A Way to Fight Big Rivals: Play Up Style and Service
By Gwendolyn Bounds
When Samsung went searching for a U.S. retail partner to showcase one of its two specially made 80-inch, $150,000 plasma TVs, it didn't tap any of the big national names like Best Buy Co. or Circuit City Stores Inc.
Instead, it picked a family business with a single suburban Chicago store: Abt Electronics. Same with Danish sound snob Bang & Olufsen, which last week began installing its latest store-design concept at Abt, seeking customer feedback before taking the layout national.
In the cutthroat world of rock-bottom-priced electronics and appliances, Abt takes a different approach. Positioning itself as the "Bellagio" of retail -- a nod to the lavish Las Vegas resort -- it displays many wares in walled-off boutiques within Abt's larger confines, which include an atrium featuring a 7,500-gallon aquarium, a fountain and sculptures. In doing so, it has managed to survive and even upstage ubiquitous rival titans using a tactic that can help small players in many categories: Instead of trying to beat rivals on cost, it is angling to outclass and out-service them. As such, Abt, which says it has sales of over $300 million, has become a testing ground for many manufacturers seeking early feedback on new products and marketing tactics.
Abt's trump card is layout. Part of its 65,000-square-foot showroom in Glenview, Ill., is carved up into unusual store-within-store pods to lure image-conscious brands such as Sub-Zero, Apple and Viking, which don't want all their goods lumped together with lower-end vacuums and dishwashers. Abt runs the sub-stores but the manufacturers help design them and often pay some of the construction and marketing costs. This concept is the only reason Bang & Olufsen A/S, which sells its high-end sound systems and video equipment in the U.S. almost entirely through 50 sleek company-owned stores, finally decided to sell its equipment in Abt.
RULES OF ENGAGEMENT
Small Business editor Wendy Bounds discusses how family-owned electronics retailers
aim to outclass and outservice their rivals.
Abt's strategy expands on a broader retail trend that has taken root in recent years as stores offer one-stop shopping for consumers looking to outfit their homes. Although the housing market has slowed in recent months, remodeling spending has been robust for several years, hitting $168.7 billion in 2006, up 1.5% from a year earlier, according to Harvard's Joint Center for Housing Studies.
In California, a retailer with locations called Pacific Sales Kitchen and Bath Centers Inc. takes an approach similar to Abt's, offering everything from home entertainment to kitchen appliances and plumbing fixtures under one roof. Drimmers in Brooklyn, N.Y., and the Karl's Appliance Stores Inc. chain in New Jersey follow a similar strategy. These stores, along with home improvement giant Home Depot Inc.'s Expo Design centers, have also responded to manufacturers' clamoring for better display of their products by adopting a "vignette" concept, in which several of a company's products are staged in mini-kitchen or living situations.
However, Abt takes it a step further than most, offering a vast collection of larger walled-off spaces with custom lighting and flooring that allow a manufacturer to display a wider range of items than the usual vignettes. Suppliers say the store-within-store concept on this scale is unusual for the appliance and electronics category.
"Our model is like the Bellagio," says 43-year-old Mr. Abt, who runs the store with three brothers and his father. "We have to stand out and be special or we won't get the fancy lines." Its reputation precedes it: Last year Abt sold items online to every state; some 10% of its total sales come from the Web.
For its part, Sub-Zero marketing executives say the Abt retail model allows them to better control the environment in which the company's products are displayed. "Having all our products scattered around a store isn't helpful," says Michele Bedard, Sub-Zero's vice president of marketing. "If you are looking at a Wolf range, the warming drawer wouldn't necessarily be next to it; or a consumer wouldn't necessarily walk by the Sub-Zero wine refrigerator."
A more lavish display environment also entices suppliers to test their newest creations first at Abt, which gives the retailer buzz and clout with consumers. In coming months, Mr. Abt says Panasonic will be adding its new 102-inch plasma TV to his store. He says he tried and failed to sell an in-sink dishwasher called the briva by KitchenAid and had little luck hawking a Whirlpool Polara refrigerated oven range, which can keep a roast cool until time to cook it for dinner. Such feedback can be invaluable to suppliers.
"That's a phenomenal asset to a manufacturer because you can get broad opinion -- work out the kinks -- before going to national distribution," says Debra Joester, of The Joester Loria Group, a New York licensing and branding company that works with companies such as PepsiCo Inc. and Entenmann's. "There aren't many retail emporiums that do this."
Another inducement: service. Abt first opened in 1936 in Chicago's Logan Square as Abt Radio under the leadership of Mr. Abt's grandparents. The store expanded into heaters and appliances and kept growing through the 1970s when it moved to the northern suburbs, following the migration of Chicago residents. It changed locations several times, getting bigger with each new building, until the Abt family finally bought the 37 acres of land the store currently sits on, to comfortably house its warehouse and offices too. Says Mike Abt: "We got the biggest piece of land we could possibly find."
Now Abt is ideally situated within easy reach of Chicago's more monied North Shore and western suburbs. The large amount of space that Abt commands also lets it be a little bit of everything to everybody: In addition to its tucked away high-end brands, the company's main floor also carries a wide range of lower-end and middle-tier items.
Abt employs 220 sales staff who are paid salaries of around $60,000 and up in hourly wages and bonus, plus health care and access to an on-premises gym. They are typically barred from taking the money doled out by manufacturers to entice sales staff into hawking their brands over others. Instead, companies pay such marketing inducements directly to Abt, which disperses it as it sees fit, helping to "level the playing field," says Mr. Schaffner of Samsung.
Meantime, the retailer installs and services every item it sells, employing a fleet of 210 trucks, 40 custom kitchen and home theatre installation crews and a 70-person customer service department on call to fix customer electronics glitches. That is a plus with both consumers and manufacturers in an age of ever-more-complicated machines and gadgets.
The company sells to every state, but only installs items and sends its service reps to customers in a two-hour radius of the store -- including parts of Indiana, Wisconsin and Michigan. With other out-of-state sales, Abt contracts with third-party delivery services and will help customers arrange service via manufacturers' local reps.
This summer, Abt is opening a $5 million design center 200 yards from its main store, which will have additional home items such as bathroom fixtures, lights, and marble countertops, closets, in addition to a coffee, sandwich and dessert store. "The lure is completeness," says George Rosenbaum, CEO of Leo J. Shapiro & Associates, a Chicago-based consumer-research firm. "It's not going to be a wasted trip."
Such an array allows them to offer what Mr. Rosenbaum dubs "no-regret pricing." He says: "It may not be the lowest, but you can be pretty confident that you're not seriously overpaying for things."
Meantime, less than 1% of revenue is spent on advertising; instead word of mouth referrals are the main marketing currency. Says Mr. Abt: "People never let you forget if their oven isn't working today."
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