ABC Appliance, Inc.

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ABC Appliance, Inc.

One Silverdome Industrial Park
P.O. Box 436001
Pontiac, Michigan 48343-6001
U.S.A.
(810) 335-4222 Fax: (810) 335-5920

Private Company
Incorporated: 1964
Employees: 1,500
Sales: $340 million
SICs: 5722 Household Appliances; 5731 Radio, TV & Electronics Stores; 7622 Radio & TV Repair

ABC Appliance, Inc., a leading retail supplier of radio, television, and consumer electronics, operates establishments under the names ABC Warehouse, Hawthorne Appliance and Electronics, Mickey Shorr Mobile Electronics, and White Automotive. ABC Warehouse, a chain with locations in Michigan, Ohio, and Indiana, sells appliances, personal computers, and other consumer electronics in a “no frills” warehouse style setup. Hawthorne Appliance and Electronics, an upscale store, also markets appliances and home electronics. Mickey Shorr Mobile Electronics handles and installs mobile electronics, including automotive audio equipment, security systems, and car phones. White Automotive merchandises custom vehicle accessories.

ABC Appliance, Inc. was founded by Gordon Hartunian in 1964 as a single store. The store’s philosophy was based on Hartunian’s belief that consumers were more interested in value and service than in merchandising frills. During the company’s first twenty years in operation, it experienced slow but steady growth.

The mid-1980s marked a period of increased expansion for ABC. In 1984, the company acquired Mickey Shorr Mobile Electronics. In 1985, ABC opened three new stores in the metropolitan Detroit area. By the year’s end, ABC was operating ten ABC Warehouses and five Mickey Shorr outlets.

In a ranking of electronic retailing companies compiled by Consumer Electronics Monthly, ABC was listed 23rd in the nation in 1985. Two of the company’s principal competitors in its primary market area were also listed as national leaders: Highland Superstores, headquartered in Plymouth, Michigan was listed 14th; and Fretter Appliance, headquartered in Livonia, Michigan, was listed 21st. The consumer electronics industry, which included items such as audio and video equipment, personal computers, and telephones, generated revenues of approximately $35 billion annually. An industry report published in the Detroit News in 1985 predicted continued expansion. Although some categories within the industry already enjoyed high market penetration (such as televisions), industry watchers considered their potential for future growth to be excellent because the items were seen as necessities. Other product categories not viewed as necessities also held the potential for significant growth because the numbers of U.S. households owning them was low.

In 1986, ABC opened six more stores. They included outlets in Lansing, Flint, and Grand Rapids, marking the company’s first venture to cities outside the metropolitan Detroit area. Unlike some of its competitors who financed their expansion efforts through public stock offerings, ABC financed its expansion internally. A typical new ABC Warehouse location established during the mid-1980s had 10,000 square feet and cost approximately $1 million. The average Mickey Shorr store was much smaller and cost about $250,000 to open.

By 1988, ABC operated 15 retail appliance stores in Michigan and Ohio and 10 Mickey Shorr retail and installation outlets, all located in Michigan. The company began to focus on advertising to help spur growth. Early ads featured Jim Varney and his “KnoWhutlMean?” slogan. ABC’s position in the market was further enhanced when the NATM Buying Corporation selected ABC Warehouse as its Detroit affiliate. NATM, a large appliance buying group, had previously been affiliated with Highland Superstores, an ABC competitor.

During the late 1980s, ABC pioneered the sale of cellular telephones. The phones were first sold through Mickey Shorr and White Automotive. Although cellular phones requiring installation remained linked to the company’s automotive outlets, an innovation termed the “bag phone” enabled ABC Warehouse stores to sell transportable cellular phones. As a result, ABC achieved recognition as the first NATM member to successfully sell cellular phones at retail.

ABC’s expansion continued at a steady pace. In 1989, ABC opened a store in Southfield, Michigan, a suburb located north of Detroit. The following year, ABC opened an outlet in Port Huron, Michigan. The Port Huron location, 56 miles from Detroit, represented another move into markets removed from the chain’s primary concentration of stores in the metropolitan Detroit area.

By 1990, the chain consisted of 18 ABC Warehouse outlets, 14 Mickey Shorr outlets, and White Automotive. In addition to increasing the number of stores, the company also expanded the number of items sold in its stores. According to one estimate, the mix of major appliances to electronics at the time was about 50/50. To accommodate its growth, ABC purchased a 135,000 square foot building from the city of Pontiac (Michigan) to serve as company headquarters and to provide needed warehouse space. Approximately 15,000 square feet of the building were allocated for the company’s offices; the remaining 110,000 was allocated for warehouse needs. Another change in 1990 was the acquisition of Hawthorne Appliance and Electronics. Hawthorne, a single store appliance dealer, gave ABC the ability to market to new home builders and buyers and to develop a built-in appliance merchandizing strategy.

Despite is growth, ABC’s sales volume in 1990 was still judged to be behind that of one of its major competitors in the metropolitan Detroit area, Highland Superstores. Sales volumes, however, were thought to be ahead of those achieved by another competitor, Fretter Inc. ABC’s expansion came at a time when the market for major appliances was generally considered soft and industry participants were involved in intense competition. According to a report in HFD, market conditions had not diminished ABC’s margins because the price increases imposed by major manufacturers were being passed on to consumers.

Competition within the industry increased when Sears and Montgomery Wards created the “store-within-a-store” concept. Sears opened “Brand Central” and Montgomery Ward introduced “Electric Avenue.” ABC adopted the concept of a store-within-a-store and incorporated the design into its own outlets. The store-within-a-store idea provided a way to present higher-priced and more upscale lines with improved success. By highlighting groupings of products with special features, sales staff members were better able to help customers find desired features and styling aspects than when products were simply placed beside middle-range merchandise.

In 1991, ABC’s advertising campaign titled “Programmed for Growth in These Challenging Times” helped the company achieve its objectives during a year marked by recessionary conditions. The company’s Mickey Shorr outlets also thrived and gained a reputation as specialists in expert installation. Mickey Shorr’s annual sales were estimated at $20 million. The company reported that compact disc players and car security items represented the largest segments of its business. Sales of cellular telephones were also growing. The number of cellular telephones sold in 1992 was up 60 percent over the number sold in 1991.

In 1992, ABC launched a new advertising campaign featuring Sal Richards using the catch phrase “Botta Boom, Botta Bing.” The campaign was aimed at educating consumers on the ABC’s of buying. An innovative advertising promotion offering customers a 50 percent rebate on purchases between $199 and $5,000 drew some criticism, however. Under the terms of the offer, customers who made a qualifying purchase and filled out a form within 21 days, received a cash-back rebate certificate. On the ten-year anniversary of their purchase, the cash-back certificate could be redeemed for the rebate. Rebates were guaranteed by an insurance arrangement. The promotion drew criticism from competitors who noted that ABC had suspended its lowest-price guarantee. Other critics of the promotion claimed that because the rebate was not adjusted for inflation it was apt to have diminished purchasing power.

By 1992, the ABC Warehouse chain had grown to 22 stores. In 1993, according to an estimate made by Hartunian and reported in Discount Merchandiser, “white” goods (home appliances, including items such as refrigerators and washing machines) accounted for about 45 percent of the company sales. The remaining 55 percent of sales were “brown” goods and traffic goods, which included items such as housewares and personal electronics. The average size of an ABC Warehouse store had grown to be about 18,000 square feet. The company continued to focus on its no frills philosophy and remained committed to traditional, staple appliance products. Hartunian told Discount Merchandiser that each of the company’s stores achieved a local market share of approximately 33 to 34 percent.

Hartunian attributed the company’s success to its sales staff, who worked entirely on commission. In a statement published by Discount Merchandiser he explained, “Our stores have always been very sales driven, meaning that the people on the sales floor are highly motivated, and consequently we follow their direction, rather than have the administration dictate a number of things.” In order to project an image of a more personable, friendly sales staff, the company’s 1993 advertising campaign featured the “ABC Employee Choir.”

Another change in 1993 was the addition of in-store demonstrations aimed at increasing the sales of home theater systems. Home theater technology enabled consumers to get better sound quality in stereo and television sets. ABC Warehouse promoted the concept based on a building block approach to help overcome price resistance among consumers who wanted the benefits of home theater but who were not willing to spend thousands of dollars for special equipment, new furniture, and room remodeling. ABC put together different packages designed for simple installation. The lowest price system was tagged at $899. To demonstrate the benefits of home theater systems, ABC instituted in-store “The Big Red Button” demonstrations. By pressing a red button, customers could activate a three-minute demonstration of a typical system containing a large-screen television, laser disc player, receivers, and speakers. The presentation explained the process of beginning with a television set and progressing through a series of upgrades to create a home theater.

During 1993 ABC also benefitted from the bankruptcy of a major competitor, Highland Superstores. ABC purchased $60 million of Highland inventory and liquidated it in 45 days. ABC also purchased five former Highland locations. The locations enabled ABC to expand four of its existing stores into larger facilities and to open a new store in Indiana. By 1994, the ABC Warehouse chain consisted of 25 stores.

One of the fastest growing products was the cellular phone. Cellular phones, originally marketed as a business tool, shifted to the consumer market during the early 1990s. Per unit prices fell from an average of $340 in 1992 to $298 in 1993. As the phones became more affordable, sales by consumer retail outlets increased. According to one report there were an estimated 14,163 cellular telephone subscribers at the end of 1993. The number was expected to increase to 17,350 by the end of 1994 and to more than double by the end of 1998. The marketplace also benefitted from an increasing variety in the types of phones available. In early 1994, there were three basic types on the market, portable (pocket-sized phones with small low-power batteries); mobile phones (larger units intended for permanent mounting in cars); and transportable (the same size as a mobile unit but including a battery pack to enable use outside the vehicle). ABC Warehouse sold portable and transportable models in its ABC Warehouse stores. Brands offered included Novatel, Technophone, Motorola, Pulsar, and Mitsubishi DiamondTell. ABC’s Mickey Shorr, Hawthorne Electronics and Appliances, and White Automotive also sold cellular phones but carried a different variety of brands and packaged the phones with distinctive service offerings.

The cellular phone market was considered a challenge because of the complexity involved in making a sale. In addition to merely selling the actual phone, steps included selling phone service, programming the phone, activating the phone, and in many cases, installing the phone. Phone sales were often bundled with phone service agreements and merchants received subsidies from service providers. Although this practice permitted merchants to offer phones at low prices, consumers were required to sign service contracts for a specified time period, usually at least a year.

The industry practice of bundling phone sales with phone service agreements gave ABC an advantage over some of its competitors. National companies had to cope with a wide variety of regional service providers offering a multitude of activation incentives. This led to significant price discrepancies between different regions and made cellular phones difficult to advertise on a national basis. ABC, a regional competitor, was able to benefit from a consistent working relationship with one local phone service provider. ABC attributed its success in selling cellular phones to this relationship.

ABC Warehouse also prided itself on making cellular phone purchases simple. A company executive quoted in HFD stated, ’ ’We wanted to make it no more difficult for consumers to buy a cellphone than to buy a washing machine.” In addition, ABC Warehouse worked to provide fast activations. ABC claimed that the activation process took between 11.5 and 14 minutes; in other stores the procedure was reported to take up to a day and a half. ABC was able to provide fast service because of its ability to assign phone numbers and access to instant credit verification services. In addition, ABC Warehouse sold only those telephones which were able to be programmed from the handset at the store.

Hartunian, ABC’s founder and owner, planned to continue the company’s policy of steady growth. Discount Merchandiser reported his strategy included the addition of more stores in areas chosen to maximize the company’s distribution channels. ABC also planned to increase its offerings in some departments, especially within the computer arena.