Minnesota chain buys Seattle's Magnolia Hi-Fi
Seattle Times assistant business editor
TUKWILA--At the Magnolia Hi-Fi at Southcenter yesterday, customers collected in luxurious home-theater showrooms and mobile-sales manager Anthony Bailey showed off the latest in car video systems, complete with full Dolby digital surround sound.
Nothing's changed, Bailey assured shoppers as news of Magnolia's sale to Best Buy of Eden Prairie, Minn., ricocheted throughout the Puget Sound region. "They are just buying a profitable company. If it ain't broke, don't fix it," he said.
Jim Tweten, Magnolia's president, and Brad Anderson, Best Buy president, both echoed that sentiment, saying the 46-year-old Seattle company's combination of high-end audio and video products and knowledgeable customer service would be unaltered by the $87 million sale announced yesterday.
"We've had a long interest in the segment that serves the early adopter (the first people to use the best, most advanced technology) and the most active customer in terms of entering the digital age. We've looked around the country for companies that were particularly good at doing this and have long felt Magnolia was the best company," Anderson said during a visit to Magnolia Hi-Fi's Kent corporate offices.
At the same time, Tweten was looking for a partner to provide the capital and people Magnolia needs to expand, especially into the large California market, where it recently opened two stores in Santa Clara and San Ramon. Magnolia plans to open three or four more stores in the San Francisco Bay Area in the next year, said Tweten.
"It was a perfect fit for us," said Tweten, who said he initiated talks in September with Best Buy, the nation's largest electronics retailer. Magnolia will be a wholly owned subsidiary of Best Buy, and Tweten, 49, will remain as president. There will be no changes in staff, product line, specialty vendors, service, advertising strategy or store layout, said Tweten.
Best Buy yesterday also bought Musicland Stores, which includes Sam Goody, Suncoast and On Cue, for $425 million. It has opened its first two Best Buy consumer-electronics stores in the Seattle area, at Northgate and Southcenter. The company plans to have 12 Best Buys in the Seattle-Tacoma area over the next two years, said Anderson, 51.
There will be no confusion between a Sam Goody and Magnolia Hi-Fi store in the future, said Anderson.
"We bought it (Magnolia) for the vision and the competencies that exist here. So our intent is no adjustment there," he said. But he added that there will be some changes at Musicland, such as bringing more cellular and gaming products into those stores.
And he noted a customer might buy a digital video disc at a Best Buy store, then buy the equipment to play it on at a Magnolia store.
Best Buy and Magnolia carry some of the same brands, but Tweten said Magnolia will always specialize in the top-end lines while Best Buy will continue serving a broader customer base.
"We think there is a very big difference," said Anderson, the Best Buy president. "Best Buy is basically a grab-and-go environment that is probably in a sense more similar in terms of its architecture to Costco. It is structured to be very efficient, a place you can go in and make a fast purchase based on low prices.
"We have service in the store, but nothing like what Magnolia offers. And we don't sell many of the products Magnolia has to offer. Where Best Buy ends, Magnolia begins," he said.
Magnolia is where consumers can find such high-end products as MartinLogan speakers priced up to $5,000 each, McIntosh amplifiers priced up to $9,000 or Sony XBR big-screen television sets which cost up to $5,500.
Magnolia will also continue to provide its own repair service, honor all its warranties and keep its sales force intact, said Tweten.
That is music to customers' ears, if a sampling of shoppers at the Tukwila store was any indication.
"I have always come here because the service is so good. If anything went wrong with anything, they will stand behind their products 100 percent and help get your problem solved," said Scott Rice, a Vashon Island resident who was shopping yesterday for a DVD changer and speakers.
"That's the area I would worry about, service," said Randy Smith, a customer from Kent. "I just wonder if the quality here will go down, or the quality of Best Buy will go up. I'm sure they will have to maintain their quality to keep up."
Magnolia, with 13 stores in Washington, Oregon and California, began as Magnolia Stationers and Camera Shop in 1954. It took its name from the Magnolia Village shopping district where it got its start. It staved off competition from the big-box electronics stores with Nordstrom-like customer service; last year it logged $100 million in sales.
"What an American dream to me, how that little, little store in Magnolia District grew. What's happened today is just fantastic," said Len Tweten, 73, the company's founder and father of Jim Tweten. The senior Tweten said he will now fully retire as chairman of Magnolia Hi-Fi and "do a lot of golfing."
Meanwhile, Best Buy's stock fell $5.88 to $22.94 on the New York Stock Exchange as investors worried about Best Buy's acquisition of Musicland--with a total price tag of $685 million when assumed debt is added in--at a time music sales are sluggish, according to Bloomberg News.
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