Discounters enter L.A. ring to compete for CE crown - consumer electronics stores in Los Angeles, CA

Discount Store News, Jan 2, 1995 by Pete Hisey

LOS ANGELES -- Until recently, consumer electronics retailing in the nation's largest market (about 8 million consumers and $3.1 billion in consumer electronics and appliance sales) was a good decade behind the times.

Apart from a glitzy The Good Guys, the market consisted primarily of old show-rooms built in the '70s, and some run-of-the-mill Silo and Circuit City stores built in the mid '80s.

Best Buy's announcement early in '94 that it would invade the market with up to 30 stores changed all that. Adray's of Los Angeles, the nine-store local chain, quickly unveiled a new superstore prototype. (The first debuted in August, but grand openings of all three were delayed to coincide with Best Buy's Nov. 11 grand opening.) The chain will eventually replace most of its older stores, which recall old Crazy Eddie or Newmark & Lewis urban outlets, and build new ones, raising store count to nearly 35.

From the software end, Virgin Megastores, which is jointly owned by Virgin and Blockbuster, is expanding its presence in the market and building larger stores with increasingly dominant sku counts. Its latest, due soon in San Diego, will be 65,000 sq. ft. and stock 125,000 music and video skus. Blockbuster is also building its own music superstores, which when combined with existing powers like Tower Records, Where-house, Musicland and Best Buy, may make the Los Angeles market one of the best-served in the United States.

The proliferation could also ignite a price war in music, and possibly in CE. An Adray's staffer, who has worked for various L.A. chains over the years, noted that "Los Angeles has never experienced a price war..." and wondered if Best Buy, which is notoriously tough on price, might start one.

That seems, at least for now, unlikely. Best Buy's entrance into the market featured several sharply-priced grand-opening items, but none of the virtual giveaways ($29 black & white TVs, for instance) that often mark a consumer electronics market invasion.

Best Buy contends that its entry into a market generally makes the electronics pie larger for all concerned. Senior vp Jeff Abrams noted that recent Sound Scan results in Chicago and Atlanta indicated just that, at least in the music arena.

In any case, most competitors had adjusted their prices well in advance of Best Buy's openings. The Good Guys, for instance, lowered prices on some products like camcorders, Best Buy's strong points. The San Francisco-based chain also reconfigured its extended-warranty program, according to Johnson Rice analyst David Childe, to offer more value and, by renaming the warranties "preferred purchase guarantees," to blunt somewhat Best Buy's ultra-aggressive pricing ($39 or less on every warranty of four years or less) and an even more aggressive warranty margin strategy. (Best Buy makes about 25% gross margin, compared to 70% and higher at most chains.)

The Good Guys also ran an opening-week circular featuring multimedia computers, items Best Buy tends to highlight during its grand openings, blunting the effect of the opening somewhat; the same week it ran a 15%-off promotion on all Mitsubishi products, highlighting a prestige brand that Best Buy doesn't offer.

Circuit City hardly reacted at all, simply offering some off-brand and/or masked-brand specials in its weekly circular. The specials, like a 25-in. stereo TV for $279, are most likely branded products with the brand information deleted in ads to bypass suppliers' MAP requirements.

The company plans to open new stores in the market next year, and may shift to its experimental open-floor stores, which look a bit like Best Buy's in L.A.

Adray's offered a few knockout prices, like a VHS camcorder with 8X zoom for $399. Adray's, too, removed brand names from some advertised products, and featured upscale brands like Mitsubishi and Hitachi in its circular. It shifted from full commission to a blending of commissioned and noncommissioned sales help.

The chain has also added feature-rich, low-priced multimedia clones, like Amerigo and PC Professional, to its mix to differentiate itself from Best Buy, which carries only national brands like IBM, Acer and Compaq.

Fry's, a California institution with a rabidly loyal shopper base, didn't react at all.

The real war in Los Angeles is more likely to involve real estate than price. Best Buy West Coast regional manager Phillip Lee said the best sites are going fast. Best Buy commonly has to buy out the leases of two or three small businesses to get an adequate plot of land in a desirable location. In many of its locations, the chain is outstripping its parking space supply, forcing it to shuttle its employees in from distant leased satellite lots to provide parking for paying customers.

Competition for those sites is stepping up. Adray's, Fry's, The Good Guys and Circuit City are planning new stores in L.A.