REX Stores Corp.
REX Stores Corp.
2875 Needmore Rd.
Dayton, Ohio 45414-1918
Fax: (513) 276-2713
Incorporated: 1984 as Audio/Video Affiliates, Inc.
Sales: $298.17 million
Stock Exchanges: New York Boston Midwest Pittsburgh Pacific
SICs: 5722 Radio, Television and Consumer Electronics Stores; 5731 Household Appliance Stores
REX Stores Corp. is a prominent retailer of consumer electronics and appliances in the Midwest and Southeast. REX has grown from a 4-store chain in Dayton, Ohio, to a 132-store retailer with locations in 23 states. This growth has occurred primarily through acquisition. Although the chain is headquartered in Ohio, the highest concentration of REX stores (20) is in Florida. The chain extended its reach into Kansas, Oklahoma, and Wisconsin in fiscal 1994. The company changed its name from Audio/Video Affiliates, Inc., in August 1993 to more accurately connect the holding company with its retail affiliates. REX has expanded its product mix significantly from its initial focus on radios to include a broad selection of brand name televisions, camcorders, and video and audio equipment (known in the industry as “brown goods”), as well as major household appliances (known in the industry as “white goods”), including microwaves, air conditioners, refrigerators, washers, dryers, and ranges. The company ventured into jewelry sales in the early 1990s.
Key elements of REX’s business strategy include an emphasis on small- and medium-sized “niche” markets, depth of selection within key product categories, the ubiquitous “everyday low price” policy, extensive local newspaper advertising, and efficient operations. Although other chains in the industry concentrated on such hard-fought markets as New York and Chicago, REX has placed its outlets in small communities. The chain’s concentration on smaller cities and towns accomplished several corporate objectives. Rents and other overhead expenses are often lower in these markets and, at the same time, competition from major consumer electronics chains is frequently not as intense, enabling REX to bring discounting to these markets and still earn high profit margins. The chain offers national brands at a variety of price points, including General Electric, Hitachi, JVC, Magnavox, Panasonic, Pioneer, RCA, Sharp, Toshiba, and Zenith. REX offers a “low price guarantee” that is almost mandatory in the consumer electronics environment of the 1990s. The chain promises to refund at least 125 percent of the difference between its own and any competitor’s lower price found within 30 days of the sale.
REX Stores Corp. was founded as REX Radio, a single outlet in a Dayton hotel storefront, in 1926. During the 1950s, the company expanded into televisions and subsequently changed its name to REX Radio & TV. The store established a longstanding volume-buying strategy in the 1960s when it became a founding member of the NATM Buying Corporation. In the late 1980s, REX joined Silo, Highland, and Circuit City in the formation of a new purchasing organization, Group 4. By the early 1990s, REX continued to employ its volume-oriented strategy, but did so independently.
Significant developments in REX’s recent history began in 1980, when the Dayton-area four-store chain was acquired by Stuart Rose, a merger and acquisition broker at Niederhoffer, Cross and Zeckhauser. The owner of REX had hired the New York firm to find a buyer for the business. Rose was interested, but relatively cash-poor: he had saved $150,000 (“by skipping meals and living in a run-down apartment,” according to a 1986 Business Week article), but the purchase price was $4.3 million. At the same time, his prospects for a loan weren’t good either. Interest rates were rising fast and lenders were not eager to go out on a limb for a 24-year-old entrepreneur. So Rose bypassed traditional funding sources in favor of large-scale financial techniques to acquire and promote his relatively small business. First, he borrowed against the REX stores’ own inventory and upped their mortgages, thereby raising almost half of the necessary capital. He was then able to persuade CMNY Capital Co., a New York investment firm, to buy a 6.6 percent stake in REX for $350,000 and convinced H.A. Armstrong to loan him $1.5 million at 22 percent interest.
Although Rose had no experience in consumer electronics, he soon realized that the only way his newly acquired business would succeed was through expansion. By anticipating and participating in the consolidation of the consumer electronics industry, REX would be able to survive and take advantage of the trend. Early growth came from significant acquisitions. In 1981, REX purchased TV & Stereo Town, a 16-store electronics chain with locations in Des Moines, Iowa, and Largo, Florida. This heavily leveraged deal utilized $500,000 borrowed from Stereo Town’s own line of credit and another half million from the chain’s former owner. The next year saw the acquisition of Kelly & Cohen, a 36-store chain in Pittsburgh, Pennsylvania. By this time, Rose’s credit record was well established, and he was able to borrow the entire purchase price, $3.5 million. The original REX chain, Stereo Town, and Kelly & Cohen were operated as affiliates.
Faced with massive debt and still eager to expand, Rose elected to take his chain public in 1984 under a holding company, Audio/Video Affiliates, Inc. The initial public offering raised $18 million at $5 per share, $10 million of which was used for working capital. Sales rose 36.7 percent in fiscal 1984 (which ended in January 1984), to $118.7 million.
By the late 1980s, the consumer electronics chain numbered over 100 stores, but such rapid expansion required a retrenchment. Late in 1988, a reorganization plan had been created; its primary element was Audio/Video Affiliates, Inc.’s acquisition by a newly created unit of Citicorp, AV Holdings. The transaction, valued at $98 million, was for all of Audio/Video’s 11.5 million shares. By the end of the year, however, the deal was canceled, due to skyrocketing interest rates on the junk bonds that would have financed about half of Citicorp’s purchase. Citicorp did, however, acquire about 15 percent of Audio/ Video’s stock, which it agreed to sell back to the company in 1991.
In 1989, REX started a more orthodox reorganization: the company reduced its outstanding shares by over half, from 15.7 million to 6.2 million through a stock buyback and self-tender. Personnel reductions and cost-cutting measures in distribution and advertising helped the chain achieve much-touted operational efficiencies. The reorganization also involved the closing of 25 stores and one warehouse, as well as the sale/leaseback of 50 other stores and two other warehouses. These transactions raised $59 million, 66 percent of which was used for debt retirement, mortgages, and taxes. By 1990, REX’s total number of stores had been reduced by over 40 percent, from 125 to 73. The company recorded a net loss of almost $2 million for fiscal year 1991, then bounced back the following year to earn profits of over $3 million. This retrenchment did not last long; it only prefaced a period of dramatic growth.
In 1993, REX raised $17 million on the sale of stock to fund its biggest expansion in over a decade. The company added 25 new stores in 1993 and planned to open 30 to 35 more in 1994 as it moved westward across the United States. Texas, Georgia, Ohio, Tennessee, South Carolina, Pennsylvania, Wisconsin, North Carolina, Kansas, and Oklahoma were targeted for expansion. Net income at REX increased 80 percent during fiscal 1994, to $8.6 million from $4.8 million in fiscal 1993. Same-store sales increased 8 percent over the year.
REX faced more intense competition from Circuit City and warehouse clubs in the early 1990s. In line with industry trends, REX reported that its fastest-growing product segment was big-screen televisions. REX experimented with offering jewelry at “stores-within-a-store” in the early 1990s, hoping to take advantage of the higher margins of the trade. By April 1994, six stores participated in the fledgling program. During fiscal 1995, REX planned to begin test marketing personal computers and related accessories in 20 selected markets with a view toward adding them chainwide. The company had avoided this highly competitive niche until that time.
Gelfand, Michael, “Consumer Electronics Superstores,” Discount Merchandiser, January 1993, pp. 60-66, 70.
Levine, Jonathan, “Turning Points in the Lives of Companies: How Big-League Techniques Paid Off for Stuart-Rose,” Business Week, November 3, 1986, p. 124.
Pinkerton, Janet, “Mining the Boondocks,” Dealerscope Merchandising, August 1993, pp. 50-53.
Stricharchuk, Gregory, “Audio/Video Says Plan to Acquire It Has Been Dropped,” Wall Street Journal, December 16, 1988, p. C5.
—April Dougal Gasbarre