Printer Version Of Inside Business

COVER STORY
Survival of the fittest
How Lakeside Appliance outlasted Circuit City

Garland Pollard
Friday December 8, 2000

Don’t complain to Peter Francisco about the goofy Christmas tree the parts department has made into a window display at Lakeside Appliance.

A scene that would likely be banned by store-display experts at most big retail chains, the tree has been hung with castoff “ornaments” such as busted washing-machine circulators and broken oven-heating coils. To tie it all together, the tree has been wrapped with flexible dryer duct pipe.

Francisco’s not bothered a bit.

“The parts department — they wanted to put a Christmas tree up with parts on it,” says Francisco. “I didn’t particularly care for it, but if that’s what they wanted to do, I said you all decorate your side any way you want.”

Francisco, the chain’s current operator and the son of Lakeside Appliance founder Waddy Francisco, takes such creativity in stride. He has no choice. Francisco, who keeps three surfboards in his office, put his 1928 Model T into the half of the store that he controls — the showroom — amid the masses of dishwashers, fridges, stoves and washer/dryer sets. And for added effect, his wife Sharon installed a mannequin.

The window display, he says, is an attempt to lure the attention of the 35,000 motorists who drive by the flagship store, at the intersection of Lakeside and Dumbarton avenues, every day.

Giving the service department the freedom to design its own tree, Francisco believes, is a necessity at a time when Lakeside’s staff is one of the company’s biggest competitive advantages.

“At mass merchandisers, their [employee] turnover is 100 percent in 365 days,” says Francisco. “It takes years just to get trained on what you are selling. The way they sell is computerized model number and price.”

Conventional wisdom says that Lakeside Appliance, a part of the Old Economy with its four locations and traditional retail format, is a dying breed in the low-margin, unattractive segment nicknamed “white goods.”

This year, Lakeside competitor Circuit City left the appliance business altogether, citing higher margins in sexier product lines like televisions and DVD players. It was a move that had been in the works for some time at Circuit City, which had grown to become the country’s second-largest appliance retailer in the country, behind only Sears Roebuck & Co.

Circuit City’s decision has allowed other large-scale competitors like Lowe’s and Home Depot to gain strength locally. They have added new Richmond locations and have taken a more aggressive service stance. Meanwhile, Sears continues to flex its market share with its own well-known brand name, heavy advertising, prime mall locations and ubiquitous service fleet.

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Francisco believes there is still money to be made in selling Old Economy brands like GE, Jenn-Air, Maytag, Hotpoint and Whirlpool.

“We’ve seen ’em all,” says Francisco, whose father opened Lakeside Appliance at the same intersection in 1954 and worked for Circuit City in the pre-Alan Wurtzel days when it was still Ward’s TV.

The elder Francisco, who at 73 still serves as chairman, ironically helped open the first Ward’s outside of Richmond, in Hampton.

As Lakeside approaches its 50th anniversary, this isn’t the first time it has had to change with the times.

“Ten years ago, GE wasn’t in Sears. And GE wasn’t in Circuit City. And Lowe’s was a very, very small appliance company,” Peter Francisco says. “Yeah, sure it gives you concern, but at the same time you have to deal with what you’ve been dealt.”

It turns out Lakeside follows a national trend, according to Marvin Lurie, director of communications and industry relations for the Chicago-based National Electrical Retailers Association, which mainly represents independent appliance retailers. Lurie says that independent appliance dealers have done well against national chains in markets across the country.

“There is a strong core of independent dealers,” Lurie says. “They can do things that Best Buy and Circuit City can’t do. They can do a better job of retaining salespeople who know how to figure out what you want. They can change on a dime — and it doesn’t require a corporate decision.”

Nationally, Lurie thinks the number of independent appliance retailers is down from about 9,000 to 6,000 or 7,000 over the last decade, but he doesn’t blame the declining numbers on big-box competitors.

“Wal-Mart, Best Buy and Circuit City never put anyone out of business,” Lurie says.

Lurie says the companies that have gone bankrupt, which he calls the “orange shag-rug retailers,” were out of touch with what consumers wanted. He compares those merchants with nimble local dealers who mostly use nonprofit or for-profit buying co-ops and focus purely on sales.

Their approach is aggressive.

“I’ll sell you a refrigerator,” Lurie says, explaining the way successful dealers sell their wares. “I’ll take away the old one. I’ll teach you how to use it. And I’ll be related to you, if you wish.”

The popularity of high-end gourmet appliances, Lurie says, with brand names like Gaggenau and Sub-Zero, have helped independent retailers as well. Those appliances are sold to affluent customers who care about service, not price.

“At $2,500, you’re not going to back a pick-up up to the store,” Lurie jokes.

While Circuit City was driven out of the business, Lurie says that small retailers will continue to face new forms of marketing, even as they have survived retail fad after fad, from e-tailing to catalog retailers to mass discounters and big boxes.

“The danger point is never over,” says Lurie.

Gerry Beatty of the trade journal Home Furnishings Network agrees. He says the family owned segment of appliance retailers will continue to face pressure as the economy begins to slow significantly. In the last five years, the number of units sold at family owned appliance retailers went from about 50 million to 60 million, hitting a peak this spring. Then, the numbers started to decline.

Beatty says independent appliance dealers have average profit margins in the low 20 percent range, with discounters averaging margins in the low teens.

“The people who have survived are survivors,” Beatty says. “They’ve figured out how to do it.”

Because of the vast array of new electronics offering margins in the high 20 percent range on merchandise that generally takes up less space on the showroom floor, getting rid of the bulky appliances seemed to make sense for Circuit City. Long term, however, Beatty says he’s not sure that ditching appliances is a good idea since people always need refrigerators and stoves.

One way Lakeside has won against national retailers is by going after the higher-margin product lines. Francisco sells high-end merchandise like built-in stoves and the larger-variety refrigerators made by SubZero. He says big-box retailers don’t focus on those items because installation is difficult and pricey.

“They don’t want the work because they don’t have the people capable of installing it,” says Francisco. “We have plumbers, electricians on our payroll. Anything electrical, or plumbing that has to do with being put in the kitchen [or] alterations to the cabinets, we take care of it. We don’t call other companies to do it.”

Lakeside also is not immune to the trend of lower margins. For instance, Francisco says that the starting price for a washer is around $299, around the same price it was when the company began business.

With annual sales around $8 million, large and fast growth is not a part of the future for Lakeside.

“You have got to realize where your talents are and we’re not a huge corporation with a lot of public funds,” Francisco says. “We’re able to handle very well what we’re doing. You can make a good living at that.”

The store’s second location opened in 1976, and its four locations, including a warehouse store, are just about enough for the brothers Michael, Jon and Jeffrey, who all work for the company and manage the different locations. (Jeffrey, the youngest Francisco, spun off Lakeside’s kitchen unit into a separate company, Kitchen Crafters.)

The only nonfamily officer is General Manager Gary Merson, who Francisco says “keeps us out of trouble.”

The brothers, now in their 40s and 50s, are decades away from issues of succession, though currently they don’t have any third-generation Franciscos working in the company. This leaves the question of who will run the business up in the air.

Francisco is president of the Lakeside Business Association, and, with other retailers, has led the charge to pedestrianize and landscape the commercial district along Lakeside Avenue. He also is active in the Greater Richmond Retail Merchant’s Association and other local organizations.

“Things like that give you credibility,” Francisco says. “A lot of people come in to buy from us because we’re real visible out there. You can’t just go to work and go home.”

The details of customer satisfaction — which has spawned a big business in telemarketing and computer databases — can only really be maintained by people, Francisco contends. For instance, the clerks at Lakeside look up part numbers on low-tech microfiche machines, not on the Internet. Yet they can fetch just about any part for almost any appliance that was made in the 20th century.

Staying close to the customer isn’t just about parts and service. It’s about preferences. In its 50 years, Lakeside has been through copper, harvest gold and avocado. The latest popular color they are watching is almond, which is “fading right now,” Franciso says.

“We’ve got a new color, bisque, which is a lighter color of almond, which I don’t think is going to take off,” Francisco says. “Black was hot a couple years ago. Stainless [steel] is really hot right now.”

Staying on top of the details is what makes it work and is what enabled Lakeside to outlast Circuit City in its hometown.

“You come in every day. You try to clean the place up. You try to keep the books balanced,” Francisco says. “It’s just a lot of housekeeping.”

Yet Francisco is amazed at how many merchants lose track and fail at the basics.

“I think [they] get real busy with what they’re doing to start with, and then things start sliding,” he says. “And [they] start forgetting what put them there to start with.”

A service of Richmond.com