Visionary: Fry's Electronics President Randy Fry

by Cindy Loffler Stevens 

Fry's Electronics President Randy Fry

Fry's Electronics began as a retail experiment to satisfy the needs of high-tech professionals in Sunnyvale, California. The privately held company was founded in 1985 by the Fry brothers: John, CEO; Randy, president; and David, CFO; and friend Kathy Kolder, executive vice president. The store, which grew out of the retail experience the brothers learned at their father's chain of grocery stores, today sells high-tech supplies such as integrated circuits, test and measurement equipment, computer components, software, consumer electronics and even sodas, snacks and magazines.

Because the innovative retail store was organized along the lines of a grocery store, it sought to be a one-stop shop for Silicon Valley tech professionals. Twenty-six years later, Fry's operates online and in 10 states with 34 stores and plans to open another store later this year. Customers like the no-frills experience where they can find all of the components they need to build their own computers as well as a huge assortment of CE products and cables. Because Fry's stores are enormous, often stocking dozens of variations of a single product, they are popular with electronics and computer hobbyists. The chain is also known for its low prices and comprehensive selection of hard-to-find items. They frequently have full-page ads in 14 major markets that are designed and produced in-house touting Fry's Internet low-price guarantee.

Most Fry's stores sport a different fantasy theme. They can be quite elaborate and are designed to make Fry's an entertaining destination. Over the years, the themes have taken on a life of their own and reflect the location of the store. For example, the Burbank store has a flying saucer crashed into the store front and science fiction props inside the store because of the 1950 sci-fi movies that were shot on the back lots of Burbank. Examples of other store themes include the history of Silicon Valley at Sunnyvale and the Wild West at Palo Alto.

I met with Randy Fry in his San Jose headquarters and got a tour of the once Televideo headquarters building which is attached to the Fry's store (which sports a Mayan temple at Chichen Itza). It even has its own TV studio named Fry's Video Network (FVN) where weekly sales meetings and vendor demos are held via video conference as part of the sales associates' continuing education.

Randy Fry holds a bachelor's degree in mechanical engineering and an honorary doctorate degree from Santa Clara University. At his father's grocery chain which was bought by Kroger, he worked as an entry-level butcher and then moved on to bakery, deli and produce, attending various schools in those areas. Eventually he went to work in maintenance, helped to build a new store and was a store manager before leaving to co-found Fry's Electronics.

Wearing a yellow pin of the Fry's mascot and forerunner to Sponge Bob, "Charlie Chip" in honor of the microchip, he sat down with Vision to talk about the challenges and opportunities in retail, his views on the industry and his role as chairman of the board of CEA. Two areas he plans to focus on include the Internet sales tax issue and developing an industry code of ethics. He says, "If there is an operative word today I would say collaboration is what makes good things happen."

How did you and your partners begin Fry's?
My father, Chuck Fry, along with his brother Don, and with $10,000 saved by my mother, Alice Fry, started a grocery store, Fry's Food Stores, in 1955 in Northern California. The grocery business is the real heritage of our family. We learned to maximize that opportunity into one that was not only profitable but built great value for the consumer.

Our goal was to leverage the grocery retail knowledge so that we could take advantage of something that was, in 1985, embryonic in the retail world, electronics. We determined that retail electronics would give us that opportunity to enter into a business that was truly in its infancy, enjoy a high growth rate and ride it through its maturity. In 1985 silicon chips in Silicon Valley were so important because we had gone from bulky circuit boards for building electronic devices to the magic of miniature semiconductors. It was a very exciting time. Silicon Valley was and still is a talent incubator for a wealth of new ideas, products and success stories.

These chips were sold and controlled by large distributors, and at that time you had to buy minimum quantities. You couldn't just buy one integrated circuit for prototyping, for example. You had to buy a full rail. We found a distributor that was willing to sell us these chips at a reasonable wholesale price. Then we would dispense these chips in small orders. Our vision was you could walk into our retail store and these chips were all on display in glass cases and you could pick which one you wanted, in the quantity you wanted to buy it. Nowhere in the world, at that time, could you do that with such a large selection to choose from.

One of the things that we didn't really count on was it only took about 28 feet of space to display these chips because they are so darn small. We had this 20,000 square foot store that we needed to fill up with other things. This began the collaboration of the partners of Fry's Electronics -- John, me, Dave and Kathryn Kolder. Kathy came out of the early stages of the PC industry. Her expertise got us successfully into the computer business, which immediately became a significant strength of our company.

We competed with Nynex, Business Land and Computer Land. They had a strangle hold on the industry. If we wanted to buy direct from IBM or Apple or Compaq -- that just wasn't going to happen right away. We had to buy all of those products through distribution. What quickly steered us to a very successful business model was building and selling XT and AT PC clones. We would build these computers on a customer-by-customer custom basis.

It became evident that many new product prototypes were built from the parts that came from Fry's. That's when we realized we were providing a one-stop shop for the Silicon Valley high-tech professional -- electronics for their work, electronics for themselves and electronics for their families.

We also opened a personal electronics area in addition to televisions and VCRs. It was soon after that, that Bose became interested in us. That was a home run. We built a Bose room and went on to become, with two stores, the number one worldwide storefronts for Bose in volume.

No one else was doing that?
There were probably a few, but no one to the scale that we were. We provided the first high-tech experience in a large format. The store was laid out more like a grocery store. We would sell customers a six-pack of Jolt cola, Doritos and candy bars when they would check out. Our customers coined the phrase, "That's a Silicon Valley lunch." It was fun. That is one of the unique things about our customers. Software engineers from companies like Intel and National Semiconductor -- the people in this Valley -- once they get on a project, they just work all night long until the project is done. That is probably where the needed sugar and caffeine rush came in. It's an interesting "stay on it until it's done" culture that continues today behind closed doors in Silicon Valley.

How is Fry's different from other retailers?
I would say our deep personal interaction in most every category as well as providing products that no one else sells. When we were expanding across the country, there were a lot of skeptics that thought that the Fry's customer, the sophisticated high-tech professional, only lived in Silicon Valley. Maybe that was true 30 years ago, but as more people adapted to becoming high-tech professionals, our market grew. It continues to grow as people become more knowledgeable and comfortable with electronics. And they realize that you actually can build your own computer from your components of choice and end up with a PC that is more powerful and more easily upgradeable than what you could buy from an OEM.

Do people still build their own computers?
We have a tremendous number of customers that prefer to build their own computer. You can go into our components department and select a processor, the brand of motherboard that you want, cooling fan, your memory, the case and power supply, the hard drive, your operating system of choice, the video card, etc. In the early days, we put most computers together. Today, equipped with the knowledge, most customers want to put it together themselves. There is a sense of satisfaction that high-tech professionals get in building it themselves because they can. Let's face it, a computer is just the integration of other manufacturers' products -- you put it together and re-package it. Our customers like being their own OEM.

How should a manufacturer approach Fry's to do business with you?
At Fry's every Wednesday, we have a specific number of slots open to any company that wants to come show a product to our buyers. There is no screening; you just sign up. Personally I welcome email from people who have information about their products and I will forward it to the proper buyer. We keep the door open in as many ways as we can.

Will people have tablets, smartphones and notebooks?
It is easy to understand why we would want to have all three. The tablet is not a computing device. You don't create content on it. It is a content-consuming device. With a notebook, you can create content like a presentation or a spreadsheet. It actually is a computer. If you are going to create content, you need to have a notebook. With a smartphone, you are consuming content on a smaller format and making phone calls. I have always been a proponent of having all three. If you are a manufacturer, and you are serious about being in the computer business, you really need to provide all three devices.

Like a suite of products?
Right, this is what propelled Apple into the market share position that they have today. Probably for the first time ever, they have a shot at being the number one PC manufacturer in the world, certainly in the U.S. Now, everyone is concerned about the television and owning that too. Set-top boxes seem to be a pretty good way of dealing with that. With a set-top box, you are not forced into a TV manufacturer's particular operating system.

Will there be a shake-out with the tablets?
I think that whatever smartphone people use, they will tend to opt for that same operating system for their tablet and possibly vice versa. What is so exciting about smartphones and tablets is that they become so personalized because of the endless number of apps. With a notebook computer, as of now, you still have to download or buy software. It does not personalize as easily or seamlessly as smartphones and now tablets. I think that a tablet manufacturer that is not in the notebook or smartphone business might have a tough go at it.

Are tablets becoming control devices?
A lot of manufacturers are thinking this way. They certainly are thinking connectivity of the entire home. Now the iPad is emerging quickly to become the controlling device for the connected home. Many of the consumer electronics manufacturers are scrambling to come out with their own tablets. We are going to be selling tablets in both the computer and the consumer side of the business for different reasons, but they all will seek the same outcome. They all want to be in your hands in your house controlling the devices in your home.

What is your relationship with Apple?
We have been very fortunate to become very good partners with Apple. We have a good bi-directional relationship that has been very enjoyable and quite successful for both companies.

Do you have an iPad?
I do. As a matter of fact, I'm picking up a second one today. We are very fortunate to be able to sell that product. It's a very exciting product for both work and play.

What is happening with netbooks?
You can say the tablet business is killing the netbooks category, but it really isn't true. With the price compression of notebooks to lower price points, the netbook has become an entry-level notebook. Tablets showed up to be an incremental business. It's a new category between the notebook and the smartphone. As netbooks dwindle in unit sales, it's not so much as because of the tablet; it's because of price compression. The notebook has come down closer to the netbook prices, so there is a smaller differential between netbooks and notebooks. When contemplating a netbook purchase, why not spend a few more bucks and get a full-featured notebook?

What are your thoughts on recycling?
Recycling is important for a couple of reasons. The obvious reasons are being green and not creating toxicity for this wonderful world that we live in. From the standpoint of an electronics merchant, the real lifeblood of our business is the invention of innovative technology where consumers recognize value that caused them to buy. This process is what causes customers to replace products that are in perfect working order. That is when you really have it going good -- when consumers buy a new notebook because it's way cooler looking, better performing and more innovative than the one that I have right now even though it works just fine. Take the iPhone 3GS customers that just had to have the iPhone 4. Their iPhone 3GS was working just fine, but they wanted the new one. The same will happen on the next iPhone release. Compelling consumers to replace products based on innovative technology that they recognize as having value is what makes the consumer electronics industry successful.

When I was a kid my parents would buy a TV and they would keep it for ten years or more. People don't do that anymore. If they are going to be compelled to replace at a rate based on technological innovation rather than it wearing out, then all this electronic waste has to go somewhere. I think the trade-in programs are very intriguing. Consumers like the idea of getting something for the products they are retiring. We still are faced with a tremendous amount of ewaste coming back from consumers that want to upgrade. I'm all in favor of finding better ways to handle the ewaste because it helps our industry ecosystem as we supply consumers with the latest and greatest technology.

Is a trade-in program a good idea?
I believe in most cases it's a third-party company that promises to buy the product back from retailers for a predetermined price. My assumption is that they are sending it off to be sold somewhere else in the world, which is a good thing if it works. It's better than throwing it away. Some retailers have been selling trade-in rights for a while. I was first aware of it about a year ago, but I think it's a good idea. So in between recyclers taking the products and disposing of them properly, and taking working products that no longer have a home and reselling those into some other market, I think is very healthy. It gives the consumer an opportunity to either give it away to recyclers or get a little something for it through a trade-in program.

What are your thoughts on 3DTV?
3DTV is very, very exciting to me. The future of it is tremendous because the technology is going to continue to improve. You know with the first wave of 3DTV it was difficult to convince customers that the value was immediately there because of the lack of content. Now with 3DTV broadcasts becoming a reality and 3D camcorders and 3D cameras a reality, and of course, whatever movies that Hollywood continues to produce, it all helps. Personally, I think that live, televised sporting events are the most compelling reason to buy a 3D television.

The cost of active glass wear and the lack of emitter compatibility continue to be a huge hurdle. CEA has taken a lead position to pull together manufacturers to standardize emitter technology. We hope that all of the 3DTV manufacturers will work together on this one. Because the cows got out of the barn before we could close the door, it was too late for emitter compatibility when 3DTV hit the market; nobody had realized that this emitter issue was going to be a big problem. I believe that we as an industry will rectify the emitter issue, hopefully in time for the 2012 line-up.

Passive has a lot of advantages because the glasses are not as dark and that tends to be a real demonstrable value in the 3DTV arena. It also seems to provide a clearer image when viewing high rates of motion. The glasses are just a fraction of the cost of active glass wear, so you easily could have designer glasses that are personalized that you could keep in your car. If you happen to be at somebody's house and they are watching a game in 3D, you can just run out to the car and get your 3D glasses. With active glasses it's more difficult when you are getting say six friends together to watch the "Masters" because you need six pairs of active glasses that are compatible with that particular television emitter. That is not an easy thing, especially at the price the active glasses are selling for. In the long run, 3D has to be simple, the glasses have to be inexpensive, and you have to be able to address large groups of people watching at the same time on the same 3DTV.

Do you demo on the show floor?
Absolutely. The greatest challenge of any demo is that it has to be quick and it has to work. You have to have control of the glasses and you have to make sure they are working before you hand them to a customer. We have a Sony-provided 3D experience where there is a Sony employee working in the store and they give a 3D demonstration. This is in our Las Vegas and San Diego locations. It has been very, very successful to demonstrate the value in 3DTV. There is absolutely no question in my mind that 3DTV is here to stay and it will drive our HDTV business. It's just been a little bit slow getting off the ground for lack of content and, of course, partly due to the economy not being as robust as it was.

Is there a content play for retailers?
DirecTV has been very supportive and has provided a 3D signal in our stores. When a consumer comes in our store looking for a great value on an HDTV, they may not be interested in the 3D feature. If we can show them a live TV signal in 3D, then you have shown real value that is available right now. DirecTV has taken a lead approach in this with their 3DTV 24-hour channel. As a consumer for a few hundred dollars more, I can go home with a 3D feature on my HDTV and take advantage of what is being broadcast right here in front of me in the store. When you start speaking about content, you can point to 100+ 3D movies and live 3D television programming. It could be a movie or it could be a live sporting event, but it's in 3D and it's coming all of the time. It has a big effect on the consumer. ESPN is all in on 3DTV, and of course, I think live sports are the key to 3D excitement.

How is the economy affecting you?
Quite honestly, I think that where the economy is today is where it's going to be for quite some time. What we have seen is a huge reset in people's disposable income and a big reset in productivity. The one positive thing you could say is that the productivity in this country has gone way up. We have shed a lot of jobs that we did not need because our economy is operating at a higher level of productivity now. What does that really mean in the long run? It means that this isn't just a recession, this is our new economy.

What does being CEA chair mean to you?
CEA is probably one of the finest industry associations in the world because it abides by the reasons clearly stated for its existence. It is designed to help our overall industry by fostering an environment of innovation. And it does that very well. Being a member of the executive board and now chairman is a privilege. Every CEA executive board member and past chair that I know has set the standards very high. I think that the CEA staff is exemplary and has done a tremendous job with the industry issues that it has taken on. As chair, you work with the brightest minds in the industry and pull them together to collaborate on what are the most important issues facing our industry, then strategize how to create consensus on technology standards and influence our government legislators to enact and/or change the laws of this country to benefit our industry, ultimately benefitting the consumer.

What is the Internet's role and what would you like to see going forward?
The Internet has enhanced everyone's business whether you are strictly an Internet retailer or you are a combination retailer like we are. Our customers can see what we offer and clearly see the advantages of a product before they purchase online or in-store. It is a tremendous asset for consumers. But every asset can be a double-edged sword. The Internet makes it easy for customers to find products, but it also, in an instant, sets the consumer value expectation of a product. Fifteen years ago, customers would shop multiple stores to understand what a particular product was selling for. Today, they go to the Internet and look up who has the best price. Whatever they learn on the Internet based on the price of a product becomes the value in their mind that they are willing to pay for it. The Internet provides an instantaneous setting of product value for consumers. As a retailer and a manufacturer, you have to accept it as part of today's retailing framework and strategically adjust to it. When a customer is looking for value, if they can save 9 percent in sales tax on a purchase, that is a huge savings that they simply cannot ignore.

As a no sales tax Internet retailer, you most likely will position your warehouse operations just outside of the most lucrative states, which is what the largest no sales tax Internet retailers have done. Then you take advantage of the loophole in the law today that basically says, that you as a retailer outside of a state that you ship to are not responsible for collecting sales tax. The customer that you are shipping that product to is responsible, on their own honesty, to report and pay tax to their state. An important note is that an average retail store makes one to three percent net profit after tax. When a no sales tax retailer competes against a retailer, making one to three percent profit after tax and has a nearly a ten percent price advantage, there is no way that the physical retailer has a chance. The game is really over before the ball is even kicked off. That is why Borders didn't have a chance to compete online or in-store because of the nearly 10 percent price advantage that the no sales tax Internet retailers are exploiting.

The first hurdle that politicians have to get over is that collecting sales tax on all Internet purchases is not a new tax. It is just how we go about collecting an existing tax. The second hurdle for the politicians to understand is the magnitude of this problem and that it is growing exponentially. The third and final hurdle is that this issue can be solved with a simple vote of Congress to allow states to legislate remote sales tax collection. Sales tax revenue can represent more than half of a state's incoming revenue. Continued consumer sales tax evasion will only continue to make balancing state fiscal budgets impossible. This is an example of the laws of our country not keeping pace with technology. A level playing field for all retailers is the only answer.

How do you sell networked products?
The way our stores are laid out, we have what we call our electronics components department where the high-tech professional tends to shop. That is where most of the networked products are sold. That is where you will find our networked attached storage devices which I am very bullish on going forward. I think that is where the home cloud or what I call the personal cloud is being spawned right now.

What is the home cloud?
The networked attached storage device is essentially just a huge hard drive and it is usually set up in RAID fashion for dependability and to prevent loss of data. It is a device that you can set up anywhere in your home where you don't have to access it physically. The network attached storage device with proper software will be able to access information, say for example, from my tablet anywhere in the world. You just connect to the Internet and it will connect to your own networked attached storage device at home which will become in my opinion, referred to as a personal cloud. Who wants to put all of their personal information up on a public cloud? There is a real opportunity for this technology to explode.

I know for a fact that there are a few manufacturers that have personal and business cloud products that are almost ready for market, but the products have not been formally announced so I don't want to say anything that would compromise those relationships. Being connected with every Internet device that I have, anywhere that I am, and gaining access to information that I have stored anywhere whether that is on my personal cloud, my business cloud or the public cloud -- I can grab it, update it, push it, from anywhere, anytime, anyplace, on any Internet device -- it is very exciting technology to me.

Fry's Electronics Stats
Company: Fry's Electronics Inc.
Founders: John Fry, William Randy Fry, David Fry and Kathy Kolder
Industry: Consumer electronics retail
Type: Private
Founded: 1985
Headquarters: San Jose, CA
Stores: 34
Website: frys.com