According to Circuit City Inc., "the consumer-electronics industry is growing faster than the speed of digital sound."
That may be an exaggeration, but for the consumer-electronics retailer, it is not far from the truth. For, thanks to the boom in sales of videocassette recorders, video cameras, color televisions, stereos and microwave ovens, sales by the Richmond-based company have increased by more than 500 percent since 1981.
Today, with annual sales above $700 million and with 73 stores, Circuit City is the nation's largest specialty retailer of consumer electronics. The specialty retailers sell primarily electronic goods and compete against department stores and large discount stores that sell similar products. Company officials are determined to maintain Circuit City's market position -- even in the face of mounting competition and an expected slowdown in the rapid growth of consumer electronics sales during the years ahead.
"Corporately, we are firmly committed to market dominance," President Richard L. Sharp recently told a group of financial analysts.
While many industry experts expect consumer-electronics sales to grow by only 5 to 10 percent a year -- down from the 20 percent annual growth rate experienced earlier in the decade, Circuit City still "intends to grow 20 percent a year," Sharp said last week.
To reach that goal, the chain plans to open more than 20 stores a year, especially in new geographic areas where growth can be quickly noticed and measured.
Within the past year, Circuit City opened large "Super Store" showrooms in Atlanta and Los Angeles. The new stores sell major appliances, such as refrigerators and dishwashers, in addition to the televisions and stereos that the chain traditionally has sold in the Washington area. Already, financial analysts on both coasts say results show that the chain is taking both towns by storm -- so much so that one of the Los Angeles stores posted the second-largest volume in the chain earlier this year.
By the end of the year, Circuit City hopes to be the dominant retailer in both cities -- capturing the largest share of the consumer-electronics market in spite of heavy competition from more well-entrenched retailers, such as Federated Group. Within a year, it will have five stores in Atlanta and 17 in Los Angeles.
"It'll be close, but it's conceivable they will soon become the dominant retailer in Los Angeles," acknowledged Barry Bryant, a financial analyst with Drexel Burnham Lambert Inc.
In Atlanta, with fewer stores, the repercussions already are being felt, and one electronics store has filed for bankruptcy, an analyst said.
One of the next markets Circuit City plans to enter is Baltimore, where the chain will tackle longtime leader Luskin's Inc.
"There's a large market out there, a lot of mom-and-pop stores that can't offer value, selection and service," Sharp said. "I wouldn't want to be a mom-and-pop operator. The electronic specialists will continue to take market share away from other distributors."
Circuit City's ambitious expansion plan comes after a tough year for the company -- as evidenced by its flat earnings. Although exact financial figures for its latest fiscal year, which ended Feb. 28, will not be released for another two weeks, financial analysts say the company's profit will be about the same as last year: $20.2 million. Bottom Line Hit
Despite a 35 percent increase in sales, the company's bottom line was hit hard by two key business decisions. Four years after it purchased the Lafayette Radio Electronics chain in New York, the company decided to bail out last February after concluding that it could not be the market leader in the nation's leading consumer-electronics market.
"If we'd have been willing to stick it out, while we might have not been the leader, we might have been a strong No. 2," said Sharp. But, he added, "it was a structurally different market" than Circuit City was used to. "It is a market where the consumer seems to enjoy intense negotiation on the sales floor. That's a lot different environment than we encounter elsewhere. Given the extra management time it would take us because it was different," the company decided to close stores and and devote its attention elsewhere, Sharp said.
At the same time, the company was making a key shift in business strategy in Los Angeles, where for years it had a small presence, running the consumer-electronic departments in Zodys discount stores. Disappointed with the return it was getting from the chain (which has since gone into bankruptcy), it decided to pull out of the stores and open new, larger stores. In the process, sales fell off further than expected at Zodys, and it took longer than expected to open the "Super Stores." On top of that, to keep the good salespeople during the transition, "we were carrying double staffs during the summer and fall," commented Lawrence A. Wilson, assistant treasurer.
Meanwhile, Sharp also had to deal with a lawsuit from the Securities and Exchange Commission, which in June charged him with using inside information to profit illegally from the purchase of stock in his rapidly growing company. The suit went to trial last month, and Sharp was acquitted. The SEC has made no decision on whether to appeal the case.
At the same time, the company was undergoing a management transition, as the family that created and ran the firm for the past 36 years ago stepped down. Alan Wurtzel, son of founder Sam Wurtzel and chief executive officer for the past 14 years, announced in June that he would relinquish that post this June. Wurtzel will retain the chairmanship, but Sharp will take over as chief executive, overseeing the day-to-day operations.
"We're now ready to go," Sharp said. With the elimination of the Zodys and Lafayette operations, "we got rid of our two underperforming elements in the corporate mix. We're now concentrating exclusively on the Circuit City Super Stores and on an expansion program in high-growth, attractive markets."
Super Stores will not be coming to Washington, despite the area's importance to the chain. The 10 Washington stores account for 22 percent of all consumer-electronics sales in the area, according to Circuit City officials. For the company itself, these stores ring up between 10 and 15 percent of its entire business.
For the time being, Circuit City will continue to expand here with smaller stores devoted exclusively to electronic goods; major appliances still will be left out of the mix.
"If we were coming to Washington for the first time, we would come with Super Stores. But we're not, and we've been very successful with our stores as they are." Sharp said it would be too difficult to add major appliance departments to new stores, not only because it would require more real estate -- which is difficult to find -- but because it also would present a confusing picture to Circuit City customers who would not always know which store sold what. Firm Founded in 1949
Circuit City has come a long way since 1949, when Sam Wurtzel founded a television store just after the city's first television station opened. The store initially was named Wards, an acronym for Wurtzel, his sons Alan and David and his wife Ruth.
In the 1960s, the company began expanding outside of Richmond, selling appliances and consumer-electronics products in leased departments of discount stores. Then, in the late 1960s the company acquired several chains of appliance stores, including Dixie Hi-Fi, which brought the company into Washington.
Alan Wurtzel, a lawyer by training, assumed leadership in 1972 and played a key role in developing the company's growth strategy, foreseeing when it was time to change tactics and move into new areas and new methods of selling the merchandise.
Circuit City sold stock to the public for the first time in 1969 and for years was the only specialty electronics retailer that was publicly held. "It was only three years ago, after the boom of videocasette recorders, that we've seen a whole new segment of retailing and a rash of other publicly traded electronic retailers," said Kenneth M. Gassman Jr.
Today, there are about 12 such companies selling stock to the public and more coming onstream every month.
Despite Circuit City's position in the industry -- the largest in sales and the oldest of the publicly traded specialty consumer-electronic retailers -- Circuit City faces many hurdles in the years ahead, financial analysts say.
For one thing, "all companies in the industry will have to contend with a less robust product environment" noted Drexel Burnham's Bryant. "In the next decade, there won't be anything as dramatic as VCRs. There will be compact discs, cellular telephones, robots, voice-activated VCRs and televisions and satellite discs. These will make up some for some of the growth, but there won't be anything as great as the VCR. Prices will also stabilize, so there will not be the market stimulus that there has been the past few years."
What's more, Circuit City will face increasing competition from a host of almost look-alike rivals that all are trying to enter new markets to capture a larger share of the highly fragmented industry.
"Finding new areas for expansion is going to be a challenge," Bryant said. "Once you saturate Los Angeles, where do you go?" he asked. Nearby areas all have been slated by competitors for similar penetration.
And while the small specialty firms are giving Circuit City a tough fight, so too are the larger chains. Sears, for example, is beginning to sell branded consumer electronics made by RCA. Other large retailers "with deep pockets could really make a dent in this industry" if they wanted to enter, added Gassman. Most Analysts Confident
Nonetheless, most financial analysts are confident that Circuit City will maintain its lead in the industry for now. Its stock, sold on the New York Stock Exchange, is selling at about $39.25 a share. Although that price is down from its recent high of $44, it is more than double the price of five months ago.
"Circuit City doesn't necessarily have the best management," Gassman said. "It doesn't have the best geographic locations in the United States, although close to it. It doesn't really have the best mix of stores, either. But on balance, its product line, geography, management and its aggressive marketing makes them the best all-round consumer-electronics retailer in the country. While some other chains may have some better individual pieces, Circuit City has the best mix of factors to make it successful."