Circuit City Addressing TV Margin Declines
By Alan Wolf -- TWICE, 4/23/2007
RICHMOND, VA. — Circuit City has taken a series of actions to bolster TV profits amid the weak pricing environment.
The measures, outlined this month to Wall Street analysts, include boosting attachment sales through new merchandising practices and renegotiating contracts with vendors and suppliers to better prepare the chain for future price drops.
According to a research note by Goldman Sachs retail analyst Matthew Fassler, Circuit City renegotiated deals with its vendors following the fourth-quarter free-fall in flat-panel pricing. The new agreements call for improved communication of planned price cuts and more reliable price protection.
The No. 2 CE chain also reworked terms with its key extended service plan provider to enable faster renegotiation of warranty prices, and to provide contingency plans should TV price drops reaccelerate. Management indicated that Circuit City's inability to adjust warranty pricing to match price-point declines during the holiday selling season was a mitigating factor in last quarter's earnings shortfall, Fassler said.
The chain is also implementing new store operating procedures that will eliminate many redundant tasks and allow sales associates to focus exclusively on selling during store hours, according to Bank of America analyst David Strasser. The retailer is also implementing a best-practices strategy of establishing one lab store within each of its districts, he related in a research note.
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