A retail survivor charges ahead.
New megastore tests Abt's mettle

February 11, 2002
By H. Lee Murphy

The staying power of Abt Electronics & Appliance, one of the largest and most successful local family-owned retailers, will be put to the test next month when it relocates to a 350,000-square-foot megastore in Glenview.

Abt has carved out a prosperous niche selling Sony TVs and Sub-Zero refrigerators to well-heeled North Shore shoppers, generating an estimated $200 million a year in revenues. On any given Sunday, Abt's Morton Grove store is abuzz with sharp-talking but knowledgeable sales people walking homeowners through the fine points of dishwasher settings, gas burners and microwave ovens.

But the 66-year-old family business is moving into its $25-million showroom and warehouse at a difficult time.

The recession is likely to cast a pall over sales of appliances and electronics, which slipped 1% in the U.S. last year, to 64.6 million units. Meantime, virtually every other retailer has turned its back on the single-store concept in favor of building branches to reach out to more customers. And national chains are on the hunt.

The country's No. 2 appliance retailer, Lowe's Cos. of Wilkesboro, N.C., is planning to enter the Chicago market and is seeking a dozen or more store sites here. A California chain with a devoted West Coast following, Frye's Electronics Inc., has acquired a site in Downers Grove, where it plans a 150,000-square-foot store, and is looking for more real estate.

In the past year, Atlanta-based Home Depot Inc. started selling appliances for the first time and rolled out its elite Expo Design Center concept, now in four suburban Chicago locations.

"I've watched the other guys come and go for 40 years now. We can compete against anybody," insists CEO Robert Abt, 63, invoking the names of such erstwhile rivals as Polk Bros. Inc., Silo and Highland Appliance.

Maybe he can, but Mr. Abt's company is following a decidedly contrary path.

"You can get lots of sales exposure by branching into more towns and becoming convenient to your customers," says Mark Reckling, president of family-owned Grand Appliance Co. in Waukegan, which has expanded over the past decade by moving into stores vacated by dissolving independents such as North Shore Refrigeration in Skokie and Ferguson's in Libertyville.

The ranks of electronics and appliance retailers have been thinning for years. Elly Valas, executive director of the North American Dealers Assn. in Lombard, estimates there are just 7,000 left in the U.S., down from 30,000 in 1970. Among the survivors, she says, Abt is seen as a model.

"Independents face great pressures in competing against the national chains," she says. "Yet, we did a survey of 40 major electronics and appliance manufacturers recently and asked them to tell us who their best dealers were. Abt appeared on every single list."

Michael Abt, the 38-year-old president and Robert's son, says sales have increased at a double-digit pace every year in the past decade. He won't discuss returns, but competitors estimate the company enjoys gross profit margins of 20% and, after investing about 4% or so in advertising, nets perhaps 3% to 4% after taxes.

Singularity works

The single-store format has worked for Abt. An array of products can be displayed, loudly promoted as bargains and still be subject to a final negotiation.

Actually, Abt's prices run close to those of rivals. A Maytag Performa dishwasher advertised for $300 was available at the same price last week at little family-owned Sou-kup Appliances in Glen Ellyn.

"People think they're getting a good price at Abt, but a lot of that is illusion. We all belong to national buying co-ops and guarantee that we'll match each others' prices," says co-owner Douglas Soukup.

Michael Abt acknowledges that his store doesn't profess to always have the lowest price. "We'll match anybody else's price here. We're also willing to haggle, though we do it in a discreet fashion. Bottom line is, we don't like to see anybody leave the store without buying something because they think our prices are too high."

As chains such as Best Buy have gained a stranglehold on the low end, Abt has emphasized its in-house repair service and staked out a position selling $4,000 Viking ovens and Sub-Zero refrigerators. Rivals estimate the company makes less than $200 on the sale of a $1,000 Sony television, but for selling the latest $7,000 Sony plasma TV, it earns close to $1,400.

Such high-end products now represent more than 10% of company wide sales. Orders over Abt's Web site account for another 10% — far beyond what most other retailers are doing online.

Some of Abt's revenues have come by default, inherited from rivals exiting the business.

"After we closed, Abt picked up a lot of our customers, as well as our best salesmen," says Howard Polk, former president of Melrose Park-based Polk Bros., which had 17 stores before it went out of business in 1992.

Style over size

Mr. Polk likes Abt's single-store concept. "With one store, you can keep control over your sales force and your inventories at the same time," he points out.

Michael Abt, who works with three of his brothers, acknowledges that his family has been tempted to build branch stores and take the company public.

"But service would suffer if we began branching, and if we were a public company, we'd be under pressure to show growth every quarter," he says. "We have our own style of business here, and we think it works well."

©2002 by Crain Communications Inc.