Firm Bets on ‘Superstores’ in Southland : Circuit City to Push Electronics Products at 15 New Outlets
Circuit City Stores, a fast-growing consumer electronics retailer from Richmond, Va., hopes to short-circuit competitors such as Federated Group and its wild-eyed, super-hip pitchman, Fred Rated, by opening at least 15 stores in Southern California by early next year.
Advertising will begin today, and the first seven high-tech “superstores” will throw open their doors next month, said Circuit City President Richard Sharp.
By April, Circuit City will have closed the 30 licensed electronics and appliance departments that it currently operates in Zodys discount stores and will have opened at least another eight Circuit City stores, Sharp said. Circuit City is negotiating for sites for several other stores in California, he said.
Initial Entry
“We consider these first 15 as just the initial entry into the Los Angeles market,” Sharp said. “Our plans are to continue to fill in (stores) both in the greater Los Angeles area and Orange County area . . . (and) I would say all of California is fair game.”
Circuit City views retailing as “part theater,” Sharp said.
Customers are confronted with a high-tech-looking metallic gray and red store selling stereos, videocassette recorders and other consumer electronics products as well as major appliances such as refrigerators and stoves. The merchandise is laid out in a “race track” design so that a customer can make one oblong trek around the store and see everything that the outlet has to offer.
Circuit City superstores even feature a customer lounge and a “Kiddy City,” a supervised playroom where parents can leave their children while they shop.
The 15 Southern California stores will be stocked with more than $2 million in merchandise and employ between 800 and 1,000 people. Of those, 60% to 75% will be newly hired, with the remainder transfering from the Zodys operations.
Circuit City, formerly called Wards Co., has become the largest specialty retailer of brand-name consumer electronics in an industry where large companies with large stores are becoming more dominant. These firms have been forcing out or absorbing smaller independent companies, which until a few years ago sold the bulk of consumer electronics products.
In addition to the upcoming California stores, Circuit City has 97 outlets, ranging from smaller consumer electronics stores to superstores in the East and Southeast. (Those outlets also include the 30 soon-to-be-closed Zodys consumer electronics and appliance departments and two Zodys outlets operated by Circuit City in California and Nevada.)
Circuit City intends to open five more superstores and three smaller stores on the East Coast this year.
The Southern California expansion represents a “significant” investment for Circuit City, Sharp said. The company is spending more than $1 million per store to remodel the 12 outlets whose long-term leases it bought from Akron discount stores last year. Circuit City will sublease another four former Akron stores that were included in that deal.
The Southern California market is second in size to New York but is not as competitive in terms of price, Sharp said.
“Pricing in Los Angeles is not at what I would call cutthroat competitive levels,” he said. Circuit City has no plans to start a price war with its local competitors but does offer a “meet-or-beat” price guarantee similar to the ones made by Federated and other retailers.
City of Commerce-based Federated Group, with 49 stores and projected sales this year of $400 million, is probably Circuit City’s most visible competition. However, Sharp contends that Sears controls more of the market for consumer electronics and appliances.
Wilfred Schwartz, chairman and chief executive of Federated, said his chain is the leader in consumer electronics sales locally, controlling 7% to 8% of the market. Federated, which pioneered the superstore concept, doesn’t carry major appliances.
Room for Both Firms
Schwartz said there is room for both Federated and Circuit City in Southern California. “I don’t think it’s a clash of the titans,” he said. “I think they’ll come in and stimulate the market.
“They’re going to do their thing. They’ll carve out a position in the marketplace,” he said. “We’ll continue to do our thing . . . and we’ll all live happily ever after.”
Circuit City has been successful, Sharp said, because of its “four-S policy” of savings, selection, service and satisfaction that is drummed into the company’s “sales counselors” during a six-week training session. The sales people also must commit to two training sessions per week to keep up with product changes.
When Circuit City has all of its initial 15 stores operating next spring, the company should be achieving annualized sales locally of $150 million to $200 million and will have 7.5% to 10% of the $2-billion Southern California consumer electronics and appliance market, Sharp said.
For the fiscal year ended Feb. 28, Circuit City reported earnings of $20.2 million, up 68.4% from the year before. Sales were $519.2 million, up 45.6%. The company projects sales of $725 million to $750 million for the current fiscal year and $1 billion for fiscal 1987.
Sharp said Circuit City is familiar with the Southern California area because of its long association with Zodys. Those units capture 4% of the market with only 69,000 square feet of showroom space. The typical warehouse showroom superstore, now Circuit City’s primary growth vehicle, averages between 30,000 and 40,000 square feet.
Two years ago, Circuit City paid $315,000 to settle a consumer protection suit filed by the Los Angeles County district attorney’s office that accused Zodys and its licensed consumer electronics departments of “bait-and-switch” tactics by advertising certain brand names and then diverting customers to other products that were more expensive or profitable to the store. Zodys agreed to pay $60,000.
Sharp said the 1983 agreement is not relevant to its current expansion. “We certainly never admitted any guilt in that matter,” he said.
“Certainly, when you’re in a position to have litigation with the government, then at some point you have to look at your expenses associated with the litigation,” Sharp said. Circuit City also was under pressure to settle because Zodys’ parent firm at the time, HRT Industries, then was involved in bankruptcy proceedings, he said.
