Fry's Electronics, Inc.

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Fry's Electronics, Inc.

600 East Brokaw Road
San Jose, California 95112
U.S.A.
Telephone: (408) 487-4500
Fax: (408) 487-4741
Web site: http://www.frys.com

Private Company
Founded: 1985
Employees: 5,650
Sales: $2 billion (2002 est.)
NAIC: 443112 Radio, Television, and Other Electronics Stores.

With its headquarters located in San Jose, California, Fry's Electronics, Inc., is a private company that runs a chain of 28 electronics superstores, ranging in size from 50,000 square feet to more than 180,000 square feet. Each stores offers about 30,000 items and exceeds the competition in breadth of choice. The stores are also known for cheap prices and notoriously poor customer service. The first Fry's, located in Silicon Valley, was frequented by hi-tech professionals who did not require, nor welcome, assistance from salespeople. These customers liked Fry's unique one-stop approach to buying electronic products and components. Not only could they buy little-found items at a reasonable price, they could also stock up on junk food, No-Doz, and men's magazines while preparing to work all night. They could also talk shop, gossip, and network while they were at it. As Fry's has become more mainstream, however, the chain's disinterest in customer service has become more of a problem. Nevertheless, the stores remain popular. Part of Fry's idiosyncratic charm involves the stores' often bizarre theme-based decor. For instance, the Campbell, California, site features an ancient Egypt theme, complete with a two-foot sphinx and King Tut tombs. The Fremont, California, store pays tribute to the electricity exhibits from the 1893 Chicago World's Fair. In Woodland Hills, California, shoppers are treated to an Alice in Wonderland motif, while the Las Vegas store features the world's largest slot machine. All told, Fry's operates 15 stores in California, six in Texas, two in Arizona, and single units in Georgia, Illinois, Oregon, Nevada, and Washington. In addition, Fry's sells merchandise on the Web through Outpost.com. The company is owned and operated by three Fry brothers—John, Randy, and David—and a former girlfriend of CEO John Fry, Kathryn Kolder. The Frys are private by nature and do not grant press interviews.

1950s Origins

John, Randy, and David Fry's father was Charles Fry, a highly competitive person who was an all-state high school basketball player in Oklahoma. After earning a college degree in mathematics, he opened a supermarket in Contra Costa County, California, in 1954. Throughout the 1960s, he grew a chain of 41 Fry's Food Stores in the San Francisco and Phoenix, Arizona, markets. He sold the business in 1972 for approximately $14 million to Modesto, California-based Save Mart Supermarkets, but he stayed on to manage the chain until 1983. His eldest son, John, took after him in a number of ways. He was also a star athlete, a quarterback with professional promise. He was recruited by Santa Clara University to play football but due to injuries was never able to realize his potential. Like his father, he also earned a math degree, graduating from Santa Clara in 1978. He then went to work for his father's supermarket chain, managing the computer system. Thus, he not only learned the techie mindset but also the low-margin grocery business that would later serve him well in selling electronics.

After the Fry family discontinued managing the supermarket chain, John Fry envisioned a new retail operation, one that would be a variation on grocery retailing: an electronics supermarket. According to people interviewed by the San Jose Mercury News for a 1997 company profile, Fry thought through the idea in his own fashion: "He measured the ratio of low prices to high sales. He multiplied the prototypical engineer's basic needs times a variety of sundries. And he found the intersection between a sales clerk's level of expertise and a customer's level of tolerance. The result was a retail operation that has helped define Silicon Valley."

After selling his chain of supermarkets, Charles Fry reportedly gave each of sons $1 million. John Fry now convinced his younger brothers to pool their money and launch Fry's Electronics. Also joining as a partner was his former girlfriend, Kathryn Kolder, who would become an executive vice-president. David Fry would be put in charge of the computer systems, while brother Randy was charged with handling day-to-day operations, freeing up the eldest brother to concentrate on the big picture. True to his roots, John Fry conducted business supermarket style. The company opened its first electronics superstore in Sunnyvale, California. Once foot traffic was high enough, he began selling shelf space and charging a premium for the freestanding placements located at the end of aisles. The money was then used to buy newspaper advertisements, which, like supermarket ads, lured in customers with specials. Because Fry's sold snacks to its clientele of high-tech workers, it would even use the old supermarket ploy of loss-leaders—for example, selling Coca-Cola at a loss—to get customers in the door. Once inside, they would face a shopping situation similar to that of a supermarket: Should they buy the name-brand product or the cheaper no-name product offering more features sitting next to it? In the case of the latter, of course, Fry's stood to make a higher profit.

The Sunnyvale store became, in the words of U.S. News & World Report, a "geek paradise" where electronic components, computer peripherals, as well as TV sets and stereos were sold along with candy bars, high-caffeine soft drinks, razors, toothpaste, and adult magazines. "Buses of tourists would come to gawk at shelves that seemed to have anticipated every electronic, caloric, and hormonal need of nerds who wanted to lay in fresh provisions with one-stop shopping." High-tech savvy customers were also attracted to Fry's because of its assortment of hard-to-find components and bargains. An entire computer could be pieced together cheaply from parts available at Fry's. In the early days, Fry's featured a "blow out" table where items that needed a little fixing could be bought for pennies on the dollar.

Even as Fry's was becoming an institution among Silicon Valley techies, it was also establishing a personality that either did not bother its core customers or was something they were willing to overlook. Fry's hired people with little technological knowledge at rock-bottom wages, and, not surprisingly, they were not much help on the sales floor. Then again, there was simply no one the store could hire who could match the technical expertise of Fry's customers, so why bother? Returning merchandise was also problematic, as customers found themselves bouncing from the cashier to the returns desk and back again. Receiving a refund instead of a credit check required the persistence of the truly dedicated, since Fry's employees received a bonus based on their ability to get customers to take store credit. Even after a customer accepted the latter, weeks would pass before a customer received a credit check in the mail. Insiders called this policy "the double H," which stood for "hoops and hurdles." One ex-employee told Forbes in 1997 that the point was to wear customers down until they gave up.

Because the pay was low, employee turnover was high, but that did not matter to management as long as there was someone waiting to fill the position. Fry's instituted strict security measures, fearful that its employees or its customers might steal the merchandise—and with good reason. It was estimated that the computer electronics industry, which produced a lot of small expensive items that could be easily fenced, lost about 10 percent of revenues each year due to theft. Employees were virtually frisked at the end of the day, while customers had to run a gauntlet of security guards before leaving the premises. Instead of stock rooms, inventory was stacked in the open, and the stores were laid out so that blind spots where merchandise could be tucked away were eliminated. A multitude of security cameras, generally hidden from view, surveyed the floor. Eventually, even dumpsters were randomly sent to headquarters where they were checked to make sure someone on the inside was not attempting to smuggle out merchandise.

From a customer's perspective, the positives outweighed the negatives at Fry's. After a bad experience, customers might vow to never shop again at Fry's, but the great prices or the vast selection would cause them to break down and return at the next opportunity. A second store was added in Fremont in 1988, followed by a Palo Alto location in 1990. Unlike other big-box retailers, Fry's sought less expensive, out-of-the-way sites in office and industrial parks, rightly believing that its customers would be willing to go out of their way to shop at Fry's. The company, however, was not parsimonious when it came to decor. Fry's began adding entertainment to the mix, hiring a former designer from Lucas Films to create fantasy settings. Sunnyvale's haphazard shelves of products was replaced with neat aisles and a presentation of the history of Silicon Valley; Fremont explored the origins of electricity the way it was presented at the World's Columbian Exhibition, better known as the Chicago World's Fair of 1893; and Palo Alto offered a vision of Wild Bill's Wild, Wild West. Fry's would spend $1 million on each store, and as the number of stores mounted, so did the unusual nature of the motifs, from Alice and Wonderland to an Industrial Revolution-era factory, from the ruins of Ancient Rome to the history of cattle ranching, from the lost city of Atlantis to the history of the Las Vegas strip.

Company Perspectives:

Fry's has been keeping hi-tech professionals supplied with products representing the latest technological trends and advances in the personal computer marketplace for over 18 years.

The 1990s and Beyond

Fry's moved outside the San Francisco Bay area in 1992 with the opening of a store in the Los Angeles suburb of Manhattan Beach. A year later, Fry's returned to northern California, where it opened a store in Campbell only after the city came up with $2 million in tax concessions. Within three years, the chain would double in size, operating ten stores located in northern and southern California, making Fry's the 13th largest computer retailer in the country. In 1997, Fry's expanded beyond the state by acquiring the six-store Incredible Universe electronics superstore chain from Tandy Corporation at the cost of $118 million. Incredible Universe, launched in 1992, attempted to emulate Fry's success by opening massive stores averaging 185,000 square feet. The idea was to make the spectacle of sheer size a drawing card and make shopping there a form of entertainment. However, sales were essentially the same as what could be expected at a smaller store, and Tandy struggled to find the right blend of computer products and white goods such as washers and dryers, stove, and refrigerators. Unable to make the concept work, Tandy sold the operation to Fry's, which in addition to a store in Sacramento, now added units in Texas, Arizona, and Oregon. In one stroke, as a result, Fry's became a regional enterprise, but it also found itself moving into markets that might be less forgiving of its disregard to customer service. No longer could the chain depend on catering to professionals. In addition, more people were turning to direct marketers like Dell and Gateway to buy their computers. In 1997, for the first time, direct marketers sold more computers than retailers, and with an increasing number of people shopping on the Internet—which Fry's traditional customer would be the first to exploit—the company faced a number of challenges. On the positive side, however, the general public was becoming increasing knowledgeable about computer and electronic products, and were willing to put up with Fry's "double-H" approach if it meant a vast array of choices and cheap prices.

The Fry's formula continued to work, as customers lined up hours before a new store opened and were willing to endure long lines and frustrating service. Throughout the rest of the 1990s the chain added just one store, a second location in the Phoenix area. In the early 1990s, the company experienced a major growth spurt, opening another 11 stores, adding units in Texas and California, while also entering new states: Georgia, Illinois, Nevada, and Washington. Fry's was late to embrace the Internet but finally became involved in online retailing. In 2001, it paid $8 million to acquire Cyberian Outpost, a struggling online software and electronics retailer based in Kent, Massachusetts. Fry's renamed it Outpost.com.

Although there was no way to be certain, due to the private company's policy of remaining closed-lipped about its affairs, Fry's annual sales were estimated at more than $2 billion. Business must have strong enough to warrant the fast pace of store openings in the early years of the 21st century. In 2004, the family-run company came full circle with the opening of a store in Concord, California, the first to be located in Contra Costa County, where 50 years earlier Charles Fry opened his first supermarket. One of his sons, Randy Fry, was on hand to greet customers as they entered the new 146,500-square-foot store. When a newspaper reporter requested an interview, he received the same one word offered to everyone: "Welcome." Nevertheless, what was found inside spoke volumes about Fry's Electronics.

Principal Subsidiaries

Outpost.com

Principal Competitors

Best Buy Co., Inc; CompUSA Inc.; Good Guys, Inc.

Key Dates:

1954:: Charles Fry opens his first supermarket.
1985:: Fry's sons—John, Randy, and Dave—open their first electronics superstore.
1992:: The company opens its first store outside of the San Francisco Bay Area.
1997:: Six Incredible Universe stores are acquired.
2001:: Cyberian Outpost acquisition provides the company with a Web business.