Transcription
Price Electronics went from a single store in California to a nationwide chain doing $2 billion a year in sales with over 30 states covered with dozens of stores across all of them. But fast forward just a few years later, this beloved mecca for nerds everywhere closed down very suddenly and all of the doors of all the stores closed for good. So, this is a video detailing the rise and fall of this iconic retailer and also explains why I'm recording the intro in front of a Best Buy. And I'll explain throughout the video the role this place had in helping fries close down.
Hi, my name is Michael. I make videos about the rise and fall of iconic companies, usually as an excuse to talk business and get out and get a little exercise. If you are interested in more of that kind of stuff, I put the top 10 lessons from all these companies I detailed in a single document. You can download it at the link below. It's usually the first pen comment.
So, the story of Fries doesn't actually start with the guys who started it. It actually starts with their father, a man named Charles Fry, opened up a grocery empire and built it up over a number of decades in California and Arizona. He sold it in 1972 for $14 million. And then what he did was take a million dollars and give it to each of his three boys to basically seed their entrepreneurial endeavors in the future. And so in 1985, the three brothers, John, Randy, and Dave, and their business partner, Kathy Cer, opened up the very first Fry Electronics in Sunny Bale, California.
And this was peak superstore era in the United States. It seems like there was a superstore for almost every type of person and every type of product. And this was no different. The brothers and their business partner opened up a veritable superstore for nerds. And the idea was that they were going to stock everything from potato chips to computer chips. If you wanted to be there any day of the week, any hour of the night, and you were a nerd that wanted a nerd type product, computer parts or anything like that, they would stock it in these giant stores called Fry Electronics. And these early stores were a treasure hunt. They were 50,000 square ft and they would stock over 50,000 different SKUs. Everything from computer chips to nudie magazines, they had it. Oh, caffeine pills, too, if you needed to stay awake all night programming your computer.
And the brothers weren't new to retail. They had grown up in the grocery business following their dad. And so, the son, John Fry, basically led them to apply a lot of the grocery store techniques that they had learned in merchandising and retail into the electronics business. And nobody had done this before. They would compete on price, selection, and volume, much like the grocerers did. and they would do a lot of the tricks like the grocerers did. And for example, if you go check on any grocery store these days, including Walmart, when they sell groceries, uh, the number one skew is always bananas. Well, what do they do when they stock bananas? They price them cheap and they put them right at the front. So the moment you walk in, you think, "Wow, this place is cheap. Got some good deals." Well, Fries did similar stuff with their discounts, too. And so, by taking these lessons from one industry and applying them to another, the formula totally worked. They kept expanding state after state, store after store, and by 2002 they had nearly $2 billion dollar worth of sales and they were employing 5,400 people. The concept, it worked.
By 2009, Fries operated 34 stores, not just in California anymore, but in Arizona, Illinois, and even Georgia. And as they opened these new stores, they also kept making them bigger. Remember, the first stores were 50,000 ft. Well, as they started to expand, some of them reached 150,000 square feet or more. Absolutely enormous. And I said before that part of what made these stores so magical was they felt like a treasure hunt. You were running around looking for deals or something you'd never seen before in a place with massive selection and massive volume. Well, one of the things they did, which was so cool, was they would spend a couple million bucks sometimes uh to basically design each store to be different than the previous one. So you had things like a wild west theme or an ancient Egypt theme or a space theme. Just everything imaginable to get people in and make the process of buying it fries well super fun. And the stores were so interesting that sometimes tourist buses would stop at them. And I remember being in the Bay Area working in tech in the late '9s. And there were weekends that me and my nerd friends would just pile into the car and drive down to Sunnyvil just to hang out at Fries for a couple hours and look at all the stuff that they had. It worked.
But here's one thing to know about fries and one thing that would lead to its potential demise in the future. All that other stuff they were selling for nerds, the no-dos pills and the belowric Coca-Cas and all that kind of stuff, that was just noise from a revenue and profit standpoint. The reality is, depending on how you looked at it, 90 to 94% based on the different reports I read was stuff that was core electronics, commoditized things with SKUs that, well, had a brand name and were computer stuff. And fries also kept prices down the same way grocery stores do by not having much in the way of customer service. I mean, good luck going in a grocery store and asking somebody to help you choose the right soup can. It ain't happening. Well, Fries did the same thing. They didn't spend much on labor. They didn't get skilled people in there. And if you had a question, well, you needed to figure it out yourself. And you were supposed to. You were a nerd. And I remember going down on some of these trips down the peninsula in California into these fries in Sunnyvale and Palo Alto and places like that. Uh, good luck finding somebody who knew anything about what you were trying to buy. It was a challenge to get any kind of help whatsoever. Uh, and a kind of a crazy place to go into.
But a brilliant strategy that Fry used was a thing called slotting fees. And this is something that happens a lot with big retailers, which is they flip the table on their suppliers. And they make their suppliers pay to have their products in good positions on the shelves. And you'll see retailers like Walmart or other folks like that charge big brands money to stock their shelves and have premium space so their stuff sells more. Well, Fries did exactly the same thing. They were so big and they moved so much stuff that they could go to their suppliers and say, "Hey, pay up. Otherwise, we're going to not stock your stuff and well, customers won't buy it." And this actually happens today, believe it or not, in e-commerce as well because Amazon does it too. They just don't call it slotting fees. They call it advertising. And they charge their suppliers to have their items promoted on the Amazon website. The past doesn't change. It just rhymes.
And being all in on in-person shopping and all these strategies that they were doing where they were the only game in town, uh, that all works when you don't have a lot of competition. But underlying these strategic choices that Fry had made, it was creating risks. And that was all coming to a head when e-commerce started to get real. Amazon got into electronics in 2000 and electronics kind of mega giant in commerce, Newegg, it was founded just shortly after. And at the time, man, Fries was still killing it. They were doing roughly $85 million per location per year. Be surprised at Fries, which is a number that you're like, "Okay, cool." Well, that was triple what a typical Best Buy did at the time.
So fast forward to 2008 and the first sign of things going wrong starts to rear its head. A man named Omar Sadiki who was a VP for fries was caught not by the company but by the IRS and he had been running a massive kickback team with their suppliers. Omar's scam was that he would in get the suppliers to inflate the invoices that they sent to Fries. So Fry was overpaying for stuff and in the background he made back deals with the suppliers that they would give him kickbacks, meaning they would send him the portion of the inflated money that the company was sending. So in other words, for a decade plus, this guy had been running a scam that caused fries to pay well over eight figures and maybe nine figures, $100 million plus, too much to their supplier. And while Omar was making a $225,000 salary, between 2005 and 2008, he wired $120 million to Las Vegas casinos.
Price had never been oblivious to the idea of e-commerce coming. In fact, they had seen it coming uh and bought a site called outpost.com and started to bring up their own basic e-commerce site. But over the decade of the 2000s, they showed they didn't really understand e-commerce. They didn't really execute on it well. They were physical products people, physical retail goods people, and they just didn't get the internet. And so, while year after year, e-commerce kept getting better. Amazon developed and launched Prime. You know, there started to be little reason for people to go into the stores. Like, you're not going to get help from anybody in there. So, why not just buy the thing online and save a little bit of money?
If you recall, I started this video in front of a Best Buy and wanted to explain how they didn't die when Fries did. Well, at this time, Best Buy saw what was coming and made the strategic decision to go all in on service. They started Geek Squad and they started to make sure that they were helpful, trained people on their aisles, something fries, well, just never saw. So, by the mid2010s, you would go into a store and they just looked tired. They look like a relic of a bygone era. They didn't have a good digital presence. They didn't understand the modern shopper. They didn't have the customer service of a Best Buy. And frankly, like they didn't really understand uh that most people now by the mid2010s have been trained to go to Amazon or Newegg and buy their computer there rather than to go in and struggle to find the parts they needed at a Fries.
Fries was a private company, so it's pretty tough to get a lot of inside information on what was going on at this time. As I researched it, it was tough to find stuff. But if you look at the pattern of what was happening, you have the fraud with Omar. You have basically the out of touch and poor execution around their e-commerce. You have the stores starting to look tired. And then you have what they started to do next, which was just more of the same thing, right? Instead of moving with the times and changing the business, they just started to compete on price even more and try to double down on what had gotten them there. When in reality, the world had shifted underneath them. And when you see this type of behavior, it just smells to me like owners who had made a lot of money and were just kind of checked out.
By 2019, it looked like the end was near. Uh, social media at the time, I remember, was filled with ridicule as people started to point out that you go into fries and entire aisles would be bare and major suppliers stopped shipping to them. Uh, Samsung, for example, feeling like the end was going to be near for fries, well, stopped shipping them stuff entirely. And unable to pay its bills, uh, by 2019, the chain came up with a grand idea. what we're going to do, they said to their suppliers, we're going to do a consignment model. You'll give us the inventory, we'll put it on our shelves, and you'll get paid when it sells. Well, you can imagine what the suppliers did when they heard that news. They're like, "Ah, these guys can't pay their bills. I'm not going to give them my product and probably never see it again." And reports I read said that later on in 2019, the chain was panicking on the inside. Cash flow was tight. Things were looking bleak. They reduced and eliminated all sales and support staff in order to save on salaries and bonuses.
Then one by one, the stores started to close. Uh the famous Wild Wild West theme store in Sunnyvale that I had been to, it closed uh in 2020. The Campbell store, which was a famous uh I believe ancient Egyptian Theme store, it closed as well. And humorously during this time, company PR kind of reflected the level of dysfunction I talked about being possibly the demise of the chain. The PR folks were basically going out and saying, "Everything is fine. We have no intention of closing and shelves will be restocked soon." Well, that wasn't going to happen. And the company was already in a death spiral as the pandemic came in mid 2020. If you remember this time, nobody was going in and doing in-person retail. And uh that was just basically the uh death blow for the chain. And in February 2021, suddenly all 31 remaining stores closed down. And the chain after 36 years of business and billions of dollars in sales closed down for good. And it was the end of an institution.
And I think lessons like this one, I'm reminded of a quote from a tech executive, a guy named Andy Grove. He had this famous quote as he ran the tech giant Intel. and he said only the paranoids survive. And I think as I look at this from the outside, and again this is based on the research I was able to get because this is a private company. It looked like the ownership lost their level of paranoia. And that can happen when things are going well, when you're making a lot of money, when your bank account starts swelling, which it seemed like it did for these guys. I mean, they had a chain doing two billion a year in sales, which is an incredible amount of money. and you as an owner have to stay paranoid because the business could slip away from you just as quickly as it did for fries. Then you're left with nothing.
All right, let me know what you think in the comments below. Tell me if you like the video. Tell me if you hated it. If you like it, it helps because I'll make more of them. What would you have done to save fries? Uh, I'd be curious if you could have kept them alive because, man, I know a lot of people miss them. I do too.