Tops Appliance City, Inc. History

Address:

45 Brunswick Avenue
Edison, New Jersey 08818
U.S.A.

Telephone: (908) 248-2850
Fax: (908) 248-2719

Public Company
Incorporated: 1970
Employees: 1,900
Sales: $421.3 million (1995)
Stock Exchanges: NASDAQ
SICs: 5064 Electrical Appliances, Television & Radio Sets; 5722 Household Appliance Stores; 5731 Radio, Television & Consumer Electronics Stores

Company Perspectives:

Tops' business strategy is to be the dominant retailer of home appliances and consumer electronics in each of its markets by developing customer loyalty through a marketing program that emphasizes price, service, and selection.

Company History:

Starting with a tiny store in New Brunswick, New Jersey, Leslie S. Turchin developed Tops Appliance City, Inc. into one of the leading retailers of home appliances and consumer electronics in New York and New Jersey, with eight megastores. The company ranked seventh nationwide among consumer electronics chains in 1993, and the following year recorded the highest sales volume per square foot of any publicly held retailer in the United States. The company was unable to maintain such momentum, however, in the fiercely competitive greater New York City metropolitan market and faced some challenges in the mid-1990s.

Private Company, 1970-1991

Turchin started out in the electronics and appliance business at the age of nine, working part-time in his father's store in Linden, New Jersey, a gritty, industrial city south of Elizabeth and Newark. After high school he worked in the family business full-time, but had to leave, he told a reporter, "because my father wouldn't pay me a living wage. He only paid me $125 a week gross, while my rent was $145 a month." Turchin joined Sears, Roebuck and Co. at the age of 23 as an appliance salesman in 1965, and he then joined Kelvinator Inc. as a regional sales representative in 1969.

Armed with a $25,000 grubstake, Turchin, at the age of 27 or 28, went into business himself in 1970 by purchasing Tops TV & Appliance in downtown New Brunswick. This "closet-sized" 1,800-square-foot store, across the street from a closed Sears, was in an area later cleared for urban renewal. "When I started," Turchin related to an interviewer, "it was me, one full-time salesman, one part-time bookkeeper and a part-time driver, and we used to get a driver's helper--a stew bum off the street."

Turchin remained there until 1979, when he more or less traded some New Brunswick real estate for a shopping center in nearby Edison that included a closed W.T. Grant's. He recorded sales of $9 million in the first year and eventually was able to take over the entire Grant building, a 45,000-square-foot structure that, arguably, was the first superstore in the consumer electronics industry.

Tops Appliance City reached $158 million in sales in 1985. In 1987 it ranked 13th nationwide among major appliance retailers. A second New Jersey store opened in Secaucus in December 1986 and a third in East Hanover in April 1988. By the following year Tops, having made a name for itself by deep discounting of television sets and video hardware, also was catering to the high-end audio market and looking to cellular telephones and home office equipment like facsimile machines for further growth.

By the time the fourth Tops Appliance City opened in Lakewood in May 1990, the company was selling 100,000 color television sets, 104,000 air conditioners, 90,000 boom-box radios, and 75,000 washing machines per year. Revenues rose from $211.9 million in 1988 to $266.2 million in 1989 and $293.7 million in 1900. Net income of $1.8 million in 1988 rose to $4.1 million in 1989 but dipped to $2.3 million in 1990. In 1991, Tops Appliance City's last full year as a private company, revenues were $300.3 million and net income was a record $5.3 million.

Ingredients of Success

The components for Tops Appliance City's success included high-powered salesmanship, customer service, user-friendly store locations and environment, low costs, and bargain prices. Turchin urged his sales force not only to make the sale but to get the customer's repeat business. Tops vowed to undercut any rival's price, offering a $100 reward if it failed to do so, and gave its salespeople carte blanche to bargain with shoppers seeking further price concessions. To raise profit margins in the face of its low prices, management pressed the sales force to pitch lucrative extended warranty contracts. Presiding over his enterprise from a plain desk by the front window overlooking the sales floor of the flagship Edison store, Turchin cast an intimidating and frequently foul-mouthed presence--one he furthered by shaving his head and pumping iron.

Tops Appliance City's huge stores were airy, clean, bright, and logically laid out, with an emphasis on disciplined product presentation, attractive in-store displays, and efficient checkout procedures. It offered the full line of models from each of its vendors in all of its major product categories, but with greater inventory depth at the middle to higher price levels than most retailers. Merchandise was deployed by size, increasing in bulk from the front to the back. Eventually the company began placing all impulse products within reach of consumers on the retail floor. "People want to see the merchandise stacked up, pick up the one they like and walk out with it," Turchin told an interviewer. "That works great in certain product categories."

On the other hand, Turchin added, some products "require knowledgeable sales personnel to walk the customer through the various manufacturers' selections. If you have 300 different televisions on display, you do have to have knowledgeable people available to answer questions." Tops's sales people were trained to specialize in a certain product category, explain the options to prospective customers, and demonstrate them on the floor.

Tops Appliance City assigned 70 people to customer service to assure patrons of fast, hassle-free shopping. It offered free delivery and the removal of old appliances, cartons, and packaging. To keep its costs low, it typically placed its stores in existing buildings, and it used its high-volume trade to whittle suppliers' prices. To cut down pilferage, all workers, including executives, were checked by a security guard before leaving the warehouse.

Perhaps Tops's most distinctive feature was its belligerent advertising. In newspaper ads the company promised to "humiliate" its competitors. Noisy radio commercials in the same in-your-face vein ended with the signature phrase "Fuggedaboudit!" delivered in impeccable Brooklynese. Television commercials, which began with the opening of the Lakewood store, featured "Topsy"--a cartoon character, wearing a propeller beanie, who resembled the company founder--performing antics such as loading a pile of rival retailers into a car and hurling it over a cliff with the epithet, "So long, LOSERS!"

Tops Appliance City struck below the belt at competitor Nobody Beats the Wiz! by placing its logo in the urinals of Tops's men's restrooms. When threatened with a lawsuit, the company halted this practice. In 1996, however, the Wiz charged Tops in federal court with falsely claiming that its prices were lower. Earlier, in 1993, New Jersey had collected $90,000 from Tops to settle its charge that the company had not made good on a number of the claims it had advertised. In 1994 Tops agreed to pay a $36,000 fine and change some advertising practices that the state of New York found to be deceptive, including, said the attorney general's office, "phony discounts and items for sale when there was only one of each item available in each store."

Going Public and Moving into New York

Goldome Strategic Investments Inc., a venture capital arm of Goldome Savings Bank of Buffalo, New York, which later became GSI Acquisition Co. L.P., took a 49 percent stake in Tops Appliance City when Tops became a limited partnership in 1988. To retire debt and raise capital for future expansion, Tops became a public company in August 1992, collecting about $24.4 million from the initial sale of its stock. Turchin retained about 37 percent of the shares and GSI kept more than 35 percent. GSI's holdings were turned over to Westinghouse Electric Corp. in 1993 as part payment for a GSI loan from Westinghouse Financial Services Inc.

Tops Appliance City opened its first New York store in October 1992. Located in Hawthorne, north of New York City in prosperous Westchester County, it featured the company's biggest home office department, including new Apple Macintosh Performa computers to which a specially trained sales force had been assigned. (Tops was one of the first consumer electronics retailers to make a major commitment to computers.) The store also featured a "home entertainment" room adjacent to the selling areas for audio and big-screen television. Also new for Tops, and exclusive to this location, was a 4,400-square-foot home fitness area offering treadmills and stationary bicycles and gyms.

Tops Appliance City entered the Long Island market by opening its sixth store in Westbury in September 1993. A store in New York City's borough of Queens was added a year later. (The company also opened its fifth New Jersey store, in Union, in late 1993.) The expansion of the Tops chain placed the company second to Nobody Beats the Wiz! in its field in the metropolitan area and enabled its revenues to rise from $344 million in 1992 to $411.4 million in 1993 and $461.6 million in 1994. Expansion entailed higher costs, however. Net income rose from $1.8 million in 1992 to $4.7 million in 1993 but dropped to a minuscule $217,000 in 1994. A share of company stock, $14 when the company went public in 1992, rose as high as $30 in 1993 but fell to a low of $5 in 1994.

Redirection in the Mid-1990s

Tops Appliance City appeared to have fallen into deep trouble in the mid-1990s. National firms like Best Buy, Circuit City, and Incredible Universe were poised to enter the volatile, low-margin New York market, which had seen high-profile retailers like Crazy Eddie and Newmark & Lewis fall by the wayside. After discounting store expansion, Tops Appliance City's revenues fell by 15 percent in 1994. With sales volume continuing to drop, Turchin turned over day-to-day operations in June 1995 to a newcomer, Robert Gross, who became chief executive officer. Turchin was said to have become more and more withdrawn since the death of one of his two sons in 1994.

In an open letter to Tops customers, posted on the store doors and also advertised in newspapers, Gross announced a 45-day lowest-price guarantee, the longest in the market. He promised that the products Tops advertised would be in stock, offering either a rain check or a product upgrade if they were not. All products would now bear a computer-printed fact tag and a fixed price. To cut costs, however, the company established a $30 delivery charge for major appliances.

Under Gross's management, Tops Appliance City's sales force abandoned its practice of diverting customers' attention from low-end advertised specials to higher-margin goods and its pressure to take out extended warranty contracts. Sales personnel began cutting shoppers some slack, allowing them to browse the floor unaided. Fixed, final prices, at a reduction of about ten percent, replaced the higher ones that customers had been expected to bargain down. This eliminated the haggling that women especially disliked, according to Gross, who said women seldom shopped at Tops even though they were making 50 to 60 percent of the buying decisions in consumer electronics. Another move to a kinder, gentler Tops was the elimination of the Topsy cartoon character after a study found that it alienated 80 percent of the women surveyed.

At the end of 1995 Tops's primary products were major appliances such as refrigerators, air conditioners, washers and dryers, vacuum cleaners, housewares, and home fitness equipment; and consumer electronics such as television sets, videocassette recorders, camcorders, personal computers, and home and car audio equipment. It offered a broad range of high-quality, nationally recognized brand names within each product category, displaying in excess of 5,000 products and maintaining more than 9,000 products in inventory. During 1995 major appliances accounted for 50 percent of sales, consumer electronics comprised 46 percent, and extended-service plans and miscellaneous income made up the remaining 4 percent. A commercial sales division, established in 1995, accounted for about 11 percent of revenue by selling to small and independent retailers, builders and landlords, corporate buying groups, clubs, and others.

Customers were able to pay for their purchases by cash, check, or credit card, which included Tops's own proprietary credit card. In 1995 25 percent of all sales were paid for with this card. Other credit cards accounted for 50 percent of sales, and other forms of payment were used for 25 percent of sales.

Tops's eight stores were located in heavily populated areas easily accessible from major highways and with adequate parking for high sales volume. They ranged in size between 45,000 and 120,000 square feet. Only the Queens building (and the adjacent land) were owned by the company; the others were leased. The Edison store and the company's 547,000-square-foot warehouse and distribution center at its headquarters, also located in Edison, were being leased from Turchin. Deliveries to customers' homes were being made using trucks owned by independent owner-operators.

Tops Appliance City ended 1995 with a nine percent fall in revenue to $421.3 million. When considering that the Queens store had been open all of the year but only part of 1994, the comparable store-by-store drop in sales was 20 percent. The company incurred a net loss of $1.9 million for the year, jeopardizing, and probably dooming, its plan to open a ninth store in Brooklyn in late 1996. The company's long-term debt at the end of 1995 was $80.6 million.

In June 1996 Tops laid off about 100 managers and corporate staff to reduce expenses. Gross assumed the job of chief financial officer in addition to his other duties. In a prepared statement the company said that the job reductions and "other programs already implemented" were expected to reduce selling, general, and administrative expenses to about $82 million in 1996 from $97 million in 1995.

Tops Appliance City's prospects were bleaker than ever at midyear 1996. Revenue of $150.6 million in the first half of the year was down about 25 percent from $203.5 million during the same period in 1995. The company lost $5.7 million during the first half of 1996.

Tops Appliance City, Inc. History

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