Computer City stores closing in Timonium, Glen Burnie Part of Tandy's restructuring

December 31, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF Bloomberg Business News contributed to this article

Tandy Corp. said it will close its Computer City stores in Timonium and Glen Burnie immediately, as part of a restructuring that closes the Texas electronics retailer's Incredible Universe superstore chain and pulls Computer City out of the Baltimore-Washington market, where it has been buffeted by competition.

"They're closing the stores [yesterday]," Tandy spokesman Tony Magoulas said. "They're going to take inventory, put the stores in the hands of liquidators, and have a 60-day liquidation."

The closings, which also affect a Computer City store in Rockville and two in Northern Virginia, will shutter 19 of the 108 Computer City outlets in North America. Two others will be relocated. Magoulas said each store employs about 35 workers, and Tandy will try to relocate as many as possible to its Radio Shack stores.

Tandy also said it is getting out of its controversial Incredible Universe chain, selling six of the stores to Fry's Electronics Inc. of Palo Alto, Calif., and planning to close the other 11 as Tandy seeks buyers for at least the real estate they sit on.

"It's not an unexpected move," said Mike Legg, an associate analyst at Alex. Brown Inc. in Baltimore. "We knew they would make an announcement by year-end."

Legg said Baltimore-Washington is more competitive than most markets for computer retailers because most of the major industry players are committed here, including Tandy, CompUSA, Best Buy and Circuit City. The combination of all the players forces prices lower and the cost of building a franchise higher, he said.

"The advertising and real estate costs are so much higher," he said.

In addition, Magoulas contended that Baltimore and Washington are relatively short on small-office and home-based businesses that Texas-based Tandy sees as Computer City's core market in the future.

Wall Street had always understood that the Incredible Universe chain was a huge risk because the stores themselves are huge, Legg said -- at up to 180,000 square feet, they were more than three times the size of a typical, competing Best Buy store.

Because of their size, the stores were expensive to run, making them a dicey proposition in a business known for intense price competition and vulnerable to sudden swings in consumer sentiment such as last fall's lag in demand for computers. Tandy had hoped that Incredible Universe, which did not have a Baltimore-area outlet, would win over consumers with an overwhelming selection of appliances, audio, video and computer gear -- especially at the high end of the market. But analysts' estimates of how much the two chains lost this year range as high as $150 million -- $90 million at Incredible Universe alone.

"Incredible Universe required a big investment, high rate of turnover and in the best of times that would have been an aggressive model," said Mark Mandel, an analyst with Chicago Corp. "But it was a real problem in today's market."

Legg said that for Incredible Universe to make money, Tandy would have had to hold its overhead -- advertising, wages, real estate and other operating expenses -- to about 15 percent of sales. But that goal proved impossible to reach, and many

high-end consumers shied away from the superstore concept.

"People who are going to spend $3,000 or $4,000 on a stereo are going to go where they can get top service," Legg said.

Tandy said it will take a fourth-quarter charge of $170 million to pay for the moves, but the pending write-off, which will wipe out Tandy's 1996 profit, did not discourage Wall Street. Investors pushed Tandy shares up $1.75 to $47.25 in early trading yesterday, before the stock settled back to close at $46.25, up 75 cents.

Pub Date: 12/31/96

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