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Industry Veteran Palko Tries New Store Format

2/25/2002 02:00:00 AM Eastern

Charles Palko, a longtime industry veteran, has returned to the industry as president of a new chain, Appliance Depot Electronics, which emphasizes appliances and liquidation product.

The chain, which is based in Sarasota, Fla., and opened in September 2001, has 70 percent of its sales in major appliances and the other 30 percent in consumer electronics. Of the major appliance sales, 70 percent are "reverse logistics merchandise," brand new merchandise that has been bought through liquidation as well as products bought directly from manufacturers. The other 30 percent are bought directly from manufacturers. On the consumer electronics side, all of its products are from liquidations, but Palko said a 70/30 split to buy new product direct from manufacturers should happen soon.

"The extra margin we get is from the reverse logistics product. We can compete with Best Buy, Home Depot and Lowe's and generate profits," Palko said.

His partners, Jim and Diane Potts, handle the wholesale side of the business. Palko worked with Jim at Fretters when the latter was senior VP with the chain. Since then Jim Potts has handled the Circuit City exit from the major appliance business, as well as the closings of Sun TV and Steinberg's. And the Salt Lake City Olympic Committee's loss was the chain's gain. When a planned condominium for the Olympics was scrapped, Potts got the appliances, which is how the chain has been selling Kenmore appliances.

The business plan calls for each location to do $6 million in annual sales. "The reverse logistics price range is key to the strategy. Even at lower prices the products you sell are profitable. If done correctly like other types of retailers that feature bargains, the consumer's perception will be that everything in the store is a deal."

So far consumers and suppliers get the idea. Palko noted that one customer told him that the concept is like shopping for blouses at TJ Maxx. "She said that if you buy a blouse there one day, but say, 'I'll come back for the two more in different colors tomorrow,' they will probably be gone."

He added, "Business has been better than expected on reverse logistics. There is some 'scratch and dent' sales, but you really can't only sell reverse logistics. You need a mix. We need to be important to our suppliers."

That mix is new product bought directly from manufacturers. So far the chain sells new Maytag, Amana and Frigidaire product, and there should be more brands added soon.

As far as vendor concern about the reverse logistics sales, he noted, "There is none. They know we will be profitable and won't beat them up on price."

In consumer electronics the chain is emphasizing big-screen TVs and projection TVs, upscale, higher ticket items, which will be more apparent when the chain begins to buy direct from supplies. "We are not selling VCRs, 13-inch TVs or commodity merchandise," Palko noted.

And the chain has a highly-visible spokesperson, basketball broadcaster Dick Vitale who is a local Sarasota resident. "He is a well-known, high-energy guy, and very active in local charities. He gives us a lot of credibility with the public." As well as being featured in print ads, Vitale also stars on local TV spots.

Palko, who spoke to TWICE at the Nationwide TV & Appliances PrimeTime meeting, here, said the chain has stores in Sarasota, Bradenton, Venice and Port Charlotte, as well as a liquidation center in Fort Myers. He described the look of the stores as "basic warehouse stores. The products are on pallets."

At this point even the locations are like reverse logistics merchandise. The company is operating an old Roberds location of 56,000 square feet, as well as former Rex and DeSears stores. "The old Roberds store is larger than any of the others and what we are planning. We need stores of 22,000 to 25,000 square feet to display the 500 appliances in the stores." He said in 90 days the chain should have a new store east of Bradenton, and probably a total of eight stores within a year.

The challenge the chain faces is growth, Palko said. "You don't want to outgrow the format. The challenge is to have enough reverse logistics products."

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