June 1, 2007
Circuit City Looking to Cut Its Way to Success
As everyone knows, Circuit City cut prices on big screen televisions during last year’s Christmas holiday and the result didn’t sit well on the bottom line. Then the company decided it needed to lay off 3,400 of its highest paid and, some say, most productive store employees so it could replace them with others making a lot less. Now, the company has decided to eliminate 200 jobs at its headquarters and approximately 650 other manager-level workers in its stores.
Circuit City’s CEO Philip Schoonover told The Associated Press that the company was in the second part of a three-phase plan to turn the itself around.
Mr. Schoonover said Circuit City is acting with a “sense of urgency” to current conditions and “making some tough decisions on some things that we won’t do anymore.”
Scot Ciccarelli, an analyst with RBC Capital Markets, explained Circuit City’s moves in a report to investors. The company, he wrote, “continues to reduce its cost structure to cope with a tough environment, but these cuts may further degrade the company’s market share.”
Circuit City sees the current retrenchment as a temporary situation. The chain is looking to open 165 new stores over the next two years and focus on building its online business. It also plans to grow its Firedog home-installation and computer service and repair unit.
Discussion Question: What is your analysis of where Circuit City currently stands and what it must do to turn itself around?
BrainTrust
Recent Discussions
Discussion Questions
Poll
Was this plan strategic? First of all, they need a better communication plan. To cut 3,000 jobs is one thing, but to cut 3,000 of the highest paid, the best of the lot…. What are we thinking? What kind of message does that send? What’s left?
Consumers can get past the bad press if you give them service and a good price on products. The electronics business is an area in which consumers want to talk to an expert. Does Circut City get that? Reducing the margins to be the cheapest price–is that a good plan? I don’t think the plan will be effective; it will “short circut”!
Where does Circuit City currently stand? They are a dead man walking. I can’t think of a reason to go there and that’s what customers require–a reason.
What are their chances? Slim to none based on their current path. Their strategy seems to be to fall to the depths of despair and then somehow perform magic to restore themselves. Unless there is some miraculous cultural event occurring there beyond the eyes of the outside, they’re dead.
And agreed, its very difficult to watch companies such as these make such blunders.
Circuit City, Best Buy, RadioShack and CompUSA are all suffering from overcapacity. The electronics retail space has too many players and too many locations to support the low margins. Apple’s finances are terrific because their products are unique and they have too few locations, so their margins can be worthwhile. The best solution? Some kind of rollup and merger of Dell and the stronger retailers, then a radical reduction in the number of locations, along with some worthwhile R+D to create superior (not commodity) products that can sell with better margins. Expense cuts are an interim holding action, but they won’t lead to superior financial performance.
Is the world of electronics retailing really suffering from overcapacity, as Mark suggests, or simply undermerchandised in the case of Circuit City? After all, this is a category growing at a faster pace, with more product innovation and more share of consumer spending, than almost any other business you can cite over the past decade. There should be room for more than one big-box retailer in electronics, just as there is plenty of space in the market for apparel retailers and so forth.
All of Circuit City’s recent moves are defensive in nature, however necessary, and are akin to raising the surrender flag. But where is the product differentiation or brand positioning that might have made them a stronger competitor vs. Best Buy in the first place, and is it on the horizon? The “Geek Squad” is a perfect example of the sort of positioning tool (as the in-store service leader) that can now become a major revenue and profit stream for Best Buy. Where is Circuit City’s answer to this sort of big idea?
I spent 1.5 years working on-site with Circuit City earlier in my career after they had similar layoffs. They have a very dedicated internal workforce that all live in a small town that offers very little job opportunity outside of their current employment. Many have been there for years and have managed to make it through the ups and downs of management decisions…and there have been many.
Historically, Circuit City was the leader in customer service for their category. Blow #1 was cutting commissions (which caused a massive loss of the top tier of service talent), then they cut more jobs in the field. Now, no shock that they are suffering the repercussions and are taking it out on corporate headquarters…oh, while the internal camps are tasked to open 165 more stores.
The talent to bring this company around exists inside of their corporate facility (that is if they made it through the cuts!). Management needs to provide them with true leadership and empower them to make it happen. There are numerous challenges, including a plethora of floor plans and store types, erratic store strategies, a twinge too much VP-level turnover and more. But the people within want to make it work and, in the meantime, Best Buy is smoking them regarding store experience.
I don’t know about you guys, but I’m getting weary watching huge brands such as this make such obvious blunders.
Unfortunately this is not a strategic plan, but another vain attempt to forestall its inevitable decline. Circuit City suffers from poorly organized stores, lack of product selection and weak customer service.
The earlier workforce reduction (3,000 of the most experienced personnel laid-off to hire less experienced, cheaper workers) was a mistake and this latest round of layoffs is proof.
It is very rare that a company can cut its way to profitability, without addressing key areas like pricing, distribution, sales channels, etc.
As has been mentioned before, the market may not be able to sustain two electronic retailers. If that is the case, then there is little Circuit City can do to supplant Best Buy as the category leader.
Best Buy is not struggling. They anticipate $40b in sales in ’08. Circuit City however has made many missteps, beginning with the elimination of white goods, which drew in additional customers. Firedog, their installation division, is poorly executed compared to Best Buy or the independent specialty retailer. People want relationships, and a quick visit to CC and the depressed attitudes are most evident.
“Circuit City sees the current retrenchment as a temporary situation.”
Famous last words(?)…HMMM!
My instinctive comment on “how to turn around the company” was succinct indeed: fire management; but then I realized I was giving out the type of ill-considered advice that probably got them much of the way to where they are now. So I’ll just join the 57% (count em!) who wish them well, but see “death spiral” written all over this.
Circuit City is making the right short-term moves to revive their business, however, they still have a retail lay-out that does not compel the consumer to explore departments the way Best Buy is able to with their floor-plan.
An even bigger issue than their floor-plan is the the question whether or not the retail landscape is even large enough to support two large electronic retailers who are competing for the same consumer and the same dollar. As retail continues to be defined by niches, and at the same time, the broad availability of electronic items in other retail channels and on the web, it will be hard for Best Buy and Circuit City to both make it.
Circuit City has too much ground to make up compared to Best Buy and therefore, I believe the changes being made by Circuit City are only a short-term fix to extend a retail model that is increasingly no longer relevant.
Cutting employees may stem some short term cash flow problems but it does not generate more sales. Cutting employees who interact with customers does not create better customer service.
They need a new plan. Who are their customers? Why do they come to Circuit City? What is Circuit City’s niche? I can’t answer any of those questions. If top management isn’t intensely trying to answer their questions, they are not likely to be around for a long time.
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
Was this plan strategic? First of all, they need a better communication plan. To cut 3,000 jobs is one thing, but to cut 3,000 of the highest paid, the best of the lot…. What are we thinking? What kind of message does that send? What’s left?
Consumers can get past the bad press if you give them service and a good price on products. The electronics business is an area in which consumers want to talk to an expert. Does Circut City get that? Reducing the margins to be the cheapest price–is that a good plan? I don’t think the plan will be effective; it will “short circut”!
Where does Circuit City currently stand? They are a dead man walking. I can’t think of a reason to go there and that’s what customers require–a reason.
What are their chances? Slim to none based on their current path. Their strategy seems to be to fall to the depths of despair and then somehow perform magic to restore themselves. Unless there is some miraculous cultural event occurring there beyond the eyes of the outside, they’re dead.
And agreed, its very difficult to watch companies such as these make such blunders.
Circuit City, Best Buy, RadioShack and CompUSA are all suffering from overcapacity. The electronics retail space has too many players and too many locations to support the low margins. Apple’s finances are terrific because their products are unique and they have too few locations, so their margins can be worthwhile. The best solution? Some kind of rollup and merger of Dell and the stronger retailers, then a radical reduction in the number of locations, along with some worthwhile R+D to create superior (not commodity) products that can sell with better margins. Expense cuts are an interim holding action, but they won’t lead to superior financial performance.
Is the world of electronics retailing really suffering from overcapacity, as Mark suggests, or simply undermerchandised in the case of Circuit City? After all, this is a category growing at a faster pace, with more product innovation and more share of consumer spending, than almost any other business you can cite over the past decade. There should be room for more than one big-box retailer in electronics, just as there is plenty of space in the market for apparel retailers and so forth.
All of Circuit City’s recent moves are defensive in nature, however necessary, and are akin to raising the surrender flag. But where is the product differentiation or brand positioning that might have made them a stronger competitor vs. Best Buy in the first place, and is it on the horizon? The “Geek Squad” is a perfect example of the sort of positioning tool (as the in-store service leader) that can now become a major revenue and profit stream for Best Buy. Where is Circuit City’s answer to this sort of big idea?
I spent 1.5 years working on-site with Circuit City earlier in my career after they had similar layoffs. They have a very dedicated internal workforce that all live in a small town that offers very little job opportunity outside of their current employment. Many have been there for years and have managed to make it through the ups and downs of management decisions…and there have been many.
Historically, Circuit City was the leader in customer service for their category. Blow #1 was cutting commissions (which caused a massive loss of the top tier of service talent), then they cut more jobs in the field. Now, no shock that they are suffering the repercussions and are taking it out on corporate headquarters…oh, while the internal camps are tasked to open 165 more stores.
The talent to bring this company around exists inside of their corporate facility (that is if they made it through the cuts!). Management needs to provide them with true leadership and empower them to make it happen. There are numerous challenges, including a plethora of floor plans and store types, erratic store strategies, a twinge too much VP-level turnover and more. But the people within want to make it work and, in the meantime, Best Buy is smoking them regarding store experience.
I don’t know about you guys, but I’m getting weary watching huge brands such as this make such obvious blunders.
Unfortunately this is not a strategic plan, but another vain attempt to forestall its inevitable decline. Circuit City suffers from poorly organized stores, lack of product selection and weak customer service.
The earlier workforce reduction (3,000 of the most experienced personnel laid-off to hire less experienced, cheaper workers) was a mistake and this latest round of layoffs is proof.
It is very rare that a company can cut its way to profitability, without addressing key areas like pricing, distribution, sales channels, etc.
As has been mentioned before, the market may not be able to sustain two electronic retailers. If that is the case, then there is little Circuit City can do to supplant Best Buy as the category leader.
Best Buy is not struggling. They anticipate $40b in sales in ’08. Circuit City however has made many missteps, beginning with the elimination of white goods, which drew in additional customers. Firedog, their installation division, is poorly executed compared to Best Buy or the independent specialty retailer. People want relationships, and a quick visit to CC and the depressed attitudes are most evident.
“Circuit City sees the current retrenchment as a temporary situation.”
Famous last words(?)…HMMM!
My instinctive comment on “how to turn around the company” was succinct indeed: fire management; but then I realized I was giving out the type of ill-considered advice that probably got them much of the way to where they are now. So I’ll just join the 57% (count em!) who wish them well, but see “death spiral” written all over this.
Circuit City is making the right short-term moves to revive their business, however, they still have a retail lay-out that does not compel the consumer to explore departments the way Best Buy is able to with their floor-plan.
An even bigger issue than their floor-plan is the the question whether or not the retail landscape is even large enough to support two large electronic retailers who are competing for the same consumer and the same dollar. As retail continues to be defined by niches, and at the same time, the broad availability of electronic items in other retail channels and on the web, it will be hard for Best Buy and Circuit City to both make it.
Circuit City has too much ground to make up compared to Best Buy and therefore, I believe the changes being made by Circuit City are only a short-term fix to extend a retail model that is increasingly no longer relevant.
Cutting employees may stem some short term cash flow problems but it does not generate more sales. Cutting employees who interact with customers does not create better customer service.
They need a new plan. Who are their customers? Why do they come to Circuit City? What is Circuit City’s niche? I can’t answer any of those questions. If top management isn’t intensely trying to answer their questions, they are not likely to be around for a long time.