Circuit City Files For Chapter 11 Bankruptcy After Years of Bad Decisions and Aggressive Tactics

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111108.circuit_city.gifToday, after last week's announcement of the closing of 155 retail stores, Circuit City said they would seek Chapter 11 bankruptcy protection in hopes of restructuring the ailing big box retail chain. This move comes amidst a technological boom in the consumer electronics market, powered by ever-popular HDTV sets, 1080p-capable Blu-ray players, smart phones, GPS devices and any number of other PC convergence components, yet Circuit simply can't effectively compete in today's marketplace, so they are looking for a new direction, as well as protection from their creditors.

Historically, Circuit City has been a marketplace predator. I remember vividly when they came to the Philadelphia market in 1990. At the time, I was working at the mid-level, specialty retailer Bryn Mawr Stereo (which was ultimately sold to Tweeter) and Circuit, through their deal with Sony, could sell our bread-and-butter televisions to consumers at below our wholesale cost. They took out full-page newspaper ads and hundreds of weekend radio spots and even procured their own model numbers so that comparison shopping on an apples-to-apples level was impossible for the consumer. In the short term, it bought Circuit a dominant position in the market that they rode for more than a decade, allowing them to grow into one of the biggest big box retailers in the space.

What Circuit did see coming were even more efficient predators that could endanger their new position as king of the mountain. The apex predator in their space today is Best Buy, which has Magnolia to fill the mid-market niche right inside the store, as well as selling more mainstream items, such as appliances, software and computers in a much more accessible retail environment. Circuit also failed to adapt to the idea that HDTVs are now retail commodities, not profit-laden specialty goods. While Best Buy is pushing value-added ISF calibrations of their sets in place of (or in addition to) Crazy Eddie-style extended warranties, Circuit offers nothing special to the value proposition. Consumers are smart enough to know, if what they are buying is simply a commodity, they can go to Wal-Mart and or Costco for the lowest possible price. Today, Wal-Mart and Costco are perfectly viable places to buy an entry-level HDTV. Would you be happier with a professionally-calibrated set from Best Buy or, better yet, a specialty home theater installer? Absolutely, yes. Will you get the lowest price at the warehouse stores? There is no question this is the case. The only question is, where does Circuit City fit into the retail equation?

Circuit City absolutely blew it the most when they fired their commission sales staff. There was a cult of truly professional salespeople who had meaningful and lucrative careers working at Circuit City, with some making over $100,000 per year. With the Wall Street suits feeling the pressures of being a public company needing a short-term pop for their stock price, the Circuit City brain trust waylaid nearly all of these ultra-valuable assets.  Today, you will find the Circuit City veteran sales staff replaced with mere clerks who are, in their defense, under-trained and poorly prepared to actually close a sale, as opposed to just taking orders that walk in the front door. Circuit spends millions trying to drive people in the front door, but walk many right back out the front door because of their poorly trained sales staff and mostly mundane product offerings, compared to the competition.

Can Circuit City be saved? My bet is that they cannot, as they offer a pure commodity product with nothing special. Best Buy does what Circuit does, and more, for the same price in the eyes of the consumer. The warehouse stores offer commodity products like large format HDTVs and Blu-ray players at lower (or at least perceived lower) prices and with liberal return policies. Circuit City would need to rethink everything they do in order to survive in today's market. They would need to bring something special to the marketplace, meaning added value, which starts with developing and hiring true professionals to man their stores, not clerks that are poorly trained and transient from one department to another. I am talking about college-educated people who understand whole-home audio, PC convergence and custom installation, as well as all of today's best HD technology, so that people are inspired to spend on all of the added value goodies when they go into a Circuit City store, because when it comes to commodity products in today's marketplace, there are just better alternatives to Circuit City in the world of brick and mortar, not to mention what can be had via e-commerce sites on the Internet.
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