Good Guys Struggles to Rebound From Years of Tough Times

Good Guys Inc. has been more like one of the bad and the ugly in consumer electronics, though it has shown signs of ending its slump.

After losing money for six straight years, the West Coast electronics retailer finally eked out a $1-million profit in fiscal 2003 on sales of $750 million. The rebound came after Good Guys named Kenneth Weller, an industry veteran, as its chief executive 18 months ago.

But Good Guys, a 71-store chain celebrating its 30th anniversary this year, has slipped back into the red. In its fiscal first quarter ended May 31, the company lost $8.4 million as sales fell 16% from a year earlier to $143.4 million.

The Alameda-based company’s same-store sales -- those of stores open at least 12 months, and retailing’s key measure of health -- tumbled 14% in the quarter from a year earlier. The mid-size chain, which has always specialized in peddling cutting-edge, higher-end electronics, also predicted more tough times at least through the current quarter.

Good Guys’ stock, which traded as high as $14 a share in 1998, closed Thursday at just $1.45 on Nasdaq, giving the company a total market value of only $39 million. Virtually none of the major Wall Street firms bothers to have an analyst track the chain.

Meanwhile, Good Guys’ bigger rivals are having problems too. Circuit City Stores Inc., for instance, saw its fiscal 2003 profit drop 52% from a year earlier. The Richmond, Va.-based company, with 626 stores, is now a takeover target.

Mexican billionaire Carlos Slim is offering to buy the shares of Circuit City he doesn’t already own for $1.5 billion, a proposal Circuit City has rejected so far. The financier wants to merge Circuit City with another chain he controls, computer retailer CompUSA Inc.

In fact, the U.S. consumer electronics industry as a whole is grappling with the sluggish economy and fierce price cutting among competitors. That’s eroding many of their profit margins.

The companies “cannot sit there and have very slow store traffic for any length of time” before they need to slash prices “to get people in the door,” said Stephen Smith, editor in chief of TWICE, an industry publication.

Factory sales of consumer electronics are expected to rise only 3% this year, to $99.5 billion, and 4% next year, compared with annual growth of 7% to 13% in the late 1990s, according to the Consumer Electronics Assn., a trade group.

Chains such as Good Guys also are under assault from mass merchandisers -- led by Wal-Mart Stores Inc. and Costco Wholesale Corp. -- that sell televisions, DVD players, audio systems and other electronic gadgets for low prices.

Only Best Buy Co., the largest of the electronics chains, has continued showing steady improvement. With 687 stores, Minneapolis-based Best Buy is still growing, and its stock has been climbing over the last year. But even the pace of Best Buy’s sales gains has slowed in recent quarters.

As for Good Guys, Weller said in an interview that it can survive as a regional chain by catering to shoppers with technology savvy -- and helping those who aren’t -- with its trained, in-store sales force. Good Guys also has a brand name familiar to Californians and has long offered high-end electronics gear not available at many large chains.

Weller said it’s a strategy that should increasingly appeal to consumers as technology grows more complicated.

In the next two years, he said, there is “a strong pipeline of new technology” -- in areas such as thin plasma TVs and digital set-top boxes -- that will arrive on the market.

“When you’re buying new technology, you need somebody to stand behind that product,” Weller said. Shoppers today know “way more about products than they used to,” but once they’re in the store, they still need “a demonstration and explanation” of the product’s features.

First, though, Good Guys has to weather the next few months.

The market “is about as tough as I’ve seen it in 20 years, there’s no doubt about it,” said Weller, who turned 55 this week. “But we’ve taken a lot of our costs out of the business. That allows us to batten down the hatches and survive.”

Weller and his team get good marks from industry watchers for making Good Guys a leaner operation. But they still must convince more shoppers that the chain has products and service not available at the local Best Buy or Circuit City, said Traci Mangini, an analyst with Merriman Curhan Ford & Co., a San Francisco investment firm that focuses on small companies. The firm doesn’t have an investment banking relationship with Good Guys.

“It’s a definite challenge ... to get the consumer to recognize the distinction, and I don’t believe they [Good Guys] do that yet,” she said.

The company was started 30 years ago by entrepreneur Ronald Unkefer, whose first store in San Francisco featured a sign that read “The Good Guys.”

The operation expanded rapidly and went public in 1986. The chain came to Los Angeles in 1990. Back then, the market was dominated by Circuit City; few had heard of Best Buy.

Weller, a native of England, began his career 21 years ago as a Good Guys salesman in Concord, Calif. He eventually became vice president of sales but left in 1993 to take an executive post at Best Buy. Weller returned to Good Guys in September 2000, when he was hired as president. His mandate was to turn the company around. He replaced Unkefer, who remains one of Good Guys’ biggest stockholders, with a 6% stake, as chairman and CEO in late 2001.

Weller deflected the question of whether Good Guys, given its size and low market valuation, is now a takeover target. “Anybody can be an acquisition candidate,” he said. “As we get stronger, I would like to think we would be doing the acquiring.”

Mangini is forecasting that Good Guys will get stronger and can turn another profit of about $2 million for its current fiscal year. Its fortunes could improve further if California’s economy gets healthier, she said.

TWICE’s Smith agreed. “If they made a profit of $1 million in a year that was mediocre, they should do a lot better when the economy goes up,” he said. “But they don’t have any control over the general economy.”