What Happened to Circuit City?
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?
- Was it competition from Best Buy?
- Was it a change in consumer behavior?
- Was it a poor business model?
- Was it the layoffs?