Circuit City boosts NYC presence

Discount Store News, Dec 8, 1997

NEW YORK - Circuit City couldn't have come to the metro New York market at a worse time for regional CE chains.

Nobody Beats the Wiz, which is reportedly struggling to avoid a possible Chapter 11 bankruptcy filing, was briefly beset last month by a lawsuit over $250,000 in unpaid rent and a companion eviction suit. That matter settled, one of its vendors, LG Electronics, filed suit seeking $4.1 million for merchandise sold and the return of 20,000 unsold Gold Star air conditioners.

Tops Appliance City, Edison, N.J., another player in metro New York, also faces a cash squeeze. In order to help obtain Christmas merchandise and pay down revolving debt, Tops sold and leased back its only company-owned store. The store in Queens, N.Y., sold for $14.5 million, and Tops realized a net of $6.2 million after paying off the mortgage balance.

Tops is eking out modest profits so far this year, despite ferocious competition. But it had to borrow heavily to stay solvent. The cash will also help Tops open two more New York units next spring, the company said.

Such has been the CE landscape as industry giant Circuit City entered the New York market with the first 11 of as many as 40 superstores in the metro area. Most Circuit City stores are about 35,000 sq. ft., the typical prototype size. Opened in mid-November to catch the Christmas season, the new Circuit City units are in: Union, N.J.; Brooklyn, Staten Island, and Rego Park, Queens, all in New York; and five units on Long Island: Bay Shore, Hicksville, Lake Grove, Massapequa and Westbury.

The chain also opened a 43,000-sq.-ft. unit in Yonkers, N.Y., and another in Middletown in nearby Orange County. In addition, it opened another Connecticut unit in Danbury.

To launch its second coming to the New York market, Circuit City has been airing a series of five in-your-face TV commercials that parody the gritty reputation of New York street life, most ending with the streetwise New York expression 'Don't even think about it.'

One mocks New York street vendors of CE equipment as they peddle their dubious wares and ends with the statement, 'You can't get a lower price' than at Circuit City. Another spot features soothing background music as a voice-over delivers the news that Circuit City associates are knowledgeable, helpful, polite and courteous. The narrator assures viewers, 'Don't worry, New York. You'll get used to it.'

The stores represent Circuit City's second foray into the New York market. In the early 80s, it acquired Lafayette Sound, which fell victim to aggressive pricing by the now-defunct Crazy Eddy chain.

Since that failure, Circuit City has bypassed New York metro, expanding into upstate New York, the Hudson River Valley and the market around New Haven, Conn.

It then pushed northward to open 16 stores in Massachusetts as well as six in New Hampshire and one in South Portland, Me.

Timing appears right for its return to the market. PC Richards is also struggling, and Best Buy has scrapped its plans to enter the market over the next three years. Just last year, The Incredible Universe opened and then closed two metro-area units within a matter of months.

Speaking to analysts last December, Circuit City ceo Richard Sharp predicted more failures in the year to come.

'I think conditions are very difficult out there, and it's unlikely that everybody that's playing today will be playing a year from now.'

The metro New York units are part of 30 stores Circuit City opened around the country in time to catch the Christmas wave. By the close of its fiscal year 1998, ending next Feb. 28, Circuit City expects to be operating 15 stores in metro New York.

Circuit City now operates more than 530 units in total, including 474 superstores averaging 35,000 sq ft., four CE-only stores (without appliances) and 52 mall-based express units.

By the end of the current fiscal year, Circuit City will have opened 60 superstores, for a net of 45 to 50 new units after relocations. Of the superstores, 35 to 40 will be in new markets.

In comparison, The Wiz, Carteret, N.J., operates a total of 49 units after closing five stores last July to focus on its core market.

As Circuit City cranked into high gear last month, The Wiz settled one suit by paying $250,000 in back rent and avoiding the embarrassment of being evicted from a New Jersey store.

It also won the first legal round in a lawsuit brought by L.G. Electronics, U.S. distributor of Gold Star electronics products (made in Korea). L.G. Electronics had sought a preliminary ruling that would order The Wiz to return unsold air conditioners and pay the balance of $4.1 million on goods already sold.

But the suit remains active and will be played out in the courts.

'It's fairly typical to have disputes in business,' said Saul Burian, who is representing The Wiz in the suit. 'We'll deal with it in the normal course of business.'

People know that The Wiz has experienced certain cash shortages, Burian said. Yet the preponderance of vendors and secured lenders are cooperating with The Wiz so that it will have a successful Christmas season, he said.