Magnolia Hi-Fi & Video -- Electronics Retailer Pumps Up Volume With Product Variety

Magnolia Hi-Fi & Video

-- Employees: 330

-- Headquarters: Seattle

-- Business: Consumer electronics

-- No. of stores: Nine

-- President: Jim Tweten

-- Fiscal 1990 sales: $80 million

-- Major competitors: Silo, The Bon Marche, Video Only, Car Toys

-- Strategy: To use specialized sales staffs and to offer lower-priced goods along with luxury products.

When Silo planned to open six stores at once in the Puget Sound region, Dave Kaplan, then the new home-stereo manager at Magnolia Hi-Fi & Video Inc., became worried.

He knew that when a large retail chain, such as Silo, opens stores with its considerable discounts and sales volume, smaller stereo shops can be overpowered. It's like placing a boom box next to a transistor radio. Kaplan saw the need for quick action.

"What are we going to change about Magnolia to get ready?" he asked during lunch with his boss, company President Jim Tweten.

Tweten looked back across the table at Kaplan and said: "We're going to continue to do what we've always done. We'll take care of the customer. We'll have products they won't carry. As long as we stay true to the company, we should do pretty well."

That was nearly seven years ago. And Magnolia Hi-Fi has done more than pretty well. It has thrived. The key has been mixing less-expensive merchandise that turns over quickly with higher-end products that attract electronics connoisseurs.

Starting as one store in Magnolia Village 37 years ago, the company has developed into a highly regarded nine-unit chain with stores in Seattle, Tacoma and Portland. It competes head to head with big discounters on stereos, car stereos, cellular phones and video equipment.

Although overall sales have dipped to an annual growth rate of 3.5 percent, according to the Electronics Industry Association, Magnolia's have risen during the past six years at an annual 20 percent clip. This year's sales are expected to reach $88 million, up from $80 million.

No longer is Magnolia considered a mom-and-pop operation, or simply a specialist in luxury equipment. Rather, the chain has evolved into a significant player in Seattle.

"They are a formidable competitor," said Mark Ormiston, president of Definitive Audio in Seattle, who, from his own storefront, can see Magnolia's store on Roosevelt Way Northeast.

"They dominate this market in terms of visibility," he added. "I don't think there is any question they are a quality organization. If you look at the disparity in size between them and other small retailers like us, they are obviously doing something right. A lot of retailers in Seattle would like to clone their success."

As a testament to that clout, US West NewVector Group Inc. tried to legally block Magnolia, one of its key cellular-telephone dealers, from defecting to its rival McCaw Cellular Communications Inc., the parent company of Cellular One. After more than five years with US West, Magnolia switched to McCaw, the nation's largest cellular company, on Feb. 1.

Tweten switched to McCaw because it had newer technology than US West. Callers using its equipment along the Interstate-5 corridor can dial to Portland from Seattle, for instance, without using special calling codes.

In addition, Tweten said US West wanted to change the sales commission it paid to Magnolia. Rather than paying a large, up-front fee to Magnolia, which signed buyers to its cellular-phone network, US West wanted to link Magnolia's profit to a 12 percent cut of the customer's cellular phone bill for up to five years.

"I think it is our choice who we do business with," Tweten said. "I believe we are in a people business, and when we're forced or coerced to do things not in the best interest of our customers or company, we have to sever a relationship."

US West filed a lawsuit to keep Magnolia, which calls itself the largest cellular dealer in the Puget Sound region, from moving to a competitor, something US West said was stipulated in its contract with Magnolia.

Although Tweten and US West say an "amicable" agreement was reached, both sides declined to comment on the details.

Sitting in his office, surrounded by pictures of golf outings and family skiing trips, Tweten talked about his company's growth. Magnolia's strategy is driven by two factors, he said: the use of a specialized sales force, and sales of lower-cost products that broaden the company's appeal.

Tweten divided his sales staff into specialists for various products such as car stereos, home stereos and video equipment in his Roosevelt Way store a decade ago as a test.

"From that one experiment we made a decision to do that in all the stores," Tweten said. "It proved to be successful." As a result, he said, his Roosevelt store went from selling $40,000 in car stereos per month in 1985 to a present average of $250,000.

As sales volume surged, the company grew large enough to join a buying group that purchases products at a discount. Not only has it resulted in bringing in customers who might not be able to afford Magnolia's higher-priced goods, but it has spread the company's sales more evenly among various product lines. Sales are balanced among one-third home stereos, one-third video and one-third car stereos and accessories.

Such performance has led to Magnolia being named one of the nation's top 10 electronics retailers by Audio Video International magazine for 12 consecutive years - longer than any other company.

"One of the great successes of Magnolia is due to the fact that it addresses a wider segment of the market and brings good customer service to it," said Jim Pearce, treasurer of the Professional Audio Retailers Association, a trade group of small electronics retailers.

Company executives add a dash of panache by searching for the latest gadget that may not generate huge sales but keeps the sales staff enthused and cultivates an image of excitement for customers.

This year, for instance, Magnolia stores will carry a small satellite dish that allows users to pick up more than 50 movie channels with picture quality far superior to regular television. The company hopes this will be the industry's next hit, like compact-disc players or videocassette recorders, jolting growth rates higher.

"They have taken a mass-market approach to selling high-end goods, but not in a pejorative way," said James Wilcox, news editor at This Week In Consumer Electronics magazine in New York. "They have not sacrificed a lot of what makes them a high-end retailer, and that's unusual for someone selling that kind of merchandise."

It was the love of music that encouraged Jim Tweten's father, Len, to stock his stationery and camera store with hi-fi equipment in the early 1960s. His passion compelled him to devote more and more room to speakers, tape recorders and amplifiers.

Separating Tweten from other retailers was his commitment to customers. Tweten's reputation for carrying high-quality equipment spread, and so did his influence on the industry. He has been inducted - alongside others such as Avery Fisher and Sal Marantz, whose last names are trademarks for well-known audio-video equipment - into the consumer electronics hall of fame.

Although Magnolia is still known for its service, some say that because of the chain's burgeoning size, it cannot offer the same degree of exceptional help that it once did. It's an inevitable result of growth, they say.

"When I started 20 years ago, Magnolia was what a lot of specialists wanted to be," said Ford Montgomery, the owner of Chelsea Audio Video, a competitor in Portland. and past president of the Professional Audio Retailers Association. "They had very, very good brands, service and commitment to the customer that was legendary."

"Len, the man, and Magnolia, the place, was of mythical proportions in the 1970s," Montgomery said. "Today, it isn't that way. An $80 million company is not able to do the kinds of things that it once did as a smaller company. It's just that Magnolia has grown up."

Nonetheless, the chain's presence in the Puget Sound region appears solidified as Jim Tweten talks of opening more stores - maybe a unit per year - in the Pacific Northwest. Although Tweten's goals remain conservative, no plans exist for taking the company public or expanding it nationally. "We're very happy in the Northwest," he said.

Although the region has an abundance of competitors, there's always the possibility other large chains will be lured here by the economy's well-being. Kaplan, now Magnolia's vice president of purchasing, said that he would still be concerned with giant competitors entering the region as he was seven years ago. But he said he believes the company would win customers the same way it has before.

"We'll do very well when that time comes, as we have in the past," Kaplan said. "We'll get our share."

Strategies appears weekly in the Business Monday section of The Seattle Times.