Circuit City still shining in lackluster CE market - consumer electronics retailer - Discount Industry Annual Report - company profile

Discount Store News, July 4, 1988

Circuit City Still Shining in Lackluster CE Market

RICHMOND, Va. -- After its blitz of Los Angeles in 1986, Circuit City encored in 1987 with an eight-store invasion of San Francisco. Sales at the country's leading home electronics specialty retailer increased from $1.1 billion in fiscal 1987 to $1.35 billion.

Net earnings rose from $35.3 million to $50.4 million, a 43 percent jump. According to the company, this marks five consecutive years of record earnings, and Circuit City has, according to its annual report, "provided the highest return to investors over five years of any company listed on the New York Stock Exchange."

The company also noted that other companies in roughly the same bracket, Toys "R" Us and Home Depot, were similar to Circuit City in that all three are "innovative, intensely merchandised store formats, [bringing] unprecedented selection and value to consumers in previously inefficient retail segments."

Circuit City's performance is particularly notable when contrasted with the home electronics field as a whole. With the exception of compact disc players, sales have been stagnant or down in virtually every product area, and several large CE chains, most notably New York-based Crazy Eddie, are in trouble. In an uncertain economic climate, consumers tend to forgo luxury items, and additional audio and video equipment tops that list.

With that in mind, industry analysts predict a very modest 2 percent increase in CE sales for this year and most retailers plan on, at best, limited expansion.

Circuit City, on the other hand, plans to add 20 stores to the 105 it already operated at year-end, including outlets in Florida, Northern California and Nevada, all new markets. Plans have also been made to open a new distribution center.

So for this year, with only two new outlets open, sales continued to grow. First quarter sales were up 33 percent to $326.1 million and May sales jumped 31 percent over last year to $121 million. If, as analysts have predicted, a slump is in store for the industry leader, the time has evidently not arrived. Comparable store sales during the first quarter were up a healthy, if less than dazzling, 5 percent, dipping to 4 percent in May.

According to the company's president, Richard Sharp, Circuit City believes it can grow to about $4 billion. A key to that growth is its superstore format, which has seen the company replace small 10,000-square-foot outlets with far larger 32,000-square-foot stores. As it opens more superstores and converts or replaces older ones, the gross sales per store will naturally grow. At year-end, 76 of the 105 stores were superstores.

Perhaps due to the explosion in consumer electronics over the past few years, a slump over the next year or two is almost inevitable. At the Chicago CES expo last month, truly new products were few and far between.

Many smaller retailers were under the impression that new compact disc recorders would be available in the near future; however, the technology, presently being developed by Tandy Corp., is at least two years away.

Likewise, the announcement that Teac will introduce digital audio tape recorders to the American market this month was met with far more press attention than dealer interest. The handful of machines scheduled to go on sale will retail for more than $5,000, and widespread availability of digital audio tape recorders in a more affordable price range is probably two or three years away.

That leaves one exciting product, Sony's 8mm personal video player. With over 1,000 movie titles now available, and a lot more due to be released, this product could turn out to be the Walkman of 1989. However, there are questions regarding availability and the price point (over $500) may be too high for most consumers.

For now, Circuit City's growth will continue to be primarily at the expense of its competitors, as it moves into new markets and expands in older ones. However, other regional chains are also growing, and traditional discount stores seem poised to jump back into consumer electronics, which means the market is going to be a lot tougher through the next year or two than it has been in recent years. Circuit City will continue to grow; the question is "how much?"

PHOTO : Circuit City posted its fifth consecutive year of record sales last year. Despite a

PHOTO : second-half slowdown in the market, net earnings increased 43 percent.