Sharp touts potential of CarMax - Circuit City's used car division, CarMax; Chairman and CEO Richard Sharp - Editorial

Discount Store News, Nov 4, 1996 by Ed Rubinstein

NEW YORK -- The notion that "a rose is a rose" can apparently be extended to retailing, too.

"We can apply our expertise in electronics retailing to auto retailing." This was the mantra repeated by Circuit City chairman and ceo Richard Sharp during an address at an automotive retailing conference held here recently.

While the fledgling CarMax division received most of the focus, given the theme of venue, Sharp noted that the core electronics chain had compounded sales and earnings growth of 26% and 18% since 1986, and that Circuit City's domestic expansion will continue to fuel corporate sales.

So far, 1996 has been difficult for most electronics retailers, including Circuit City. Its sales for September were flat while comp store sales declined 13%, largely due to lower gross margins and soft PC sales.

Nonetheless, Circuit City has managed to open 15 superstores year-to-date, giving it 394 units, and enter two new markets: Pittsburgh and Detroit. Other units were recently opened in Denver and Colorado Springs, Colo.; Atlanta; Los Angeles; Salt Lake City; Seattle; and Greenville, N.C. An additional 35 superstores will open during the remainder of the year, which will give it 429 units. During 1997, the chain plans to enter New York City, but Sharp would not elaborate on these expansion plants.

As for CarMax, Sharp noted that the company has big plans for the used car division, which opened its first lot three years ago in Richmond, Va. It will open its sixth unit Nov. 6 in Orlando, Fla. CarMax will open eight to 10 lots in 1997 and 15 to 20 stores per year thereafter, with openings in Miami and Tampa, Fla.; Dallas; Houston; Washington, D.C., Baltimore; Tidewater, Va.; Chicago; Los Angeles; and San Francisco. The company plans to have 80 to 90 units chainwide by 2001.

Circuit City realizes that the glaring similarly between power retailing and auto retailing lies in managing costs and finding a way to differentiate its concept from the hoards of new and used car dealerships.

RELATED ARTICLE: Syms, Loehmann's open as NYC debates big box zoning

NEW YORK -- Manhattan is now home to another pair of superstores from the off-price apparel sector.

Loehmann's used an Oct. 21 celebration as fanfare for the opening of its 60,000-sq.-ft. location on Seventh Avenue. The store is sited near the "Ladies' Mile" concentration of power retailers that includes Bed Bath & Beyond, Old Navy Clothing, Burlington Coat Factory, T.J. Maxx, Filene's Basement and Barnes & Noble.

The flagship Syms store on Manhattan's Park Avenue, set to open Nov. 14, will boast 70,000 sq. ft. on five floors. "The merchandise mix is essentially the same," as a typical unit, vp of marketing Doug Meyer told DSN, "but the store is updated. We're showing more contemporary colors and some lifestyle photos."

Voth chains are committed to larger footprints. That means 25,000 sq. ft. to 30,000 sq. ft. for 73-unit Loehmann's, while Syms' newer stores range from 40,000 sq.ft. to 70,000 sq. ft.

"For new Syms sites, we're looking in several markets where we have stores already, including Atlanta, Houston and Detroit," said Meyer, adding that in March, the 40-unit chain opened a 45,000-sq. ft. stores in Cincinnati.

The future of superstore development in New York is complicated by current political maneuvering.

With the debut of Kmart's two locations at Penn Station and Astor place (which opens this month), the imminent arrival of PriceCostco, and the continued transition of highbrow 57th Street and Fifth Avenue into an entertainment/licensed theme mall, New Yorkers are in a hightened state of megastore mania.

Well-to-do Upper East Siders have nearly exhausted their legal appeals in their campaign to block an 80,000-sq.-ft. Toys "R" Us store in their midst. And an Oct. 23 vote by the City Planning Commission upheld Mayor Rudolph Giuliani's zoning plan, which would open the door to streamlined approval of stores up to 20,000 sq. ft.

The Giuliani plan targets hundreds of acres of New York City's idle manufacturing land.

Giuliani's proposed zoning change won on an 8-to-5 vote only after it was amended to allow closer citizen review of traffic plans. But further modifications are likely. Giuliani's rivals in the 1997 mayoral race are raising the ante on this issue, and at least 20 of New York's 51 City Council members reportedly want serious amendments to give community boards greater say over potential developments.

The CarMax division generated sales of $304.5 million in 1995 from four stores, gross margins of 8.4% and a razor-thin operating margin of 1.24%. Mark Mandel, retail analyst with The Chicago Corporation, noted that CarMax must manage expenses very carefully in order to support its pricing strategy. While Mandel predicts CarMax will break the $1 billion sales mark in 1997, he doesn't expect the division to turn a profit before fiscal 1998, which ends February 1999. (He estimates sales of about $629 million for 1996.)

Sharp maintained that the five units currently in operation (Charlotte and Raleigh, N.C.; Richmond, Va.; and two in Atlanta) will show an operating profit for the year ending January 1997.