Silo evolves, migrates, contracts, revamps

Silo evolves, migrates, contracts, revamps

Silo Inc will close 45 of its stores at a cost of $40 million to leave unprofitable areas. The chain will still have 180 stores with about $900 million in annual sales. Silo has faced increasing competition from other electronics outlets such as Circuit City, as well as warehouse stores. Silo lost $26.2 million and sales decreased .05% to $489.5 million in the 28 weeks preceding Nov 14, 1992. Losses during the same period in 1991 were $18.7 million on sales of $491.5 million.

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PHILADELPHIA--As Silo closes 45 outlets over the next several weeks, Silo president Robert Sirkis said the financially ailing retail giant's plans are in keeping with a larger industry trend of tightening rather than expanding new retail markets.

"I'm probably not qualified to answer if it is right for the industry; it is certainly right for us," he told HFD in an interview following initial news of the planned closings (HFD, page 118, Jan. 18). "Five years ago, this would have been major, major bad news. Today it's not atypical for any multicity retailer. The rationalization makes sense: when the economy slows down, [a company's] inherent weakness become more apparent."

Earlier this month, the Philadelphia-based electronics chain reported it will pull up stakes in several Midwestern markets in an attempt to staunch an escalating flow of red ink. At the same time, it said it will change both store size and appearance, and locations, in an attempt to adjust to the changing retail winds of the 1990's.

By the end of March, Silo will have closed 45 of its stores in the Midwestern U.S. at a cost of $40 million as part of its restructuring move to leave unprofitable markets. In addition, the retailers plans to perform face lifts on its remaining stores by expanding square footage, adding new categories and relocating stores closer to the center of its core markets.

The closures came as Silo's British parent company, Dixons Group PLC, revealed Silo's operating losses of $26.2 million on a 0.5 percent drop in sales to $489.5 million in the 28 weeks ended Nov. 14, 1992. This compares with losses of $18.7 million on sales of $491.5 million in the corresponding period a year earlier.

After the closings, Silo will be left with about 180 stores with annual sales of about $900 million, said a Dixons spokesman. The closures will result in the loss of 550 jobs out of Silo's total U.S. work force of about 4,100.

Sirkis said the key to any electronics retailer's success or failure revolves around knowing when it is time to evolve into something else. "The whole evolution is that retail concepts maybe get out of touch with the consumer. Retailers struggle a bit, and the best of us re-create themselves," he stated.

Industry reaction to the announced closings was mixed.

Harry Elias, executive vice president of JVC Company of America, said a proliferation of electronics speciality chains and the arrival of new forms of retail competition makes closings and reconfiguring a more likely scenario today.

"Today, most major markets and secondary markets are becoming over-retailed," he noted. "Between retailers such as Silo and Circuit City, we're also having warehouse clubs come into markets now that are carrying electronics. The market pie is really getting smaller and smaller. Not only are they [electronics retailers] competing with the normal retail base, now you have some new channels of distribution that have gotten into electronics."

The result: more stores competing for a finite number of consumers. "It's like using the food philosophy," Elias noted. "If you only have food to feed five people, how can you invite 30 people [retailers] to the table?"

"Silo is facing into the inevitable; they've tried a number of things in a couple of markets," noted Martin J. Holleran, president and chief operating officer of Emerson Radio Corp. "They're probably trying to consolidate down to what makes sense for them and to do better on a store-by-store basis as opposed to have stores everywhere, because it hasn't worked as well for them as they would have liked. It's a smart move. You hate to see stores close, but on the other hand I think it's inevitable."

Mike Fidler, executive vice president of marketing for Pioneer Electronics USA, Inc. said Silo's decision to expand its best car speakers, best car speakers for bass and sound quality  and home office categories makes sense as an attempt to grow each store's overall sales and profit margin. "Home office has been a growth area. If you look to most of our traditional consumer electronics retailers, it's still kind of a young category for them," he noted. "It continues to require additional support and floor space both on the hardware and software side. It makes sense to build that side of their business environment."

Other industry experts were less optimistic about Silo's long-term fate.

One industry analyst who spoke on condition of anonymity asserted: "It is a smart move ...but I don't think it was smart enough. I don't believe that they are going to 'out-circuit' Circuit City. I don't think that they have management, the concept or the real estate. Ironically, Silo was supposed be the savior of Dixon's growth, and it's turned out to be the bane of their existence."

Joe Henderson, vice president of merchandising for Roberds, a Midwestern department store chain, said the announced closings did not come as a surprise. "Everybody said that (industry consolidations and closings) are not done yet," he noted. "Well, they were right. [Silo] is between a rock and a hard place. Welcome to Highland."

One Northeast manufacturer who spoke on condition of anonymity, said Silo's decision to exit certain markets illustrates the retail version of Darwin's survival of the fittest theory. "In many cases, by weeding out the weak stores can strengthen the company overall. I assume that they have done their homework, and have realized that by weeding these stores out it will just make them a stronger entity in the business.

"If you have 20 percent nonprofitable stores and you just get rid of the nonprofitable stores you're just going to be a more profitable company. "It's the old story: you can do less business and be more profitable."

The Silo stores slated to close, which average about 8,000 square feet in size, represent about 19 percent of Silo's total stores and 37 percent of its markets, but only 11 percent of its overall sales. The stores would have lost $4 million this year if they had remained open.

Sirkis said that approximately half of Silo's stores will require healthy cash outlays to make capital improvements or relocate. "Locations that are not [in] primary retail space, we will move," he commented.

Silo's realignment plan will replace smaller stores typically located on the edge of a market with a larger one set in the center of it. "Part of our plan will be to close some stores--close two [stores] to open one," Sirkis added. "A number of the stores are two miles away from where they should be. We'll move them to where they should be."

Silo's criteria for selecting new store locations in both Chicago and Los Angeles is straightforward: "primary real estate, generally mall-proximate power-strip centers [located] with other major retailers," Sirkis said.

The average Silo store size will be expanded from its current 10,000-to-12,000 square feet to 20,000-to-25,000 square feet. "Obviously, we've got any number of stores that we will expand if the location is right, or when we move the location we'll look for bigger space," Sirkis said.

That added space will be filled with new product categories such as home office equipment and car audio installation bays as well placing bigger emphasis on customer services. The chain has test programs under way which include expanded home-office centers in 58 stores, upgraded car entertainment demonstration and installation facilities in 36 stores in 10 markets; and new in-store repair centers in 22 stores.

"My guess would be that Silo will try to sell a higher mix of product," added Emerson's Holleran, "and try to move more and more into the home-theater concept where all the higher-end retailers are moving.

"L.A. is a pretty crowded market, but there are a lot of people out there. L.A. is going to be a big challenge for them, because you already have some pretty substantial retailers out there--Circuit City and The Good Guys! --but they [Silo] may see an opportunity."

Sirkis said Silo will be "committed to becoming the best valued-added consumer electronics retailer in America. We think that unlike other formats, consumers are looking for more service, not less."

All Silo stores would be converted to the larger model over time. "It doesn't mean that every single Silo store needs to get moved," Sirkis noted. "We've got a number of stores--certainly many of our newer stores--that meet that profile today."

Silo will add 11 stores to the Los Angeles market. Sirkis said that move is intended to generate more sales to cover the high overhead cost of operating in L.A.: "Los Angeles is not a good market. Some of that has to do with the amount of competition, some of it has to do with the economy of the region, but a great deal has to do with the fact that we're significantly under-penetrated."

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In Chicago, Silo will open an additional nine stores, four of which will be former Highland sites closed last year when Highland exited that market. "We have smaller, less well-located stores in each of those trade areas that we may or may not close after we open the Highlands locations," Sirkis noted.

"It's going to be a pretty tight market with Circuit City coming in this year and Best Buy already expanding, but with Highland and Polk parting it's left some room," Pioneer's Fidler said.