Circuit City Stores Inc. said yesterday it will close all of its New York-area stores next month because of tough competition there and a desire to focus on more profitable outlets in California and the Southeast.
Circuit City of Richmond, which is the nation's largest consumer electronics retailer, also announced yesterday that Alan L. Wurtzel will be stepping down after 14 years as chief executive officer.
Circuit City will close its 15 Lafayette stores in the New York area by the end of March, and is negotiating with several New York-based electronics and appliance retailers to sell the store leases and property, the company said yesterday.
"They are not psychologically suited for competing in the New York market," said Edward A. Weller, a financial analyst with E. F. Hutton Inc. Circuit City was not organized to meet competition that permitted salespeople to bargain with customers and lower prices on the spot, he said. "And they were too small to be really competitive."
The Lafayette stores, which were acquired by Circuit City in 1981 and never have turned a profit, were facing especially tough competition from Crazy Eddie Inc., a New York consumer-electronics retailer, analysts said.
"They're competing head to head with Crazy Eddie, which is the most visible and aggressive New York company in this market," said Michael M. Via, an analyst with Anderson and Strudwick in Richmond.
After pulling out of New York, Circuit City plans to expand its larger Superstores in the Southeast and California. Superstores are large, high-volume stores that offer a broader line of products than the smaller Lafayette stores. Circuit City opened its first Superstore in Richmond in 1975 and expanded the concept to California and the Southeast six years later.
"They want to focus on their stores that are doing well and eliminate their dead weight," Via said. "Circuit City has been doing a tremendous job with its Superstores."
"Circuit City's future growth will be in its Superstores that are 20,000 to 40,000 square feet," said Gary Balter, a financial analyst with Goldman, Sachs & Co. "New York doesn't lend itself to that kind of market, so the Lafayette stores there were not consistent with its strategic long-term plans."
The company opened seven Superstores in California in November, and they are each expected to bring in more than $15 million in annual sales. In addition, the company operates 24 Superstores in the Southeast and plans to open seven more in California in the spring.
California and other East Coast markets offer "brighter long-term profit opportunities" than New York, Wurtzel said. "New York is a different world," he added. "It requires unique merchandising, advertising and marketing philosophies."
For Circuit City's 1986 fiscal year, which will end Feb. 28, the company is expected to report that its sales climbed about 35 percent to more than $700 million from 1985 sales of $519.2 million, according to Anderson and Strudwick.
"But the sales from its New York stores were really a drop in the bucket," Via said. Sales for the Lafayette stores are expected to climb to $85 million from about $65 million last year, he added.
Circuit City's per-share earnings are expected to drop to between $1.80 and $1.85 from last year's earnings of $1.93. The predicted drop in earnings was attributed to the heavy expansion costs in California, which are expected to bear fruit for the company next year.
"By eliminating a break-even or unprofitable operation in New York and having a much higher margin in California, the company should have a much better return over the next two years," Via said.
Richard L. Sharp, president of Circuit City, will replace Wurtzel as CEO, and Wurtzel will serve as chairman of the company. Wurtzel is the son of Samuel S. Wurtzel, who founded the company in 1949.
Sharp was accused last June of using inside information to profit illegally from the purchase of Circuit City stock. In a civil suit filed in U.S. District Court in Richmond, the Securities and Exchange Commission alleged that Sharp bought 5,000 shares of Circuit City stock on the morning of June 21, 1983, shortly before the company announced that its sales jumped 35 percent and its earnings surged 237 percent for the quarter that ended May 31, 1983.
Sharp denied any wrongdoing, and the trial is scheduled to begin on March 10.