The Good Guys, Inc.

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The Good Guys, Inc.

700 Marina Boulevard
Brisbane, California 94005-1840
U.S.A.
(650) 615-5000
(800) 486-4897
Fax: (650) 615-6287
Web site: http://www.thegoodguys.com

Public Company
Incorporated: 1976
Employees: 5,000
Sales: $928.49 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: GGUY
NAIC: 443112 Radio, Television, & Other Electronics Stores

The Good Guys, Inc. is a leading specialty electronics retailer, with more than 60 stores in California, and less than ten stores each in Washington, Oregon, and Nevada. Most of the company’s stores operate under the name the good guys! and feature a range of electronics, including televisions, video equipment, car and home stereo components, telephones, cellular phones and pagers, and cameras; in the late 1990s, two new formats were introduced, Audio/Video Exposition and WOW! The latter units are jointly operated with Tower Records and offer the full complement of consumer electronics found in a the good guys! store, as well as the music, video, computer software, and magazines found in a Tower Records outlet.

One-Man Beginnings

The company was founded in 1973 by Ronald A. Unkefer, who would ultimately become chairman of the board. Unkefer opened his modest television shop in San Francisco’s Marina district, a fashionable area frequented by tourists. At first, the good guys! was a one-man operation, which led a vendor to ask, “There’s only one of you, so how can you be The Good Guys?” The name did not derive from the number of employees, but from a catch phrase Unkefer borrowed from a favorite radio station. As he expanded his staff, he encouraged customers to think of his salespeople as “good guys” who could help them get the best deal on the latest equipment.

Initially, Unkefer did not have ambitions to become a major player in the field of consumer electronics. The Cleveland native had moved to California simply because he wanted to live in the state and run some sort of business. As time wore on and new technologies, such as VCRs and state-of-the-art stereo systems, were introduced, however, he began to see growth opportunities. “It certainly wasn’t a grand plan at the time to grow as big as we are now,” he reflected in an interview with the San Francisco Business Times in 1991, when there were 33 good guys! locations. “When I opened up the second store in 19761 was almost talked into it by a very determined real estate developer.” Unkefer’s company was incorporated in 1976 as The Good Guys, Inc.

Unkefer decided to launch the second store to help pay his advertising bills at the San Francisco Chronicle. The Good Guys! was well positioned to take advantage of the growth in consumer demand for stereo components in the 1970s, and sales increased steadily each year. Unkefer maintained his low-key approach to business—by 1983, there were only four good guys! stores in San Francisco. The company continued to expand its product offerings, adding videocassette recorders for consumers eager to create their own home entertainment centers.

In 1985 the company reported net sales of about $71 million, and pretax income of $2.25 million. A year later, Unkefer took his company public to fund further expansion beyond the existing eight stores. The Good Guys had already opened stores outside San Francisco, and was targeting San Jose as the location for its next new store.

The formula for success at The Good Guys was simple and straightforward from the outset. The company used a combination of extensive promotions and advertising, along with competitive pricing and a broad selection (offering 20 percent more models than rival stores). From the early days, customer service was a cornerstone of the company’s strategy. The motto at The Good Guys was “Our name is our way of doing business.”

Expanding Aggressively: Late 1980s

During the late 1980s, The Good Guys kept up an aggressive program of growth and expansion. In 1987 the company made its first foray outside the Bay Area when it opened two stores in Sacramento. By this time, The Good Guys was targeting a decidedly upscale consumer base. According to one retail specialist quoted in Business Journal —Sacramento, “It’s the type of store in which you would find the owner of a BMW searching for an audio system for his car.”

Nevertheless, even yuppie consumers did not prevent The Good Guys from having a bad year in 1986. Earnings dropped by nearly 40 percent from the previous year, and the company’s net income fell from $2.2 million to $1.4 million. At one point, the stock plunged $3.125 per share. According to Unkefer, the soft market for durable goods—particularly VCRs—and stiff competition were to blame.

For the balance of the decade, The Good Guys took several steps to boost sales. Feedback from customers revealed that the company’s practice of haggling over prices was unpopular and contributed to a “sleazy salesman” stereotype in the minds of consumers. So, in 1987, the company stopped negotiating prices and introduced a lowest-price guarantee. If a competitor offered the same piece of equipment at a lower price, The Good Guys promised to beat that price. The company also instituted a 30-day, no-questions-asked return policy and upgraded its merchandise mix, focusing on higher-end brands.

These fundamental changes produced the desired results. Net income for 1987 was back up, to $2.6 million. By the end of 1988, sales had increased 24 percent and net income was $3.3 million. The company had 17 stores and then opened an 18th in Reno, Nevada, in 1989, the chain’s first outside of California. The company retained its impressive sales and income figures through the end of the decade, despite the appearance of archrival Circuit City Stores Inc. in San Francisco in 1989. Circuit City opened a store two blocks from one good guys! location. The move worked for, rather than against, The Good Guys, however. Company President Unkefer noted in the San Francisco Business Times that, “We do better where people can compare,” adding that his company offered more upscale merchandise and did not offer appliances.

The Good Guys entered the 1990s flush and prosperous. The company had grown to 30 stores, and sales had increased 51 percent. Net income increased 86 percent over 1989, hitting $7.4 million. The company broke new ground by opening six stores in Los Angeles, a billion-dollar consumer electronics market that was one of the hottest and most competitive in the country. The move brought The Good Guys toe-to-toe with a dozen major competitors, including Circuit City. Unkefer was confident that The Good Guys could hold its own, however, noting that the company’s success rested on its dedication to customer service.

Surviving Recession: Early 1990s

But the consumer electronics market has historically been among the first to suffer when recession hits, as it did in California in 1990 and 1991. Analysts predicted difficult times in the wake of a shocking 11 percent, industrywide decline in the sale of color televisions during the second quarter of 1990. The Good Guys did not feel the effects of the recession immediately. Unkefer predicted sales growth of 25 percent per year for the next several years. By the end of 1991, the company had 33 stores and sales of more than $427 million. In addition to such basics as televisions and stereos, the good guys! stores now offered fax machines, video cameras, telephones, and answering machines. With the highest sales per square foot of any consumer electronics chain, it looked like the company might emerge relatively unscathed from the recession.

Sales and net income did continue to increase in the early 1990s, but the gains were more modest than they had been in the past. In 1992, for example, same-store sales went up only two percent. “The company’s goals in this difficult retail climate are to continue to build market share and maintain our sales momentum,” Robert A. Gunst, the company’s president and new chief operating officer, said in an interview in early 1992.

A softer market did not curb expansion. The good guys! stores grew to number 44 by late 1993, the company’s 20th anniversary year. By this time, The Good Guys was well established as one of the top consumer electronics retailers in the country. In keeping with its customer service credo, the good guys! stores featured special listening rooms for speakers and onsite installation of car stereos and speakers, cellular phones, and car alarms. The Good Guys was consistently ranked as one of California’s top companies. In 1993, sales for the now 48-store chain were $552.4 million, a ten percent increase over the previous year. Net income was $7.6 million.

Company Perspectives:

The Company’s strategy is to compete by being a value-added retailer, offering a broad selection of top national brand name merchandise sold at competitive prices by a friendly, knowledgeable and motivated team of associates.

In a move to further boost sales, reinvigorate growth, and meet consumer demand, the company began selling personal computers in 1993, concentrating on such name brands as IBM, Apple, Compaq, and Packard Bell. With the increase in home offices and advances in information technology, The Good Guys hoped to catch a wave of demand, as it did in the 1980s with home video products. “We feel it is essential for consumer electronics to participate in the information superhighway, and we believe interactive technology is going to be a substantial part of consumer electronics,” said Tom Hannah, senior vicepresident of stores, in a 1993 interview with the San Francisco Business Times. The move was a daring one, given the vagaries of the computer industry and the lingering effects of the state’s worst economic problems since the Great Depression. One analyst predicted that the move would ultimately hurt The Good Guys! by diluting the company’s focus. After one month, however, The Good Guys reported that computer sales had exceeded projections.

Geographic Expansion and New Formats: Mid-1990s

As The Good Guys entered the mid-1990s, its future seemed to brighten further. In 1994 the company entered the San Diego market with six stores in San Diego. It also repaid customer loyalty with a “90 Days Same as Cash” credit plan for holders of a “Preferred Customer Card.” To stimulate consumers to buy electronics, The Good Guys! stepped up its targeted direct mail campaign and offered cross-promotions with the California State Lottery and Tower Records, a regional chain.

Expansion continued in 1995 and 1996, along with the introduction of new store formats. In 1995 The Good Guys entered the Pacific Northwest market, opening eight stores in Washington state and three in Oregon, and also opened its second Nevada location. Among the new formats was Generation 21, which offered shoppers a larger, brighter, and more interactive store—development was halted, however, the following year. More promising was the WOW! Multimedia Superstore. Although two of its biggest competitors, Best Buy and Circuit City, had successfully added music and video software to their shelves, The Good Guys had stuck to its line of hard goods. The WOW! concept, however, would change that. The Good Guys teamed with Tower Records, a private Sacramento-based company and a leading retailer of recorded music, to open the first WOW! store in Las Vegas in August 1995. The joint venture 60,000-square-foot store included the full line of consumer electronics found at a typical the good guys! store, along with Tower Records’ vast selection of music, videos, computer software, books, and magazines. It also included the world’s largest slot machine and a café listening bar. A second WOW! store opened in Long Beach, California, in 1996.

In early 1996 founder and chairman Unkefer resigned from the board to pursue other opportunities. Gunst had been named CEO in 1993 and continued to lead the company following Unkefer’s departure. The Good Guys introduced its Audio/Video Exposition format in 1996 with the opening of the first such store in Redondo Beach, California. This format featured four “expo” rooms in which customers could operate and experience the latest high-tech audio/video equipment within “homelike settings.” The thinking behind this concept was that with new digital products being introduced constantly in the mid-to-late 1990s, consumers needed to be educated about the products and have the opportunity to test them out before making a purchase. Gunst told Discount Merchandiser in January 1997, “Our customers are all shopping for products to be used in their homes. So, we’ve tried to address that need in a more homelike setting that provides packaged solutions to the customers’ needs.”

Founder’s Return, Restructuring: Late 1990s

Unfortunately for The Good Guys and many other consumer electronics retailers, none of the new digital products as yet had the impact of, for example, the videocassette recorder, a product that many people initially purchased at specialty electronics stores. At the same time, such products as the VCR had become so familiar to most consumers—not to mention so inexpensive—that they had turned into commodities that could be purchased without the intervention of a salesperson; rivals such as Best Buy and Circuit City concentrated on the selling of such commodities. Even worse, VCRs and other mass-market electronics items were increasingly available at general retailers, such as Kmart and Wal-Mart.

In this brutal environment, The Good Guys began losing money in 1996, when it posted a net loss of $6.2 million. Losses continued in 1997 and 1998 and sales were flat. The company began focusing more of its expansion efforts on the WOW! and Exposition concepts, with five of the former and 11 of the latter operating by the end of 1998. With the firm’s difficulties continuing into 1999, Gunst resigned in June of that year. Returning at the request of the board of directors as chairman and CEO was Unkefer, who simultaneously spent $4.7 million to take a ten percent stake in the company. In July Unkefer unveiled a restructuring plan aimed at turning The Good Guys around within three years. The company planned to streamline its operations, including some job cuts, aiming at reducing selling and administrative expenses by 20 percent. It also would discontinue its unprofitable home office department, which sold computers, fax machines, and copiers. The company’s stores would focus more on innovative high-tech items, most notably wireless communications devices and noncomputer Internet appliances. The Good Guys would thereby emphasize products that required a higher level of customer service than that found at such national retailers as Best Buy and Circuit City. Toward the goal of differentiating the company’s stores as a more upscale consumer electronics option, The Good Guys would increase its advertising and marketing budget by more than 20 percent. Finally, until the company returned to the black, all remodeling efforts and store openings were suspended.

This restructuring appeared to have been launched at a critical time for The Good Guys, when a shakeout in the industry was likely. Its success or failure would help to determine whether The Good Guys would be one of the casualties or one of the survivors.