Changing Consumer Habits Spurred Demise of Good Guys

Struggling to keep pace with the fast-changing market for consumer electronics, Good Guys Inc. found it wasn’t quite good enough.

The retailer, which specialized in higher-end televisions, home audio systems and other cutting-edge electronics gear, catered to savvy technophiles while providing trained store personnel to educate less sophisticated customers.

But as a regional chain serving a narrow audience, Good Guys couldn’t survive the mass market’s migration to electronics superstores such as Best Buy Co. and Circuit City Stores Inc. and to discount retailers such as Wal-Mart Stores Inc. And Good Guys’ emphasis on bulky, high-priced sound systems was out of step with young consumers more apt to enjoy music with the aid of computers and hand-held players such as the iPod from Apple Computer Inc., analysts said.

CompUSA Inc., which acquired Good Guys in 2003, closed 11 of the chain’s 46 stores this week and said it would shutter all but one of the remaining stores -- almost all of which are in California -- in two months. One store in Santa Clara, Calif., is being converted to a CompUSA.

There is “a decline in the need for free-standing stores that only sell high-end home entertainment products,” said spokeswoman Katie Means of CompUSA, which also has shut down sales on Good Guys’ website.

CompUSA, which is controlled by Mexican billionaire Carlos Slim, said it would move much of Good Guys’ inventory into 38 of its CompUSA stores in California and Hawaii, further expanding its product line beyond computer equipment.

Good Guys’ passing marks the end of a longtime California retailer. The chain was started by entrepreneur Ronald Unkefer, whose first store in San Francisco bore the sign “The Good Guys.” The Alameda-based company expanded rapidly, going public in 1986 and opening its first Los Angeles store in 1990.

In Good Guys’ fiscal year ended Feb. 28, 2003 -- its last year as a public company -- the chain was operating 71 stores and earned $1.1 million on sales of $750 million.

But the profit was an anomaly. Before that, Good Guys had lost money for six straight years, and Dallas-based CompUSA was able to acquire the chain for $55 million -- the equivalent of 7% of Good Guys’ annual sales.

Because CompUSA is privately held, it declined to provide more recent financial details for Good Guys or say how many employees might be laid off with the latest closures. But Good Guys’ performance “confirmed our belief that consumers wanted a broader product offering in one location,” Means said.

Competitors such as Wal-Mart and Best Buy offer one-stop shopping for a wide range of electronics, DVDs and audio CDs, which they can sell at relatively low prices because their size gives them buying clout with suppliers. Best Buy and others also are beefing up their service and support, diluting one of Good Guys’ strengths.

Changes in consumers’ tastes, and in technology, also sealed Good Guys’ fate, analysts said. “This has less to say about CompUSA than it does the state of the consumer electronics industry as a whole,” said Stephen Smith, editor in chief of Twice, a trade publication.

Good Guys, for instance, was known for peddling sophisticated tabletop receivers and large, expensive speakers. But “that business has completely dried up because young people don’t sit in a chair with two speakers blasting at them much anymore,” said William Armstrong, an analyst at investment firm C.L. King & Associates Inc.

Many audio fans today increasingly listen to iPods, MP3 players and other portable devices that play songs downloaded from personal computers. Home entertainment systems also are increasingly melding their video and audio capabilities with computers.

U.S. factory-to-dealer sales of audio components such as receivers and home speakers are expected to total $1.16 billion this year, down 8% from 2001, according to the Consumer Electronics Assn. Meanwhile, sales of portable MP3 players are forecast to hit $2.65 billion this year, more than double 2004 sales.

The convergence of computer and audio-video technologies is one reason CompUSA is moving Good Guys’ products into its own stores, so that consumers can be exposed to all of them in one place.

The shift also left Good Guys too dependent on sales of high-end TVs, a cutthroat market where “you’re competing head-to-head against Best Buy and Circuit City,” Armstrong said.

Good Guys hasn’t been the only mid-size electronics chain to feel the pressure. Ultimate Electronics Inc., a Thornton, Colo.-based chain that once had more than 60 stores in 14 states, filed for bankruptcy protection in January and has since closed about half of its locations. Tweeter Home Entertainment Group Inc., a Canton, Mass.-based chain with 160 stores in 22 states, including California, also has struggled in recent years.

That doesn’t mean independent electronics stores can’t survive, said Smith of Twice. Many consumers still prefer the service of small, local stores, and the independents -- if well managed -- also can avoid the financial headaches that often come with overexpansion, he said.

“To say that this is the end of specialty audio-video retailing as we know it may be overreaching,” Smith said. Unfortunately for Good Guys, he added, “they weren’t big enough and they weren’t small enough.”