What Happened to Circuit City?

By Eva Rykrsmith on February 24, 2009 43 Comments

So by now, we’ve all seen the liquidation signs for Circuit City, and maybe even indulged in some discount shopping. The first question I had, though, was not what can I get but how did this happen?

A quick overview:

The Startup Years

  • 1949: Samuel S. Wurtzel establishes Wards Co. and opens the first retail television store in Richmond, Virginia. Sales reach approximately $1 million
  • 1966: Alan Wurtzel joins the company as vice president for legal affairs. Sales reach $23 million
  • 1972: Alan Wurtzel is named chief executive officer

A Period of Greatness

  • 1982: Sales hit $176 million
  • 1984: The entire company is called Circuit City Stores, Inc. Sales increase to $357 million
  • 1991: Sales increase to $2.3 billion
  • 2000: Circuit City beats the market 22:1 over past 18 years.
  • 2002: Sales grow to $9.96 billion
  • 2005: The company announces plans to open 30-40 new or relocated stores. The company rejects an unsolicited $3.25 billion cash buyout offer from Boston investment firm, Highfields Capital Management

CEO Alan Wurtzel’s attitude during this time? Delivery drivers are the last contact the customer has with Circuit City, so it’s important they’re the best. In his words, “I spent a lot of time thinking and talking about who sits where… instead of firing honest and able people who are not performing well, it is important to try to move them once or even two or three times to other positions where they might blossom.

The Decline (or if you prefer, a picture)

  • 2006 Mar.: President Philip Schoonover is promoted to CEO
  • 2007 Mar: Falling prices and heightened competition cause Circuit City to plan the closure of 69 stores in North America. Circuit City fires 3,400 salespeople and reveals plans to replace them with lower-wage workers
  • 2007 Dec: Circuit City approves cash awards designed to retain upper-level executives.
    2008 Jan: The retailer says December sales at stores open at least 12 months fell 11.4 percent
  • 2008 Apr: Circuit City balks at Blockbuster’s unsolicited $1.3 billion acquisition offer
  • 2008 Nov: Bankruptcy filings reveal Circuit City has assets of $3.4 billion and debt of $2.32 billion; NYSE cuts Circuit City because common stock is worth less than $1.00 for over 30 days
  • 2009 Feb: Circuit City seeks executive incentives for wind-down
  • CEO Schoonover’s attitude during this time? Those employees interacting with the customers aren’t really all that important. In explaining Q3 results, Philip Schoonover said, “We underestimated the financial impact from the disruption of our transformation work.”-December 21, 2007 (the failed turnaround efforts included laying off experienced employees, opening smaller stores, seeking potential buyers, changing management, and closing stores….what kind of financial impact did you expect, exactly?)

Alan Wurtzel’s comments? Circuit City didn’t take the threat from Best Buy seriously enough and was too focused on short-term profit rather than long-term value.

So what happened?

43 Responses to “What Happened to Circuit City?”

  1. Anonymous says on: 25 February 2009 at 5:22 pm

    It was the zombies!

  2. Valerie M says on: 26 February 2009 at 6:47 am

    Based from your overview, I would say its that the top level management were more concerned about short-term profit.
    “Change in consumer behavior” is just an easy way for management to place blame on someone else. In my personal experience, I tried to like Circuit City. In the end I just avoided them because I could find things cheaper somewhere else, not to mention Circuit City just didn’t have that many options. Of course my behavior is going to change if I can find something better and cheaper somewhere else! Circuit City could have made itself more competitive by either lowering prices, having more options, having BETTER options, or having amazing customer service; it didn’t do any of this. All they care about is their bottom line and the CEO may have a big role in this attitude.

  3. Eva says on: 26 February 2009 at 10:26 am

    @ Valerie – agreed… all those factors played a role in some way or another, but there was an underlying attitude behind that. The exec’s short-term perspective destroyed value… they chose to downgrade their customer service and they chose not to adapt to the changes in their industry.

  4. Allie Klinger says on: 26 February 2009 at 12:21 pm

    Completely agreed on the causes for the downfall of Circuit City… but some interesting questions come to mind.
    *Linens-N-Things suffered a collapse just months before Circuit City, similar causes?
    *What do the collapse of organizations like Circuit City and LnT mean for their former competitors, Best Buy and Bed Bath & Beyond?

    As someone who purchased a rather large TV from Circuit City (it was a couple hundred dollars cheaper than the same TV at Best Buy just up the road) in the past six months, I think prices were coming down and management was starting to see the error of their ways, but it was too little, too late. At what point is an organization unable to recover?

  5. Valerie M says on: 26 February 2009 at 1:02 pm

    @ Eva: Even if Circuit City made their prices more competitive, they would be able to get away with mediocre customer service (a la Walmart). If they had kept the high prices and improved their customer service, that might have worked too (like Apple did). But yes I agree, they are paying the price for their attitude.

    @ Allie: Prices only came down at Circuit City because a) everyone else is cutting prices drastically whether they did everything right or not just to get people into the stores and b) Circuit City is going bankrupt and the fastest way to close stores and pay off debt is to get rid of inventory at rock bottom prices. Did Circuit City really learn its lesson? Only time will tell, if it ever gets another chance. I think the collapse of CC and LnT will probably give their competitors more business for a while until more competition pops up as the economy recovers.

  6. Eva says on: 26 February 2009 at 1:58 pm

    It really shows that accomplishments of the past are not a guarantee of success in the future.

    My thoughts are that the recession was the last straw – the good companies are doing OK while the ones who have made big, fundamental mistakes (but otherwise would have survived them) are the ones in trouble.

    For the record, I got my HDTV at Best Buy :)

  7. Kristian Mattias says on: 29 January 2010 at 9:59 am

    Hi – very good web site you have created. I enjoyed reading this posting. I did want to issue a comment to tell you that the design of this site is very aesthetically pleasing. I used to be a graphic designer, now I am a copy editor for a merchandising firm. I have always enjoyed working with computing machines and am trying to learn computer code in my spare time (which there is never enough of lol).

  8. Karen Tiede says on: 21 October 2010 at 8:07 am

    Late to the party here–this post appeared in a sidebar to a more recent one.

    My own experience is that Circuit City didn’t want gray-haired money. I could walk from the front door all the way back to automotive (car stereo) and not have ONE sales person say anything to me. Funny, but I could walk all the way back to the door without saying anything to anyone, as well.

    I can’t get 10 feet inside a Best Buy without some little Smurf asking me if he can help me find what I’m looking for. Seems they’re a bit more focused on the green than the gray.

    WRT B3 and LnT–suspect my local B3 is a training store. It’s always full of 30ish men in ties, falling all over themselves to help. They don’t look like they’re working for associate’s wages… more like an assignment from HQ to learn merchandising from the floor. Still, it’s way better service than I ever saw at the LnT around the corner.

  9. Lisa says on: 9 July 2012 at 12:14 pm

    This is very interesting. Since I chose “Good to Great” as my summer reading, (long story), I am fascinated by the number of cited companies that have tanked since the book was written.

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  Copyright © 2010 Articles by Eva Rykrsmith | Art credit for square in upper right hand corner to Michael D. Edens