New, smaller format for Tops

Discount Store News, Dec 13, 1999 by Mike Duff

Prototype marks exit from CE

JERSEY CITY, N.J. -- Tops Appliance City opened a new 22,000sq.-ft. store in Jersey City, N.J., on Nov. 19, signalling its departure from the consumer electronic business and introducing a new positioning for the chain.

Tops is getting away from its "television and appliance" superstore structure in favor of a product mix that features appliances exclusively--including more upscale items, kitchen design and housewares. The strategy also calls for a smaller-format store that should generate less traffic but bigger

per-transaction sales of higher-margin goods.

One result of Tops' change in structure should be lower costs. Less traffic means the stores will need fewer salespeople. And since stores no longer will be operating electronic devices such as televisions and stereos throughout the day, the new format will lead to a space-related lowering of utility costs.

The Jersey City store occupies less than half the square footage of some of the present superstore-format outlets, some of which are as large as 50,000 sq. ft. New stores developed to meet the standards of the updated prototype will average about 20,000 sq. ft. The smaller store size and bigger tickets should also help boost sales per square feet.

The 11-unit chain, with stores in and around New York, will make the shift to the new prototype by various means, including leasing unwanted space at existing locations, said Michael Straub, vp of stores. In addition to the Jersey City location, Tops will open two new stores by the second quarter of 2000 and sell three units to Best Buy. All of the new units, as well as those being dealt to Best Buy, are in New Jersey.

The shift in Tops' strategy includes still more shifts in operations. "Our mission is to redefine the shopping experience," Jones said. Consequently, Tops' designers have formatted the new store to give consumers wide-open views. Using portable walls and cabinets, the stores create vignettes that offer products in residential-style settings, and the expanded housewares section is set up so it can easily be modified to take advantage of seasonal sales opportunities.

Another major change in Tops' strategy is that salespeople no longer work on a commission basis. Jones said consumer research revealed that Tops' customers felt their relationship with the chain's salespeople was "adversarial," since salespeople were more interested in pushing what they wanted to sell rather than listening to customers and helping them find products. Under the new way of doing business, salespeople are expected to aid customers with their purchases, which explains in part why the company has equipped its sales staff with a computer kiosk that presents and prints out detailed product specifications.

In essence, the shift represents a departure for Tops from what was an item business to one that is more intimately involved in home design. The epitome of that development may be found in a section that includes a fully functional kitchen where consumers can discuss their purchases with salespeople over coffee. The section includes a kitchen-like office where customers can sit down with employee specialists and develop their own rooms, including cabinets, fixtures and, if they so desire, high-end, industrially inspired appliances.

Of course, the shift will require considerable costs and challenges for Tops as it woos new consumers and smoothes over the transitional period. In its announcement of third quarter financials, the company warned that due to its exit from consumer electronics, including computers, sales and earnings couldn't be compared to the same period of 1998. Nevertheless, sales for the 1999 quarter were $79.4 million, an increase of 7.8% from $73.7 million for the year-earlier period. Sales of consumer electronics and computers, which the company has begun to discontinue, declined by 20.8%. Income from operations for the quarter was $1 million vs. $1.5 million in the 1998 quarter, and net losses amounted to $401,000, compared to earnings of $368,000 in the third quarter of 1998.