Wattles To Circuit's Board: Ditch Schoonover
By Colleen Bohen -- TWICE, 4/2/2008
Las Vegas — Wattles Capital Management (WCM), one of the largest independent stockholders of Circuit City Stores, delivered a letter signed by Ultimate Electronics owner Mark Wattles to the struggling chain’s board of directors, seeking a series of major changes to the corporate structure including the replacement of chairman and CEO Philip Schoonover and a change in the company’s retail strategy.
The letter in part blames Schoonover and his management team for the company’s declining performance over the past two years despite much-publicized attempts at turning the company’s business around.
The letter stated, “Approximately two years ago, after what turned out to be a temporary industry-wide oversupply of flat-panel TVs, Circuit City’s senior management initiated a ‘turnaround’ to address what it perceived as a permanent reset to a lower level of gross margins in the industry. Since then, the competition’s gross margins have essentially recovered, but Circuit City’s have further deteriorated, resulting in a ‘turnaround’ that has unfortunately gone in the wrong direction. We believe this has been due, in part, to senior management searching for a ‘silver bullet’ rather than focusing on basic retail execution, such as having the right products for sale, priced strategically, displayed well and sold by the right people. As a result, Circuit City’s performance is now significantly worse than when the turnaround first began. Through a combination of poor decision-making and poor execution, Circuit City’s so-called ‘turnaround’ has adversely impacted the company’s operating performance, destroying billions of dollars of stockholder value in the process. While we cannot say whether a turnaround was needed at Circuit City two years ago, it is quite clear to us that one is needed now.”
With the stated goal of restoring investor faith in Circuit City and unlocking what it sees as “the company’s significant unrealized value,” the letter called for the following immediate changes:
· Replace Schoonover with “a seasoned executive capable of restoring credibility with employees, vendors and stockholders.”
· “Focus on the ‘customer experience’ and strategies for making the current stores more productive.
· “Begin addressing the actual issues facing the company and drive revenue growth, rather than focusing on cost-cutting strategies and ‘spin’ campaigns.”
· “Focus on the most immediate and least capital-intensive opportunities to improve the health of the business.
· “Develop and articulate a deliverable promise for the new ‘The City’ brand that works within the realities of the current store footprints.”
In addition to the requested changes, the letter also echoed WCM’s plea on behalf of the five potential board members it nominated in February for consideration at the company’s annual shareholder meeting, scheduled for June 24.
Finally, the letter also encouraged the board to entertain any legitimate third parties who may express interest in acquiring or merging with the company in the future.
Wattles Capital Management, headed by Mark Wattles, owns 11 million shares, or 6.5 percent, of Circuit City’s common stock.
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Wattles is responding to something that the entire industry has ignored for many years. When CC decided to cut the commissioned sales staff, it was the second of many moves that started their decline. (The first was when the appliance department was eliminated, cutting more consumer exposure by lack of a category). Replacing these employees with non-motivated clerks, that got their credentials via "open book" testing did not enhance their position with the consumer's confidence. Cutting the floor management staff, made for more indecision.
Over-all the decision to try to emulate Best Buy, after they had spent years conditioning the buying public that a trip to CC would be one of education and smart choices, aided primarily by the well trained and motivated sales department. This coupled with the reputation of customer satisfaction with both product and service is a tough environment to change. The consumer became disenchanted with the new CC and decided their loyalty was not valued. CC is under the microscope because of its' size and economic impact, when in reality, we have seen the same scenario repeated across the country many times in smaller companies that have not had the deep pockets to survive its mistakes.
If Wattles is smart he will not only look to put experience in the "Golden Thrones" but show the American consumer that the days of old do not have to be forgotten when it comes to customer service, satisfaction and a empathetic sales force.
John Kufahl - 2008-7-4 11:59:00 EDT -
Wattles is right for wanting to change the current operations of Circuit City. New logos, shirts and small foot print stores are nice but they''re not doing the job. How many of you have been to a Circuit City lately? Notice how it''s hard to find an employee to help you. Then you''re met with the "oh, that''s not my department...." If you like that kind of service, knock yourself out. Ultimate Electronics had the best customer service in town when they were in the DFW market. My proof - my 10k home theater. I would never spend that much money at Best Buy much less Circuit City. The only level Best Buy could compete with them was on an exact SKU level price. I would love to see Wattles change Circuit City and expand the Ultimate Electronics name and customer service. If he did that, I would dump shopping at Best Buy in a minute. Side note, I''m a rewards members and I''d be willing to give up my membership points to have Ultimate Electronics back in the DFW market.
Michael - 2008-7-4 08:23:00 EDT -
Richard Sharp? PLEASE! He was the guy in the late 90s after the DVD format was agreed upon (unlike blu-ray and HD DVD) at the 11th hour and agreed with Hollywood Lawyers (great bunch) to come up with Divx. Remember that? He also hired McCollough who got rid of Circuit City's uniqueness - experienced, commissioned salespeople. And THEN they got rid of major appliances, the cash cow of electronics/appliance retailers! Schoonover is not blameless, but he took the wrong job at the wrong time, and mismanaged a bit. (I'm being kind.) Circuit City has done more for independent CE/majap retailers than any buying group in the past decade!
CEvet - 2008-4-4 19:37:00 EDT -
Zippo-
I applaud your ferver, however you should get a solid grasp of basic communication skills before you venture upon leading a multi-billion dollar public company.
Zippo Support - 2008-4-4 15:11:00 EDT -
I Believe that Circuit should find and hire Richard Sharp back, hire better employees go back to a performance based pay system to keep the employees from standing there. Try to develope a plan where Best Buy is not their chief competitor. I remember when Best Buy was just coming on the scene everybody scrambled to be like them saying that they would have to to compete this is not true. Be Better not the same
Bill Bernhard - 2008-4-4 00:13:00 EDT
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