Plans For The Future -- Electronics Chain Expands In Effort To Become Big In North America

VANCOUVER, B.C. - The reasons why a company begins, grows and flourishes are strange enough, but a company that traces its roots to the Ayatollah Khomeini and the Iranian revolution is touched by the magic of chance.

Such is the story of Future Shop, a computer, electronics and appliance chain that has as its goal to be one of the largest retailers in its field in North America by the turn of the century.

But Future Shop would have no future at all if events in the early 1980s had turned out differently.

Iran was in turmoil in the early 1980s as the rule of the Shah of Iran came to an end and was replaced by Muslim fundamentalists led by the Ayatollah. Future Shop Chairman Hassan Khosrowshahi, who ran a family business, lost most of his holdings in Iran but was able to hold on to some assets he held outside the country.

He left Iran in 1981 and came to Vancouver, B.C., in 1982. A year later, he was joined by a long-standing colleague, Mohammad Ziabakhsh. Ziabakhsh is now president and chief executive officer of Future Shop.

Khosrowshahi opened a single store in Vancouver, tapping into the then-tiny computer business. The original store is still there, but the company has grown from those humble beginnings to become Canada's largest electronics retailer.

Future Shop is now making huge investments in the Pacific Northwest as it continues its march across Canada. The expansion has fueled huge growth in the company's sales and profit.

Sales are up 77 percent this year compared with last. Same-store sales, a key measure of retail performance, are up 48 percent. Profit has zoomed 99 percent.

Too much?

Some analysts think so. Several in Canada are actually fairly negative on the company. This has nothing to do with the company itself, they say. It is well-managed, aggressive and with adequate cash flow and financing to push the growth. It's the competition that concerns them - there is just too much of it around, with many chains offering much the same kind of merchandise.

They point to Circuit City, Good Guys, the huge Tandy Incredible Universe stores and others in the industry.

Not that Future Shop shies away from competition. When it was looking for a new store site in Vancouver recently, it settled on a site one block from where Computer City plans to open next year. And the company is clearly also not afraid to gamble big bucks to enter a new market.

Future Shop now has 10 stores in the Pacific Northwest and plans to open still more in the future - the company believes the Northwest market can support 30 stores. In its fiscal year ended March 31, the company reported a loss of $2.6 million Canadian ($1.9 million U.S.) from its U.S. operations.

Gary Patterson, executive vice president and chief financial officer, said the losses in the United States will continue probably until next year when the chain has enough stores open to cover basic overhead costs - warehousing, distribution, advertising. He said the U.S. operation would be profitable then.

"Our long-term goal is to become one of the top two electronic retailers in North America in terms of volume," Patterson said. Patterson said he expects sales to top C$1 billion this fiscal year.

The company typically looks around for a community of about 100,000 people or so before it puts in a new store. Large metropolitan areas such as Seattle and Portland are naturals, with multiple stores in those areas. But Future Shop also targets cities such as Boise, where it has recently opened a new store in a large regional shopping center.

Patterson, the chief spokesman for the company, said the rapid growth of the past few years obviously cannot be sustained, but Future Shop is not ready to let up yet. He points to same-store sales growth as an indication that the chain is penetrating the markets it is entering.

What makes Future Shop different?

Patterson said it is a commitment to three things - price, selection and service.

But price is the most obvious area for Future Shop. It advertises aggressively on price in newspaper ads, and frequently in those advertisements offers price as the main reason for coming to the store. But Patterson said price is not the only thing. Service and selection are equally important.

Future Shop looks at service a bit differently than other companies. There is the traditional view of it - and Future Shop agrees with it - but the company also includes the concept of value. Future Shop customers not only get the best price, they get the best value, Patterson said.

A typical Future Shop store is about 30,000 square feet with an array of televisions, computers, software and appliances. The appliances - stoves and refrigerators - are a bit of an anomaly in a high-tech store, but Future Shop has found they help build customer loyalty.

Patterson said Future Shop plans to grow rapidly in the next few years as it pushes its concept into more areas of Canada and the United States. The company plans to expand outside the Northwest, but Patterson would not say where.

California is one possibility. But another would be to continue to use bases in Canada as the jumping-off point for additional U.S. markets. That could make Detroit and the upper Midwest the next target since Future Shop has a strong presence in the Ontario/Toronto market.

Patterson said Future Shop also would consider expansion by acquisition, but "the fit would have to be right." Several discussions are under way now, Patterson said, but he refused to be specific.

Future Shop's stock is listed on the Toronto Stock Exchange and is available through most brokerages, including discount brokers. A spokesman for Freeman Welwood & Co., a Seattle-based discount broker, said it trades on Canadian exchanges and investors can easily purchase the stock through it.

The company is considering a dual listing on a U.S. exchange so stock quotes would be more readily available.

Future Shop's corporate structure is somewhat complicated, but it also reveals other connections to the Pacific Northwest. Inwest Investments Inc., controlled by Khosrowshahi, owns 74 percent of the stock in Future Shop. Inwest has other investments in real estate, including the Westwood Shopping Center in Seattle and the Lake Stevens shopping center in Snohomish County.

Future Shop stock has done well since it was first offered to the public in August 1993. Earlier this fall, the stock had more than doubled at C$25 a share. It has recently slipped back to the C$20-a-share range. Patterson said the company believes the slump is the result of market trends rather than any particular investor sentiment about the company.

He said the slide has occurred on relatively slim volume of 6,000 to 7,000 shares traded a day.

Recent figures for the company have been impressive.

The company said its second quarter ended Sept. 30 showed sales up 84.8 percent to C$247.6 million from C$134 million the same quarter a year ago. Same-store sales were up 37.4 percent.

Profit was C$4 million, compared with C$3.8 million, an increase of 4.9 percent.

In an interim report just for the month of October, the company said sales were C$100.6 million vs. C$54.2 million in October 1993. Same-store sales were up 33 percent.

Like most retailers, Future Shop does 30 percent to 40 percent of its business during the Christmas season. Patterson said he expects a strong Christmas for the company.

But with all the competition out there, this could be the Christmas season that shows whether its strategy of aggressive marketing will continue to work.