Best Buy-Onkyo battle heats up

Discount Store News, Dec 9, 1991

MINNEAPOLIS -- The on-again, off-again antitrust battle between CE superstore retailer Best Buy and audio component manufacturer Onkyo, U.S.A., is on again, as a United States District Court judged denied an Onkyo motion to dismiss federal and state price-fixing charges brought against the manufacturer by Best Buy.

The retailer charges that when it shifted its strategy from service-intensive superstores to warehouse-style outlets with less personal service and more rock bottom prices, Onkyo refused to supply the chain with goods. And, Best Buy says, the key reason was not lower service levels, as Onkyo claims, but prices lower than competing chains could offer.

"Best Buy refused to go along with Onkyo's artificially high resale price demands and discounted Onkyo products," the company said in a release.

"The case will now go to trial and we believe that a jury will find in our favor," said Best Buy chief executive officer Richard Schulze, estimating that damages will exceed several million dollars before treble damages related to antitrust laws, should Best Buy win.

Onkyo has vigorously denied the charges, maintaining that Best Buy had slipped below the company's requirements in customer service. The audio component manufacturer has also said that Best Buy was not displaying or servicing the company's products in a manner favorable to Onkyo.

In a separate matter, Best Buy announced an offering of three million shares of the company's common stock at $34.50 in mid-November. The company expects to raise $88 million from the offering, which will be employed to open new Concept II warehouse-style electronics superstores and to retire some short-term debt. Goldman, Sachs managed the offering, along with co-managers William Blair and Dain Bosworth. The underwriters were offered the option of purchasing 450,000 additional shares within 30 days.

And Best Buy's invasion of the Chicagoland market continues apace. The retailer announced that its 1992 expansion plans (partially paid for by the stock offering) will include up to 30 new Concept II warehouse-style stores, 15 to 18 of which will be placed in and around Chicago, where the chain already operates six stores. Best Buy will come face-to-face with Silo, which opened over a dozen stores in Chicago three years ago, and Montgomery Ward's Electric Avenue, as well as local mass retailer Polk Bros.

The company recently completed its invasion of the Houston market, with four store openings late in November, which raised its total store count to 73. With the 30 planned 1992 openings, Best Buy will soon operate more than 100 stores, nearly all of them warehouse-style Concept II stores.