronics -- is a high-end concept for the home theater enthusiast. Patrons are greeted at the entrance by a concierge desk, before touring the store that consists of various rooms around the house in their entertaining glory. From the triple-TV sports bar to the subtle living room plasma television set hiding behind the artwork, the allure is clear. Wouldn't this look good in your home? And yes, there is even a bathroom with a TV-stocked vanity. Oh, and brace yourself for the actual dedicated home theater setup.

Tweeter has missed its mark in the past. Best Buy and Circuit City ate up the plasma and LCD revolution while Tweeter foolishly bet on bulkier projection sets. It was slow to catch up and comps got whacked along the way. With Playground, Tweeter appears to be ahead of the pack and targeting an upscale concept that may work, given the limited foot traffic in its stores relative to its larger rivals.

The rub here is that it's not alone in moving toward a full-service format that emphasizes home delivery and installation. Circuit City has been aggressively marketing its firedog in-home installation services since last fall. However, if the Playground makeover is the anti-Tweeter, then it can't be too bad for a company that has been mired in red ink and slumping store popularity.

Tweeter may be blown, but there's a new Playground that may be worth playing in.

More on Tweeter's fading ways:

Best Buy is a Motley Fool Stock Advisor recommendation. Want to learn why? Check out the subscription-based research service with a free 30-day trial membership.

Longtime Fool contributor Rick Munarriz can watch time fly at a consumer electronics store. He's a gadget geek that way. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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