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The Crutchfield story, chapter 2

Crutchfield in the 1980s

In Chapter 1, I discussed how I founded Crutchfield in 1974 to fill a void in the consumer electronics marketplace. At that time, quality car stereo components were just becoming available.

I saw an opportunity to serve this emerging industry through a specialty mail order business. Through the end of the 1970s, the car stereo industry flourished and so did Crutchfield. The decade of the 1980s brought some new challenges to our business, along with some great successes, and our first full-color catalog.

Expanding our services

In Crutchfield’s early days, car stereo was mainly a do-it-yourself business. But by 1980, car stereo products were becoming more sophisticated and more difficult to install. This stimulated a growing demand for professional installation. In response, we created the Crutchfield Certified Installers Program, a resource for our customers to find a designated installer in their community. A version of this program continues today.

During the 1970s, many car stereo products were only available through the aftermarket. Some new cars would come from the factories without even a radio. Dealers would install basic systems at high costs. They were considered “dealer add-ons” like extended warranties are today.

When the auto manufacturers did install stereos at the factory, they were typically FM stereo radios with 8-track tape players. Since the market was shifting away from 8-track to cassette tape, aftermarket products like ours provided a wonderful service for consumers.

By 1980, automobile manufacturers woke up and began offering better factory-installed stereo systems. Some people in our industry were concerned that these factory sound systems would become so good that our aftermarket industry could disappear. Fortunately, that never happened.

Nevertheless, we did not want to “keep all of our eggs in one basket.” Therefore, we decided to look for other emerging consumer electronics products which required the same high level of support we were providing for car stereo buyers. By then Crutchfield had built a reputation for being the most information- and service-oriented national retailer in our industry.

Diversifying our product selection

An emerging product category that we identified as having tremendous potential was personal computers. We became an authorized retailer for three of the leading manufacturers, Atari, Commodore, and Texas Instruments. We also developed an independent personal computer sales department and published a separate personal computer catalog to support this new business. These initiatives launched in late 1980.

scan of 1980 catalog page showing personal computers

An ad for our 1980 personal computer catalog.

In 1981, we further expanded our product offerings. At the time, packaged home systems were popular. Other than their separate speakers, these systems were typically sold as matched components housed in proprietary cabinets.

Copy from our Summer/Fall 1981 catalog mentions that a popular Pioneer system includes “separate complementary components — stereo amplifier, AM/FM tuner, up-to-date cassette deck, and auto-return turntable.” Cassette decks and record turntables were important components of home audio systems. We were still a few years away from the introduction and adoption of compact discs and their players.

Also in this 1981 catalog, we expanded our audio selections with a wide range of portables known as “boom boxes.” CB radios were featured in a section that included primitive (by today’s standards) home and car security systems. And we also added a few small portable televisions mostly made by Sony. I still have one which I am saving for a potential future museum.

Vintage 1981 Pioneer home stereo rack system

Our Summer/Fall 1981 catalog featured an expanded selection of car and home audio products.

Interestingly, telephone products were in their prime. We introduced a full line of telephone answering machines, along with a wide selection of corded and wireless phones (with a range of up to 600 feet). Today, it is hard to believe that selling these telephone products constituted a viable business. But the mass adoption of cell phones was still decades away.

We stopped selling personal computers in 1984 since this business proved to be unprofitable. It was a simple decision for me. As we learned more about the business of selling personal computers, we realized that these products have extremely low profit margins for retailers, and it would be impossible for us to sell them profitably while providing our high level of service.

Since I would never abandon our legacy of providing the most outstanding services for our customers, the only logical decision was to stop selling these products.

Expanding our warehouse space

Also in 1981, we added additional warehouse space adjacent to the building which we opened in 1979. There are two interesting aspects to this initiative. As I mentioned in Chapter 1, it was very expensive to finance projects with debt during this period.

The prime interest rate at banks reached a peak of 21.5% in December 1980. Some small businesses like mine were forced to pay even higher interest rates at that time. Therefore, I maintained our discipline of managing the business as frugally as possible by using company earnings to finance our capital projects. Because of this discipline, Crutchfield has been debt-free for most of our 50-year history.

black and white photo of warehouse circa 1981

By 1981, Crutchfield's business was booming, necessitating an expansion to our warehouse.

Although the new building was designed for three floors, I could only afford to build a first-floor warehouse addition. In keeping with my frugal mindset, I further developed the skills necessary to become the general contractor for our construction projects.

For the 1979 building, I had a general contractor construct the shell of the building. I subcontracted out the remaining components. With this and future building construction, I took on more responsibilities. That practice resulted in significant cost savings which has contributed to our ability to construct all our buildings without incurring long-term debt.

Here is the second interesting aspect of this project. The footprint of the second and third floor additions were to be built on the rear 60% of the warehouse. In keeping with my concern for energy conservation, we built the front 40% of the warehouse under the front lawn. Other than a few bomb shelters, this building was one of the first underground structures built in our area.

Naturally, it was a challenge to perform the creative engineering and construction necessary to keep it from leaking. Within a year, we had the financial resources to begin the construction of the second and third floors. This addition provided office space for our growing mail order operation and for a small retail store.

Growing pains

Our 1982 sales grew significantly while our profits nosedived. This was attributable to several factors. First, we had significantly upgraded the leaders throughout our organization. This was an expensive investment in talent which would provide the foundation necessary to propel our future growth.

At the same time, we had also invested heavily in data systems while completing the investments in our new building and the renovations of our older building. Moreover, the Federal Communications Commission made a radical change to the rates telephone companies could charge for their toll-free lines. Our telephone expenses essentially doubled.

Since these investments and added expenses were financed by more short-term debt, our interest expenses increased dramatically. Fortunately, we maintained profitability by adjusting the mailing quantities and mailing cycles of our catalogs.

In 1983, our financial situation worsened. Sales fell by 10% and earnings turned negative. Our cash reserves dwindled rapidly. By Spring, I had to take out more short-term bank loans to help cover these losses.

Although the company still had a positive net worth, these losses deeply concerned me, my employees, and, of course, the bankers. Something was fundamentally wrong with the company.

Conflicting strategies

In searching for the answer to our problem, I received mixed input. One of our vice presidents championed the argument that our strategy was all wrong. He and his supporters strongly believed that we were adding too much value to our products, catalogs, and services, which required us to charge higher prices than a popular mail order competitor. They recommended that we adopt our competitor's strategy.

Our competitor's catalog was crude in comparison to ours. It had no helpful articles, was printed on cheap newsprint, and used drawings of products instead of color photographs. They did not offer the services that Crutchfield provided customers such as toll-free sales, customer service, and technical assistance lines, installation guides, liberal return privileges, a large assortment of car stereo custom installation kits, or a repair shop.

The strong recommendation from our vice president and his supporters was that we strip our business down and compete head to head with this company based purely on price. That was in total conflict with my strategy of making Crutchfield the most service-oriented mail order retailer of consumer electronics products in the nation.

A different recommendation came from the University of Virginia’s undergraduate business school. At the time, I was the chair of the school’s advisory board. The dean thought it would be helpful if a professor led a case study regarding our problems. In the final report, he wrote that "Crutchfield Corporation has gotten bigger than Bill Crutchfield can handle." From this, I assumed his recommendation was that I should be replaced as my company's CEO.

Fortunately, I did not follow either recommendation. Instead, I spent a great deal of time thinking about the problem deeply. This is a process which I follow when searching for the root causes of complex problems and their creative solutions.

I find that group meetings are helpful in learning of problems and agreeing on tactical solutions. However, I find that addressing complex strategic issues requires a more thoughtful and more time-consuming process. Consultants can be helpful in learning how other companies address similar issues. However, successful entrepreneurs can be better at devising creative, unconventional solutions.

For 50 years, I have spent countless hours contemplating issues like this one.

The changing soul of the company

Rather than analyzing how our operations had changed over the years, I thought of how the soul of the company had changed. When the business was much smaller, it embodied my beliefs — caring for customers, respecting employees, and striving for perfection.

However, what I saw now in the company was a culture out of phase with my beliefs. The salespeople cared more about their commission checks than about the welfare of our customers. Our warehouse had become so bureaucratic that it took several days to ship an order instead of 24 hours. Our customer service representatives viewed their role more to protect management from angry customers than to find solutions to our customers' problems.

I realized that employees were not respecting each other to the degree that they once had when I was directly managing them. Furthermore, morale was bad, turnover was high, and cooperation was poor.

Finally, I realized that we no longer tried to be at the leading edge of everything we did. The design of the catalogs had slipped. The product copy lacked excitement. Our catalog merchandising was confused. The packages were not well packed. Our sales and technical advisors were inadequately trained. Our store was not neat or well merchandised.

The culture of the company had slowly and insidiously evolved into something vastly different than what it had been only a few years before.

Rediscovering our roots

During this lonely intellectual probing, I read a statement which was so appropriate to our situation that it was almost uncanny. It was made by Thomas Watson, Jr. during a lecture at Columbia University in 1962. The IBM Chair said:

"I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important factor in corporate success is faithful adherence to those beliefs. And, finally, I believe that if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life."

Now I understood exactly what the problem was. My company once had a set of common beliefs — my beliefs. When the company was much smaller, I was instinctively able to ensure that everyone adhered to my beliefs. As it grew, I had to delegate decision making to others. As a result, my beliefs and the company's beliefs gradually started to diverge. By 1983, they were vastly different. Since this change had occurred so slowly, I never fully recognized the problem until I read Mr. Watson's comments.

Once you discover a problem, finding the answer can be relatively easy. The solution to our problem was to start the complex process of inculcating and managing an organizational culture. As I have learned, the best cultures revolve around the concept of respect.

A culture of respect

Since the beginning of civilization, respect for others has been the cornerstone of meaningful and long-lasting social cultures. Historically, it has been promoted through various teachings, often including religion. The Golden Rule in the New Testament records Jesus as saying, “Do unto others as you would have them do unto you.” However, other similar beliefs from diverse cultural backgrounds predate such teachings. An ancient Egyptian priest wrote, "That which you hate to be done to you, do not do to another."

Around 500 years before the New Testament era, the Chinese philosopher Confucius wrote, “Never impose on others what you would not choose for yourself.” Echoes of this sentiment resonate in various cultural texts, including the Hebrew scriptures, where we find “thou shalt love thy neighbor as thyself.” Likewise, in Islamic teachings, the Quran states “None of you believes until he wishes for his brother what he wishes for himself.” And before the first settlers came to America, some of its native people had a saying, “Respect for all life is the foundation.”

Defining Crutchfield's Basic Beliefs

Mindful of the fact that respect is a fundamental human value, I defined and wrote our initial Basic Beliefs. They were:

  1. Totally satisfy our customers. Dedicate ourselves to serving our customers in the most helpful, ethical, and courteous way possible.

  2. Respect each of our fellow employees. Dedicate ourselves to producing and promoting a working environment which fosters the greatest amount of team harmony, personal satisfaction, and job performance.

  3. Maintain a total commitment to excellence. Dedicate ourselves to performing each task with the highest level of perfection and professionalism.

Next, I had to inculcate these beliefs throughout the company. They were attractively printed and given to each employee. In group meetings, I briefed everyone on exactly what they meant and how our employees were expected to adhere to them. Finally, I created the systems which instilled these beliefs into our company’s culture and ensured their adherence.

I made the first item on our employee review form, "Adherence to our Basic Beliefs." Top management then started an extensive review process. Depending on how employees complied with our Basic Beliefs, they were retained in their current positions, promoted, demoted and, in a few cases, terminated.

Very quickly, everyone got the message. To improve the excellence of our company’s customer-facing operations, I created “Crutchfield University.” It was the forerunner of our current training programs, which can run up to four months for new employees.

black and white photo of salesperson on the phone with a "Crutchfield University" diploma on the wall

Crutchfield University was a precursor to our extensive Sales Advisor training program.

Overnight, the company started to change. Employees cared more about our customers. They worked much more closely with their fellow employees. And they started to show a genuine commitment to excellence in the performance of their jobs. Sales started to grow again. The company quickly returned to profitability, allowing us to pay back our short-term bank debt.

Within a year, we were achieving results that exceeded our wildest expectations. It is interesting to reflect on how transformational this initiative was. The competitor which some of my executives wanted us to emulate went out of business. Its low price/low service model was not sustainable.

Interestingly, the only year in our 50-year history that Crutchfield has had an operating loss was in 1983, the year before our Basic Beliefs were fully inculcated.

A new threat to our business

A few days into 1984, another potential catastrophe arose. One of our key manufacturers sent two mid-level executives to Charlottesville to break some very distressing news to me. They explained that their company had great respect for Crutchfield and they were pleased with how we represented their products. However, the company would soon be forced to terminate us as an authorized dealer. The problem had nothing to do with Crutchfield but with other mail order companies.

This company was having serious problems with numerous mail order companies who were adding no value to their products. Some were operating in nefarious ways. Their presence as authorized dealers dragged down the public’s perception of this quality brand. Therefore, top management had decided to eliminate mail order as a distribution channel.

I asked why they did not disenfranchise the bad dealers. The answer was that their lawyers feared potential litigation. To protect themselves, the company had a new dealer franchise agreement ready to be printed. It forbade their retailers from engaging in mail order sales. Once this dealer agreement was distributed and signed by store retailers, mail order sales of their products would be history.

Instantly, I realized that this new policy could destroy our business. Losing this important line could start a chain reaction that other manufacturers might follow. That would put Crutchfield out of business.

A unique solution

A few hours after my visitors' departure, I wrote a letter to the company’s president. In the letter, I suggested a unique solution to our mutual problem. The company could create a special dealer's agreement which would establish minimum quality standards for mail order retailers. To be an authorized mail order retailer, its catalog would have to picture products in full color and describe them with informative, honest copy.

Furthermore, I suggested that authorized mail order retailers provide a highly trained telephone sales staff, customer service and technical support departments, and a factory-approved repair facility. If they sold car stereo products, they would also be required to offer a full assortment of custom installation kits. In other words, the only mail order companies which would be franchised would be full-service retailers that added genuine value to the manufacturer’s products.

1984 catalog article titled "Crutchfield add value in ten ways!"

Adding value to the products we carry has always been part of Crutchfield’s DNA.

Within a few days, I followed up with a telephone call. Although the president would not take my call, one of his senior vice presidents did. He explained that my letter did raise some interesting new options. Although they had not changed their policy, he did indicate that the printing of the new franchise agreements had been postponed until they could examine this subject in more detail.

Seeing a small "crack in the door," I offered to meet with him and his staff at their headquarters. A meeting was arranged and a few weeks later I was there.

We had been selling this company’s products for several years, but no one in our company had ever met any of their senior executives. Believing that they did not appreciate the uniqueness and mission of Crutchfield, I presented a detailed briefing which stressed our history, culture, and professionalism. I explained the reasons why mail order was the fastest growing form of retail at that time.

Mail order provided millions of people who did not live in metropolitan areas with a source of specialty products. Its convenience and efficiency were ideal for the growing number of busy young professionals, and a quality mail order retailer could have the scale to provide certain complex services that few local retail stores could offer. Also, I briefed them on my idea of a mail order dealer agreement in much greater detail.

The tone of the meeting was strained at first but improved over time. Toward the end, one vice president suggested that our case would be strengthened if I could provide a way to make the relationship between our companies even more valuable to them. If I could do that, he might endorse my unique dealer agreement concept. I accepted the challenge and offered to meet them with my proposal at a trade show in Chicago the next week. They accepted.

When I walked out of that meeting, I did not have the slightest idea what I would tell them in Chicago. Fortunately, the idea struck me while I was flying my airplane home late that night.

Capitalizing on our wealth of data

The key to my puzzle was to find something which Crutchfield had that no store retailer had. The answer was our computer database. Even in 1984, we had a large amount of data about our customers. It included address and product information for all our customers in every community throughout the United States.

To take advantage of this special asset, I devised an early form of “big data” analysis. We could provide this manufacturer with our market share in each of our nation’s thousands of zip codes. They could then compare their market share with each of these same zip codes.

If our market share was higher in a particular zip code, it would demonstrate that the manufacturer’s sales organization was relatively weak in that area. Conversely, if their market share was higher than ours, it would demonstrate that the manufacturer’s sales organization was relatively strong in that area.

At the meeting in Chicago, I presented each participant with a printed document explaining in detail my “Dynamic Customer-Vendor Marketing Program.” After understanding the benefit of it, the executives concluded that they needed Crutchfield as much as we needed them.

cover of marketing document

This 1984 proposal ensured Crutchfield's continued success as a mail order retailer.

Within several weeks, a Mail Order Dealer Agreement was finalized by their lawyers and signed by all parties. It embodied all the concepts which I had proposed in my earlier letter to the company’s president.

Our new competitive edge

Now that this catastrophe had been averted, we started using this new franchise concept to our advantage. With this new and unique agreement in hand, our vice president of merchandising and I were able to show our other manufacturers how they could solve similar problems with undesirable mail order retailers. By doing so, we accomplished two important objectives.

First, we reduced the possibility of our other vendors eliminating their mail order distribution and thereby putting us out of business. Second, we were able to get product lines which were previously unavailable to us. Some audio manufacturers already had strict policies against selling to mail order retailers. They feared their reputations could be hurt if undesirable mail order companies sold their sophisticated products.

Using our new Mail Order Dealer Agreement as a model, we were able to show them a fair and legal way to restrict distribution only to those mail order retailers who would add significant value to their products. Again, most quality manufacturers had followed this practice for years regarding their store retailers. What was new about my concept was that this practice could be formally extended to mail order retailers.

Another long-term benefit of this agreement was that it led to the formation of high-quality mail order competitors. With the manufacturers imposing Crutchfield-like standards on their mail order retailers, customers greatly benefited. The number of shoddy mail order retailers was greatly reduced. As a result, consumers were better assured that they would receive the necessary support services from retailers who sold these manufacturers’ products.

Evolving our Basic Beliefs

This very scary situation taught me two important lessons.

First, it is possible to turn a terrible, potentially fatal problem into a great benefit. We used this problem’s solution to further enhance relations with our existing vendors and attract new ones.

Second, I realized that this potential catastrophe might have been averted if we had had closer relations with our manufacturers’ senior executives.

As a result, I added a fourth Basic Belief:

"Respect our business partners and maintain mutually rewarding relationships with vendors who demonstrate high professional standards."

Growth and planning for the future

Once we had fully embraced our Basic Beliefs and assured our continued status as a prominent mail order retailer, the 1980s turned into a period of rapid growth and physical expansion.

In 1986, we started the process of rezoning some newly acquired land adjacent to our headquarters’ property and began building a 21,000-square-foot warehouse. After its completion, we remodeled the former warehouse into a much larger sales, customer service, and technical services call center.

black and white photo of exterior of distribution center circa 1987

Crutchfield's newly opened warehouse in early 1987.

A few years later, we added a 28,000-square-foot addition to this building. When I designed these two buildings, I planned for them to accommodate future second floors. That necessitated the footings and steel skeletons to be oversized to bear the weight of possible second floor additions. Also, the concrete roof deck had to be perfectly flat since it could become a future floor. This flexible design requirement was very fortuitous as you will read in Chapters 4 and 5.

Although our sales and earnings improved dramatically, I was getting very concerned about the macroeconomic situation in the nation. Like today, government, corporate, and personal debt was growing dramatically. To protect us from what I feared could be a bad recession and a credit contraction, we embarked on a unique strategy of controlling growth, eliminating all interest-bearing debt, and building a large cash reserve.

When the stock market crashed in October 1987 and a recession followed, our strategy was vindicated. We continue to follow this strategy to this day. It has allowed us to maintain profitability throughout each of the seven recessions that have occurred during our 50-year history. Since I have some serious concerns about our current economy, I am now preparing for what could be our eighth recession.

Crutchfield opens its second retail location

Speaking of the stock market crash, it occurred on a very unfortunate day. I mentioned earlier that we opened a retail store in our 1983 building addition. Because that Charlottesville store turned out to be a great success, we decided to open a second store in Harrisonburg, Virginia.

The city is also home to a major Virginia university, James Madison. Like UVA in Charlottesville, JMU has a large population of students and faculty members who represent a segment of good customers. And Harrisonburg is only a one-hour drive from our Charlottesville warehouse, which made restocking relatively easy.

A group of us worked over the weekend of October 17, 1987, to get the store ready for opening on Monday, October 19. While opening the store that morning, the news broke that the stock market was plunging. It was partially a result of the U.S. Treasury Secretary suggesting that the U.S. was threatened to devalue the US dollar to narrow the nation’s widening trade deficit. By the end of the day, the markets had fallen by almost 23%. As I recall, it was the biggest drop since the Great Depression.

We survived that crash just fine. The store has expanded over the years and continues to serve that wonderful community.

Improving the Crutchfield catalog

We first introduced limited color in our Fall 1975 catalog. Over time, we added more color pages. By the fall of 1988, our 116-page catalog achieved an important milestone. It was our first catalog where every page was in full color. Since then, all our catalogs have featured full-color pages.

cover and spread from 1988 catalog with full color photos

Crutchfield's first full-color catalog, Fall 1988/Winter 1989.

Custom installation kits — further support for our customers

Beginning with my second catalog in the Fall of 1974, Crutchfield has offered custom installation accessories which provided for more professional and easier installation of our car stereo components. However, customers typically would have to buy a variety of accessory parts to satisfy the needs of their individual vehicles. For mail order customers (those who did not call our Sales Advisors), this created confusion and often incorrect orders.

box for Crutchfield custom kit and all the parts displayed on a blue background

A Crutchfield custom stereo installation kit.

To simplify the purchase of these necessary parts, we created the Crutchfield Custom Kit program in 1988. In a single box, we included virtually everything needed for an installation in a particular vehicle. No other retailer offered such a comprehensive package.

The Crutchfield Personal Office catalog

In 1988, home offices were becoming increasingly popular in the U.S., and we decided to capitalize on this trend. To address this fast-growing market, we launched the Crutchfield Personal Office catalog. To support it, we trained a dedicated group of sales and technical advisors. The catalog offered personal computers, software, fax machines, small copiers, telephones, and office accessories. Sales were very impressive.

When we started selling personal computers in 1980, they were all well-known brands. In 1989, we were started selling off-brand computers like Everex, Amstrad, and Datavue. We also sold a wide variety of printers, computer accessories, and some software. For the next two years, we added more computer products to subsequent editions of the Crutchfield Personal Office catalog.

The world's most complete database of vehicle fit information

Ever since our third catalog in 1975, a core competitive advantage of Crutchfield has been our wealth of information. In 1989, we started the laborious process of researching vehicles to accumulate what is surely the world’s most complete database of vehicle fit information.

Through the end of 2023, we have researched 18,798 different vehicles. When you account for different versions of the same vehicle (2-door and 4-door cars, regular cab and crew cab pickups, etc.), this information forms a database that covers more than 37,000 specific vehicles. It is the backbone of the Vehicle Selector feature found on our website and ensures that our customers purchase car stereo products which perfectly fit their vehicles.

Crutchfield vehicle research team members hard at work.

Our vehicle research team spent a lot of time at local junkyards and dealer lots back in those days.

This research is also used to develop the Crutchfield MasterSheets™ which we provide to our customers. They contain illustrated instructions on installing car stereo products in vehicles of nearly all years, makes, and models.

The decade of the 1980s ended well for us. From the start of 1980 to the end of 1989 our sales increased 16-fold. We had clearly emerged from being a small company.

Chapter 3, coming soon

This concludes the second chapter of The Crutchfield Story. In Chapter 3, I will chronicle the decade of the 1990s. It was highlighted by Crutchfield becoming one of the nation’s first online retailers. Chapter 3 will become available on May 1, 2024.

Copyright © 2024 by Crutchfield Corporation

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