There are times, even for the feistiest of entrepreneurs, when the sheer scale of impending change in an industry can cause some sleepless nights.
For Bob Abt, merchant of appliances and electronics, such moments of fear came in the early ’80s as national appliance superstore chains Fretter and Highland prepared to invade the Chicago market.
“They were predicting everyone would go out of business, and I was scared,” recalls Abt, who responded by doubling the size of the 2,000-square-foot showroom, at that time located in Niles. “I felt we had to.”
A little more than a decade later, Abt Electronics and Appliances has not only survived, but is thriving and expanding in the Chicago market–where Highland, Fretter and later-entry Silo are now history.
And though it has only one store, the privately held family business (which some people erroneously refer to as A.B.T.) this fall was ranked the 40th-largest appliance retailer in the nation by HFN, a New York-based home furnishings trade paper.
This is not to suggest that a war has been won decisively. If anything, the surviving independents are up against even fiercer competition: Second-generation mega-stores Best Buy and Circuit City are making tremendous inroads; undisputed appliance champ Sears, Roebuck and Co. is getting even stronger; and the specter of monster-size “giga-stores” lingers, even though Tandy Corp. for now has shelved plans to bring its Incredible Universe consumer electronics superstores to Chicago.
To continue to fare well in this environment, observers say, Abt will need to pick its niches carefully and to seamlessly transfer management from the family’s second generation to its third.
That said, the tale of Abt’s survival could make a textbook case study in how a tenacious, highly focused family with masterful merchandising skills can keep an independent business afloat–indeed growing–even as other formidable companies in the field, including local legend Polk Bros., fall by the wayside.
“You need to be very, very good to compete” against powerhouses such as Sears’ Brand Central, says Sidney N. Doolittle, partner at Chicago-based retail consultant McMillan/Doolittle LLP. “The fact that they’ve been able to do it is amazing.”
The keys to success for the 60-year-old business, which is undertaking a major expansion at its current Morton Grove location, range from the sublimely simple to the fairly complex. The family’s almost fanatical devotion to quality service and competitive pricing is certainly a factor, as are its development of a higher-end niche, its in-the-trenches mode of management and its down-to-earth, low-key approach to selling and showroom decor.
As well, the business is helped by a number of industry realities. For one thing, says Neil Stern, another partner at McMillan/Doolittle, the national chains are more focused on electronics than on higher margin appliances, which are Abt’s traditional strong suit. For another, Stern notes that Abt carries some so-called protective brands, which means those manufacturers’ strict pricing policies prevent competing retailers from undercutting each other.
But for Jewel Abt, who started the business with her late husband, Dave, on Milwaukee Avenue in Chicago during the Depression, the path to competitiveness is nothing fancy: “There’s only one way–treat ’em right.”
“Sometimes you even have to lose to keep a customer happy, but that does not happen too often,” adds Mrs. Abt, who turns 90 this month. Dapper and trim, she still comes to work five days a week to sign checks and visit with customers, though she notes that her son, Bob, 58, “is running the show.”
In fact, Abt’s impeccable service–from a knowledgeable sales staff to an ability to execute complex installations to a willingness to repair any and all of its merchandise–is mentioned time and again by customers, industry observers and retail consultants.
David Roth and his wife, Heidi Meredith, of Evanston, shopped around at Sony, Best Buy and Circuit City recently before buying a camcorder at Abt, where Roth said, “we actually ended up with a better price,” in part because they bought a floor model.
But even if the price hadn’t been the lowest, “it would’ve been OK because you can get an intelligent answer here,” he said. “There is a comfort level in that and it does add value. You don’t feel like you’re getting fleeced.”
Yet Bob Abt has no illusions that service alone will carry the day. “We price things, we shop the competition,” he said. “Everyone needs to be competitive price-wise or you’re not around.”
Exactly how Abt manages to stay competitive against mass merchandisers with enormous purchasing clout is difficult to pinpoint, as the family is guarded about the details of its operation, which has 370 employees.
Yet retail consultants offer some theories. Stern says the fact that the company’s product mix is heavier on the appliance side–refrigerators, stoves, dishwashers, washers, dryers and the like–helps the bottom line.
The electronics side–the TVs, VCRs, audio equipment–is “extremely price-intense,” says Stern. But, on the appliance side, there is “more room to work on the margin side. If they can get the volume out, which they seem to, they can be competitive.”
As well, some manufacturers limit the distribution of their products to certain dealerships and require that those retailers adhere to tight pricing policies and timetables for rebates and promotions. This means that retailers can’t advertise prices below certain limits, thus triggering damaging price wars, he says. Plus, independents such as Abt that still cut deals on the showroom floor can get an edge by throwing in extras, like TV tables, when a purchase is made.
George Rosenbaum, CEO of Chicago-based market research firm Leo J. Shapiro & Associates, adds that margins on service can be hefty, helping to offset independents’ disadvantage in securing good prices from manufacturers.
The sale of service contracts on big appliances can be very profitable, he says, as can installation services and general repairs to those whose warranties have run out.
Determining what parts of the operation are most profitable, or the store’s overall volume, for that matter, is tricky because the private firm releases no financial data except to say that it grows at about 10 percent a year. HFN, the trade weekly, estimates Abt’s 1995 revenues for the appliance side of its business were $28 million.
The company says appliances account for 55 percent of its business, which would mean its total revenues last year would have totaled around $51 million. This works out to $3,188 per square foot of selling space for the 80,000-square-foot business, which has a 16,000-square-foot showroom and 64,000 square feet of office and warehouse space.
While some industry observers estimate substantially lower revenues, others say this estimate could be in the ballpark.
“There are examples around the country of very aggressive stores in that industry getting $2,000 to $3,000 per square foot,” says Doolittle.
What has helped Abt’s profitability, without a doubt, is its development of a higher-end niche, which helps distinguish the store from the chains. This emphasis will grow significantly when its addition opens in January, adding 10,000 square feet to the showroom and 42,000 to the warehouse and office space.
“We like the high end,” says Bob Abt, whose store carries about 60 brands. “It’s kind of fun for myself and I think it attracts even the person getting the basic washer who wants to see what’s the latest, what’s the newest.”
Indeed, Abt’s appliances for the rich and famous have attracted some of the region’s very own–clients such as Michael Jordan and Bulls teammate Bill Wennington, Blackhawks Hall of Famer Stan Mikita and Sen. Carol Moseley-Braun, to name a few.
For the extreme audiophile, the store carries a pair of Grande Utopia speakers by JMlab–price tag, $65,000. Or perhaps you’re in the market for a home theater with surround sound. “Sky’s the limit,” says one salesman, noting that the most expensive home theater customized package sold thus far ran $55,000.
For serious home chefs or those whose kitchens must accommodate a flow of caterers, there are such top-of-the-line brands as Traulsen, Sub-Zero and Gaggenau. Stoves run from $199 to $4,800; fridges from $299 to a built-in commercial grade Traulsen for $8,000; dishwashers from $179 to a $2,300 Miele.
“We do 120 to 150 high-end kitchens a year,” says Doug Durbin, president of nuHaus Kitchen and Bath Design in affluent Highland Park, “and we try to use Abt exclusively. We send clients there because they have the greatest display of high-end stuff.”
Interestingly, while Abt’s product assortment is deep, its showroom is low on pizzazz, unless you count a 1,200-gallon saltwater fish tank used to display the camcorders and amuse customers’ kids.
“It’s not Tiffany’s,” says consultant Stern, “but it’s nice compared with other local stores. It’s a clean, modern environment.”
“We try to have a look like home, not flashy,” said Bob Abt, whose predominantly male sales force wears Abt sweater-vests in muted earth tones over casual shirts and slacks. “We like it laid back.”
Durbin notes that Bob Abt, who is 58, and sons Billy, 26, Mike, 33, and Ricky, 31, who help run the business, are hard workers who foster a down-to-earth atmosphere. “They all have the Abt vest; they’ll help anyone on the floor. They are not sitting in a backroom in three-piece suits telling other people to get out on the floor.”
The expansion will give the place a decidedly more upscale look. nuHaus is designing a showroom to display examples of high-end kitchens, including some that will integrate computer areas, or audio-visual areas or fireplaces into the design.
Abt’s specialized rooms for audio and for home theater will be expanded as will its offerings of cinema and TV furniture. Car audio equipment will be added to the store’s mix.
So far, the company has avoided taking the plunge into personal computers, but that won’t last forever. “We don’t like the computer business,” says Bob Abt. “Software price fluctuations are very dramatic. But computers and TVs are coming together and, when it happens, we have to go into the business.”
Likewise, the Abts felt they had to expand when they heard Incredible Universe was going to enter the Chicago market with three 170,000-square-foot stores. They considered a second store, but opted to stay with one for now.
Abt had two stores about 20 years ago, for seven years, but had problems with inventory shrinkage, a euphemism for theft by workers. “We keep good control with one store,” says Bob Abt.
The fact that Abt has not expanded to more stores could be perceived as a failing, or a strength, says consultant Stern.
“Clearly being in Morton Grove on Waukegan Road does not capture all the Chicago market,” said Stern. “So how come they haven’t grown?”
“But in a way,” he added, “it could be praise. Instead of getting into areas you don’t understand, you operate one store and do it very well. It is a conservative approach, but if the family can live on it and be comfortable, it’s not a problem.”
To continue to thrive in the future, industry observers say the family will need to choose its steps carefully and to make a good transition from second- to third-generation management, a step that is problematic for many family businesses.
“The real issue for them,” says Stern, “is they won’t be a mass-market player so they need to pick their niches carefully.” For example, he says, they would do well to expand their “home-theater business, which is a narrow part of the world, instead of trying to compete against all the audio out there.”
In terms of succession, consultant Doolittle says, “the sons could very well be as good or better than their father. Time will tell. If they are not, the business will not survive in the long run.”
Billy Abt has heard about family businesses hitting snags at the third generation, but he is optimistic.
“Statistics are not always right,” he says. “If they were, we would not be in business, with all the chains gobbling up the little guys.”
