Electronics Boutique Holdings Corporation

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Electronics Boutique Holdings Corporation

931 South Matlack Street
West Chester, Pennsylvania 19382
U.S.A.
Telephone: (610) 430-8100
Fax: (610) 430-6574
Web site: http://www.ebholdings.com

Public Company
Incorporated: 1998
Employees: 11,800
Sales: $1.98 billion (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: ELBO
NAIC: 443120 Computer and Software Stores

Electronics Boutique Holdings Corporation is the holding company for a chain of video-game stores operating under the names Electronics Boutique and EB Games. The company operates 2,000 stores in North America, Puerto Rico, Australia, New Zealand, and Europe. Each store, averaging 1,200 square feet, carries more than 2,000 software titles. Electronics Boutique is 48 percent owned by the family of its founder, James J. Kim.

Origins

Electronics Boutique, a sprawling retail giant, was created by James Kim, a native of South Korea whose early career was spent learning and teaching the principles of business, not practicing them. Born in Seoul in 1936, Kim began training for a career in law, but he never developed an interest in his studies. After attending the College of Law of Seoul for a year, he dropped out. "I never liked the law," he said years later in a November 17, 1986 interview with the Philadelphia Business Journal. A friend of his father suggested he move to the United States and attend the Wharton School at the University of Pennsylvania. Kim heeded the advice, determined to study economics so that he could help his country recover from the war he had witnessed as a teenager.

Although he had demonstrated little perseverance in his approach to law, Kim applied himself fully to the field of economics. He attended Wharton, receiving a bachelor's degree in economics in 1959, and began pursuing a master's degree in economics at the University of Pennsylvania's Graduate School of Arts and Sciences. By 1963, Kim had completed his doctoral studies, which landed him a job teaching courses in economics and finance in Wilmington, Delaware, at what later became Widener University. Next, Kim made the short trip back to Philadelphia to accept a post as a teaching fellow at Wharton, a stint that led to his selection as an assistant professor at Villanova University. Kim remained at Villanova until 1970, but by that time he had already begun to stray from academia and apply his knowledge in the business world.

Kim's entrepreneurial career was triggered by a trip home. In 1968, he returned to South Korea, which had achieved great strides economically since his departure. Kim was impressed by the wealth of business opportunities available, prompting him to start a company of his own with ties to his native country. In 1968, Kim established Amkor Electronics Inc., a Valley Forge, Pennsylvania-based semiconductor assembly company affiliated with the Seoul-based company, Anam Industrial Co. Ltd., run by his father. Amkor enjoyed brisk growth, encouraging Kim to start another venture, one aimed at tapping the market for consumer goods. Electronics Boutique became Kim's second entrepreneurial creation, a company founded in 1977 that grew in the shadows of its larger cousin, Amkor, whose profits provided the retailer's seed money.

Early Changes in Strategy

Electronics Boutique, based near Amkor in Valley Forge, began as a one-store enterprise. The first unit, which operated under the Electronics Boutique banner, was a kiosk located in the King of Prussia Plaza Shopping Mall. The original idea behind Electronics Boutique was to sell digital watches and digital calculators, the first tremors of the digital revolution to come and the rage of the late 1970s. Like all fads, the demand for Electronics Boutique's first merchandise faded, leaving Kim searching for another retail approach. The name of the retail concept was changed to Games and Gadgets, a new name for an expanded mix of merchandise that included a wider selection of electronics products, including video games and hand-held electronic games. The new name did not last, leading to a return to the Electronics Boutique banner in 1985, when Kim started focusing on personal computers with a particular emphasis on computer software. "We struggled for about six to seven years before really realizing the fruit of our labors," Kim explained in his November 17, 1986 interview with the Philadelphia Business Journal.

Although it took several years for Kim to discover a suitable merchandise mix, it did not stop him from expanding from the start. Using money generated by Amkor and the profits produced by his growing retail venture, Kim built Electronics Boutique into a chain. In 1980, he relinquished his posts as president and chief executive officer of Amkor so he could spend more time overseeing the development of both his companies, limiting his role to developing long-term plans for both Amkor and Electronics Boutique. In 1984, he hired Joseph F. Firestone to serve as president of Electronics Boutique, the same year Jeffrey W. Griffiths was hired as merchandise manager. Although it would take several years for Griffiths to distinguish himself and earn promotions to more senior positions, the company had its 21st-century management team in place by 1984.

As Electronics Boutique developed into a chain, it used its first store in suburban Philadelphia as a blueprint for expansion, at least in terms of location. The company grew up in shopping malls, using the location of its stores to advertise itself rather than investing in any substantial marketing campaign. A decade after starting out, Electronics Boutique stood as a 77-store chain with annual revenues of roughly $30 million. Stores averaged 1,200 square feet and stocked 4,000 software titles, with hardware and computer accessories supporting the chain's mainstay merchandise line. Amkor, by far, was the bigger of Kim's two enterprises, collecting more than $100 million in annual sales, but the disparity in size would not last long. Kim, with Firestone in charge of the day-to-day management of the chain, intended to add 30 stores each year for the remainder of the decade, aiming to create a 200-store chain by the beginning of the 1990s.

As Electronics Boutique pressed forward into the 1990s, expansion went according to plan. As the company expanded, it did so in an unusual fashion for a retail concern. Kim ordered the establishment of stores outside the United States, adding an international dimension to the company's business. By 1993, there were 318 stores in operation, seven of which were international units. In the years ahead, the company expanded domestically and internationally, opening stores in Canada, Puerto Rico, Australia, New Zealand, South Korea, and in Europe.

Electronics Boutique broadened its geographic scope during the mid-1990s, and it began developing other retail formats as well, coupling expansion with diversification. The acquisition of a single store in 1995 became the basis of the company's sports division, a business segment that consisted of what became a small chain of stores operating under the banner BC Sports Collectibles. The sports division would be joined by another format later in the decade, but before the company began developing its third retail chain it turned to Wall Street for financial support in backing its growth plans. In March 1998, a holding company, Electronics Boutique Holdings Corporation, was formed in preparation for the company's initial public offering (IPO) of stock. At the time, there were 466 stores in operation in 42 states, Puerto Rico, Australia, and South Korea. The company also managed 37 mall-based Walden Software stores for Borders Group, Inc. The IPO was completed in July 1998, ushering in a period of expansion that eventually allowed Electronics Boutique to claim it was the largest of its kind in the world.

Expansion and Consolidation at the Dawn
of the 21st Century

By the end of the 1990s, Electronics Boutique was a 600-store chain, having tripled in size during the decade. In the new decade ahead, the company greatly increased its pace of expansion domestically and abroad, particularly in Europe. It also added a new retail format, testing the concept at the Garden State Plaza shopping center in Paramus, New Jersey. The store was the prototype for EBKids, a computer software and video game store that sold what was described as "violence-free, educational" merchandise. The success of the Paramus store convinced Firestone to move forward with expansion plans for the concept—an example of one of the ways the company was promoting growth internally. Its efforts to achieve growth through external means took center stage at the beginning of the 21st century, however, highlighted by a bold bid to acquire a competitor. In 2000, the company attempted to acquire FuncoLand, a 400-store specialty retailer, but another competitor, Babbage's, a video-game retail chain owned by Barnes & Noble Inc., offered a higher price for the FuncoLand chain, benefiting from the considerable financial resources of its parent company.

Company Perspectives:

Electronics Boutique is exclusively focused on the video game industry, and that translates into a true edge for our Company and for our customers. Since we really are "all about games," our sales team is both passionate and knowledgeable about our products. We foster these natural tendencies by providing ongoing training programs at our proprietary EB University that keep our sales associates up-to-date on the newest trends and latest releases. As a result, our sales team can help our customer navigate the vast selection of hot new and pre-owned video game titles and accessories on our shelves, they can share valuable gaming insights, and they can create a fun, game-oriented atmosphere in our stores that most other retailers simply can't match.

The FuncoLand acquisition would have been Firestone's swan song. After 17 years of leading the company, he announced his retirement in mid-2001, paving the way for the appointment of another 17-year company veteran. Griffiths, who was promoted from senior vice-president of merchandising and distribution to the posts of president and chief executive officer, took control of a 790-store chain, one that, after entering Denmark and Norway, was developing a sizable European arm to its retail operations. The failure to acquire FuncoLand left Electronics Boutique firmly attached to pursuing growth organically, and one of the first major initiatives led by Griffith was to sharpen the company's focus on establishing new stores. In February 2002, he announced that Electronics Boutique would eliminate its sports and kids divisions, appending the news of the divestiture program with an announcement of plans to open 200 new stores during the year. The company, which operated 937 stores by this point, planned to close its 29 EBKids stores and find a buyer for its 22-unit BC Sports Collectibles chain by mid-2002. "These transactions will enable Electronics Boutique to focus on our core video game business," Griffiths explained in a February 25, 2002 interview with DSN Retailing Today. "In short," he added, "without the distraction of other store formats, we can focus on what we do best."

As Griffiths led Electronics Boutique into the mid-2000s, it became increasingly important for a video-game retailer to exude discipline and focus. At a time when the release of an eagerly awaited video game could match the opening box-office receipts of a blockbuster movie in terms of sales, the stakes in the retailing industry were substantial. Further, the industry itself was consolidating, creating a fiercely competitive race for market share. Griffiths's announcement of the company's divestiture of its sport and kids divisions came at a pivotal moment in the race for market share. Less than two weeks earlier, Barnes & Noble spun off its video-game retailing business as a separate company named GameStop Corporation, presenting Griffiths with a new formidable foe. GameStop, which operated more than 1,000 stores under the names Software Etc., Babbage's, and FuncoLand, began re-branding its stores under the GameStop name following its spin-off, concurrent with a re-branding effort led by Griffiths to rename the company's stores EB Games.

The race between Electronics Boutique and GameStop was exceptionally close. Griffiths opened 383 stores during the company's fiscal 2004, enabling it to lay claim to ranking as the world's largest specialized retailer of electronics-games software. Sales for the year reached a record high of $1.59 billion, a measure higher than the $1.58 billion collected by GameStop. Griffiths announced that he intended to open 400 more stores in 2005, but in the midst of leading the company's newest wave of expansion, the announcement of the biggest deal in Electronic Boutique's 28-year history grabbed the limelight.

In mid-April 2005, GameStop announced that it was acquiring Electronics Boutique, a deal that would combine the two largest retailers focused exclusively on selling video games. The estimated $1.4 billion merger was set to create a company with more than 3,800 stores and $3.8 billion in annual sales, combining GameStop's domestic operations with the international expertise of Electronics Boutique. Although the two companies were essentially the same size, GameStop was the dominant partner in the corporate marriage. The combined company was to be named GameStop and headed by R. Richard Fontaine, the chief executive officer and chairman of the former Barnes & Noble chain. An executive position for Griffiths was not disclosed, but Fontaine expressed an interest in retaining as much talent as possible from the Electronics Boutique side of the merger.

In the wake of the announcement, Griffiths continued on as he had before the announcement, expanding the chain while the merger was being evaluated by shareholders and regulatory agencies. At the end of May 2005, he bolstered the company's European operations by preparing to enter Spain for the first time. Electronics Boutique signed a definitive agreement to acquire Jump Ordenadores S.L.U., a 141-store chain based in Valencia. The company did not disclose whether additional acquisitions would be completed before its merger with GameStop was completed, but whatever part the company would play in the future of the retail industry, its past contributions helped create dominance in a fast-growing market.

Principal Subsidiaries

EB Investment Corporation; Electronics Boutique of America Inc.; Electronics Boutique Canada Inc.; EB Catalog Company; Elbo, Inc.; EB Finance, Inc.; EB International Holdings, Inc.; Electronics Boutique Australia Pty. Ltd.; EB Games Customer Services, Inc.; Electronics Boutique Denmark Holdings ApS; Electronics Boutique Denmark ApS; Electronics Boutique Norway A.S.; EB Italy S.R.L.; EB Games Sweden AB; Electronics Boutique AG (Germany); EB Specialty Services, Inc.; EG Games Management Services AB; FR Sadsbury Second, LLC; FR Sadsbury General Partner, LP; FR Sadsbury Property Holding, LP.

Principal Competitors

Best Buy Co., Inc.; Toys 'R' Us, Inc.; Wal-Mart Stores, Inc.; Target Corporation.

Key Dates:

1977:: James Kim opens an electronics store in suburban Philadelphia.
1984:: Joseph F. Firestone and Jeffrey W. Griffiths join Electronics Boutique.
1985:: After several years of experimenting with merchandise, Electronics Boutique focuses on computer software.
1995:: A sports division is started with the acquisition of a single store.
1998:: Electronics Boutique completes its initial public offering of stock.
1999:: Electronics Boutique begins developing a chain of EBKids stores.
2001:: Griffiths replaces Firestone as chief executive officer.
2002:: Electronics Boutique divests its sports and kids divisions.
2005:: GameStop Corporation announces that it will merge with Electronics Boutique.