Circuit City to re-enter Big Apple: scours metro area for sites

Discount Store News, Jan 20, 1997 by Ed Rubenstein

RICHMOND, Va. - New Yorkers will soon find another circular in their Sunday newspapers.

Circuit City is poised to enter the highly contested, and often risky, metro New York area. The chain,s intentions first became apparent last spring when chairman Richard Sharp first maintained that it could no longer overlook New York City.

This will be the company's first foray into the market since its early '80s acquisition of Layfayette Sound fell victim to what was then an "insane" price-driven era, led by the now-defunct Crazy Eddie chain.

Since establishing a Philadelphia-based Northeastern division last spring, Circuit City began to scour the metro New York area for appropriate sites. The 470-unit chain will open 15 metro New York superstores during 1997 and expects to have as many as 40 units in the greater metro New York area by January 1999.

Overall plans for the year ending February 1998 call for up to 65 new superstores and replacements for 10 to 15 existing stores. This will boost Circuit City's Northeastern store count to 59 stores, but only represent 11% of its total units. Most of the superstores will follow the chain's "C" format, which averages about 34,000 sq. ft.

The year will also mark Circuit City's entry into Dayton, Ohio, and Indianapolis, two other opportunistic markets given last year's GOB sales at Fretter and the mounting losses and recently announced store closings at Sun Television & Appliances.

The New York City expansion plans come at a time when the highly promotional electronics business continues to be affected by lower selling prices for PCs. This was further exacerbated by Circuit City's December comp store sales, which fell 13%, continuing the trend of declining same store sales that began last April. Total sales were $1.17 billion, an increase of 4%. The results prompted Dean Witter to downgrade the chain to accumulate from "buy."

Other industry followers painted a favorable longer-term outlook for Circuit City. Analyst Michael Mead, who covers the chain for Baltimore-based Legg Mason, described the chain as "one of the best-run retailers I've seen." Given the difficult state of the industry, Mead added, Circuit City has adopted to market conditions by managing the pace of its growth and clustering its stores in areas where it can benefit from expense leverage.

"With price competition so strong, the fact that they are coming in with a number of stores at one time will allow them to realize expense leverage," Mead said. At press time, Mead's fiscal 1997 earnings forecast was $1.55 per share, which would represent a 17.4% increase from $1.82 per share a year ago.

Circuit City has confirmed two sites in the boroughs of Manhattan and Queens, N.Y., and five in suburban Long Island (Massapequa, Westbury, Lake Grove, Hicksville and Bayshore, N.Y.). Others will be located in Yonkers and Middletown, N.Y.; Livingston, N.J.; and Danbury, Conn. Most of the stores are expected to open during the summer or fall. Clearly, metro New York will represent a hub for Circuit City as it is currently relocating its Northeastern division there from Philadelphia.

Randy Stephen, a 10-year veteran of Circuit City and current vp, Northeastern division, will head up the Big Apple expansion. His group has already started to recruit for field and store managers. He will commence store-level hirings in May. Assisting Stephen are George Puchta, operations manager; Mike Simon, director of human resources; and Phil Hershewe, loss prevention manager.

Mead of Legg Mason feels that Circuit City will be warmly embraced by the Big Apple, adding that its competitively priced software, including CDs, will be a draw for New York consumers.

"From a marketing standpoint, I don't expect them to do anything differently in New York City. They'll price for that market, but the promotional strategies will remain the same," Mead said.

New Circuit City NY stores

Stores expected to open during the summer or fall

* Manhattan * Queens, N.Y. * Long Island, N.Y. (Massapequa, Westbury, Lake Grove, Hicksville, and Bayshore) * Yonkers, N.Y. * Middletown, N.Y. * Livingston, N.J. * Danbury, Conn.