Crazy Eddie takes saner approach to biz - consumer electronics retailer - company profile

Discount Store News, August 22, 1988

Crazy Eddie Takes Saner Approach to Biz

NEW YORK--Crazy Eddie's prices may be, as its TV ads claim, "insane," but the troubled CE retailer's plan to return to profitability is, if anything, down to earth.

Among the steps instituted by new management are a remodeling program, retraining of employees, introduction of home office equipment, accentuation of certain growth categories and de-emphasis of other product groups.

The remodeling program, which so far has affected three metro New York stores, is designed to draw customers through the entire store and to establish or re-establish Crazy Eddie as the dominant metro area dealer in several merchandise categories. Foremost among these are camcorders, color televisions, fax machines and mid-to upper-level audio equipment. Additionally, the company plans to become a significant player in the home computer market.

According to company president Elias "EZ" Zinn, Crazy Eddie is on its way back from the debacle that began when founder Eddie Antar and his management group were forced to resign, and Zinn's Entertainment Marketing Corp., after purchasing the foundering company, discovered evidence of fraud and a whopping $65 million shortfall, mostly in missing inventory. Antar, who has since gone into hiding, faces shareholder and management lawsuits and probable criminal prosecution for his role in the alleged fraud.

The net result now is that the company has a negative net worth, and its customer base has been whittled down by a series of out-of-stocks which resulted when several key manufacturers interrupted shipping to the chain. According to Zinn, the company has reached a break-even cash flow, and that, presumably, will speed up manufacturer shipments over the rest of the year.

In addition, service levels, never a Crazy Eddie strong suit, suffered as longtime employees left or were terminated. All told, about 40 percent of the company's store level employees have turned over, Zinn said.

In reaction to that, the retailer has instituted extensive training programs to improve service and has added an incentive bonus plan for floor employees to raise productivity. The key to a turnaround, however, might be the remodeling program.

The new format is very different from the old Crazy Eddie. For instance, records, which in older designs were placed at the entrance, have been moved upstairs (in one-floor operations, they're located in the back of the store) in order to increase customer flow through other, more profitable departments.

So far, in a very brief time, the new approach seems to be working. The reformatted stores are much more productive, Zinn said.

A key to the new format is the introduction of a home office department, which features fax machines, personal copiers, personal computers, word processors, and electronic typewriters. Zinn noted that the department is far from complete, but negotiations for more products are continuing and a full complement will be available by November. At present, the department sells an Epson Apex computer, with color monitor ($949.99) or monochrome ($749.99), two Packard Bell systems and the Vendex Head Start system. It also carries Sharp and Canon personal copiers; electronic typewriters from Smith Corona, Panasonic and Brother; personal word processors from Panasonic (the W1500 at $899.99) and Magnavox; and Toshiba and Sharp fax machines. The company plans to add an extensive selection of computer software by early winter.

Dominant in Camcorders

According to Zinn, Crazy Eddie plans to dominate the camcorder market this year. It carries 16 major manufacturer models, and merchandises them up front to emphasize the dominance message.

Crazy Eddie also makes a statement in color TVs (a full wall at the front of the store), telephones, cellular phones, TADs and projection TVs. The chain may also upgrade its audio component assortment, which is, at present, aimed more at mid-level consumers than at audiophiles.

With the recent acceptance by stockholders of a bond exchange program that Zinn estimates will give the firm a positive net worth and promotions projected to increase cash flow, Zinn is confident that the beleagured chain can return to profitability.

"We've beaten our plan consistently, by 23 percent in June and by 2 percent in July," Zinn remarked. "The projections for the rest of the year are favorable, and I think we could turn in a pretty good fall. If we can get our systems in line, we should be able to turn the corner."

That may be easier said than done. Many manufacturers stopped shipping to the retailer last year, and the company has struggled to reopen supply lines. Gaps remain, and replenishment is still relatively slow.

Overall, however, the out-of-stock situation has improved dramatically from six months ago. According to Zinn, remaining holes will be filled in as the company records more time at or over plan. He credits much of the financial improvement to chief financial officer Frank Fuino, a recruit from Allied Stores, who serves as Crazy Eddie vice president and treasurer. "He has built up new systems and controls," zinn said, adding that the Antar regime had few, if any, such systems.