Circuit City Halts New Stores, Could Close Current Ones
By Alan Wolf -- TWICE, 9/29/2008
Richmond, Va. — Circuit City has taken itself off the auction block and will dramatically reduce new store openings following a $239 million net loss in its second fiscal quarter.
The company may also close existing stores following a comprehensive review of its business, intimated vice chairman James Marcum, who last week succeeded Phil Schoonover as acting CEO. Shorter term, the chain is preparing for the coming holiday season with “simple, easily implemented” fixes, he told investors during a Monday morning conference call.
Domestic sales fell 10.6 percent to $2.2 billion during the quarter, ended Aug. 31, while same-store sales fell 14.4 percent and the net loss mushroomed from the $62.8 million loss reported during the year-ago period.
During the conference call, chief financial officer Bruce Besanko blamed the sales decline on the weak economy, a double-digit drop-off in traffic, new store openings by competitors and the diminished relevance of the Circuit City brand.
“Clearly, the performance of the company is unacceptable to all of our stakeholders, and it is imperative that we take the right steps to accelerate our turnaround,” Marcum said in a statement.
Given current market conditions the company has abandoned plans to pursue a merger or sale, and instead is conducting “a comprehensive review of all aspects of our business,” he said, while working to beef up four core areas: customer experience, execution, service culture and stores.
“We recognize that this will require that we intensify our efforts to correct problems in our business,” Marcum noted, beginning with enhancing the in-store experience to help drive traffic. Plans, many of which were initiated under ousted CEO Schoonover, call for improving in-stocks on key items, creating compelling signage and appealing visual merchandising, and improving training, support and incentives for sales associates.
In addition, Jeff Stone, the former Tweeter CEO who runs the company’s new format The City stores, has been put in charge of all retail operations in order integrate successful elements from the prototypes across the entire chain.
More immediate “simple” fixes for the approaching holiday selling season include:
· finalizing the chain-wide rollout of the “Simple to Shop” selling concept for home entertainment, which reduces frequently asked questions and product demonstrations to five easy-to-follow steps;
· ensuring quicker, “warmer” greetings and faster checkouts; and
· launching a new marketing brand campaign.
During the conference call, chief merchandising officer John Kelly also intimated that Circuit City was prepared to compete on price during the holidays, and would present “compelling offers to enhance traffic.”
In a statement, Marcum said, “Heading into our most important selling season, we are focused on consistent and successful execution in key areas that will drive traffic and build customer confidence. In my observations of the business since joining Circuit City, there are some fundamental principles of retail that we need to execute more effectively. Our full management team has reviewed plans from the past to identify what worked well and what did not. Through this work, we have established simple initiatives that will allow us to ‘get back to basics’ and will guide our actions for the holiday season.”
On the call, Marcum said the company had previously attempted “too many disparate initiatives,” some of which ultimately hurt business. He also cited such external challenges as increased online competition, the emergence of the mass merchant channel in CE retail and declining CE prices.
Marcum hinted at the possibility of store closures by noting in a statement, “We are assessing the productivity of our asset base. We are committed to making the difficult decisions that may be necessary to accelerate our turnaround, improve both our operational and financial performance and deliver shareholder value.”
Asked during the conference call if store closures were in the offing, CFO Besanko replied that all options are on the table.
Circuit has also dramatically reduced its plans to open new stores during the current fiscal year, and will open no new stores in fiscal 2010 to help conserve cash. Cash reserves are down 78 percent to $92.5 million, from $424.4 million a year ago.
Despite analysts’ liquidity concerns, Marcum said he recently held briefings with Circuit City’s top 25 vendors, who assured him that they are pleased with the company’s progress and continue to support the business.
COO John Harlow added that the chain maintains weekly and even daily dialogues with its larger vendors, who will continue “to provide the support we need as we go through the holiday selling season.
“Everyone wants to see a successful Circuit City,” Harlow said.
Besanko said the chain was already showing signs of improvement, including the first gross profit margin gains in 10 quarters and higher attachment rates for labor and extended-service plans in select categories.
Broken out by product sector, Circuit City generated a high-single-digit comp-store sales decrease for video in the second quarter. While comp-store sales of flat-panel TVs increased by a low-single-digit percentage, total TV comps decreased by a high-single-digit percentage, reflecting significant declines in projection and tube TV that more than offset the flat-panel increase.
Comp sales of digital imaging products and accessories, camcorders and DVD hardware decreased by double digits, the company said, while comp sales of digital TV converter boxes, which were not available for sale last year, offset about 300 basis points of the video category's comp decline.
In IT, Circuit City generated a double-digit comp-sales decrease in the second quarter. Comp-store sales of notebook computers and desktop computers declined by double digits. Unit declines in computers resulted in part from a sales mix shift toward higher-end products that contributed to an improved gross margin rate in the category.
In audio, Circuit City generated a double-digit comp-sales decline in the second quarter. Comp sales of mobile, portable digital audio and home audio products declined by double digits. Comp sales of navigation products decreased by a high-single-digit percentage, the company said.
In entertainment, Circuit City generated a double-digit comp-sales decline, comprised of a low-single-digit comp decline in video gaming products and a double-digit comp decline in sales of video and music software.
Warranty sales were $61.7 million, or 2.7 percent of net sales, compared with $67.0 million, or 2.7 percent of domestic segment net sales, in the same period last year. Firedog PC services and home theater installation revenues decreased 5 percent to $60.2 million, from $63.6 million in the same period last year, as growth in the home theater installation business was more than offset by a decline in the PC services business.
Marcum ended the conference call with an appeal to the company’s sales associates, whose return to a “selling culture” is central to Circuit City’s turnaround. “These are our stores and these are our customers,” he said. “Let’s make it happen.”
Clickhereto read TWICE's complete coverage of Circuit City and Tweeter.
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Hmm, not much of a mention as to what they're going to do for the sales associates. Incentives? What, free pizza day? PAY THESE PEOPLE and they'll come to work excited. I could care less about Circuit City's problems since they've treated their employees so bad.
John Keyser - 2008-30-9 08:59:00 EDT -
Quote:
During the conference call, chief financial officer Bruce Besanko blamed the sales decline on the weak economy, a double-digit drop-off in traffic, new store openings by competitors and the diminished relevance of the Circuit City brand
Hey... do you think it might have something to do with the fact that you fired all your top salespeople in favor of a short term return no long ago?
Quote:
Marcum ended the conference call with an appeal to the company’s sales associates, whose return to a “selling culture†is central to Circuit City’s turnaround.
Let me get this straight... you fire your best salespeople because they made too much money, thereby destroying the "selling culture" you had.
Now you're left with the associates you chose to keep because they didn't make as much money. Do you really not see the correlation here? They didn't make as much money because they didn't sell as much. Not exactly a foreign concept here. Concentrate... I'm sure you can grasp it if you work a little at it.
And now, you expect the associates you kept because they didn't sell as much as the ones you let go to return you to the "culture" you had before you started futzing around with it in the first place?
Iain McGuire - 2008-30-9 08:58:00 EDT -
It is easy to play arm chair quarterback but the simple fact is Circuit City stopped listening to its people and stopped listening to its customer. The manufactures have more input into the direction of the company than the team members that work with the customer’s every day. The communication coming from this loosing organization is all downhill. The stores failed to execute. Work the crappy plan. Communication does not only mean being understood but also understanding the other person. Circuit City failed in understanding their people by creating an environment where the team member only gets recognized for doing something wrong instead of doing something right which creates an environment of zero trust. The company has lost the trust of the customer because they lost the trust of the people in the stores. The team at Circuit City needs to touch all aspects of the business by starting with the people that work the closest with the customer. When was the last an executive at Circuit City talked with a cashier about the business? The culture of Circuit can change tomorrow if the leaders realize that what got them into this mess in the first place was their inability to create meaning in everything the team members do at the store level. You create meaning by listening to your people trying understand their frame of reference and putting this frame of reference in to the context of taking care of the customer. Retail is all about people. Circuit forgot this concept long ago.
tobiasjosias - 2008-29-9 22:28:00 EDT -
Having previously worked for CC for the better part of my career, I see why this happened and it was very clearly; management choices that caused this possible exit from the market.
I remember a few things that came about that caused this spiral.
1) Nascar - does anyone remember Hut Strickland? I'm sure they laughed all the way to the bank with CC's money. (Too early to pull this marketing stunt!)
2) DIVX - We will all pay valuable dollars to own a copy of a crappy movie we will never watch again, OR, we can just let big brother know what we are watching so they can bury us in unwanted ads and mail for the movies we do want. Is there a better idea, WOW how about online rentals with no latefee, and charge us $20 a month for collecting the same information. Thanks NETFLIX!
3) The MAJORS exit - Let's see, CC is #2 in the market in appliances behind only Sears, doing solid business with quality sales people (usually the best in the stores worked in appliances) and let's exit this gotta have in every home product and sell digital cameras and computer software? Hard Goods for increased sku's that require more inventory, and more security and provides less income. Who sold this dream?
4) Staffing changes - This one takes the cake! I was manager of a store on 9/11 "the" 9/11, I came in for my late shift knowing full well what was happening around the country and worrying about my associates and their families. I was met in the parking lot by a regional HR manager who had come for a prior arranged meeting with my associates. The meeting was to eliminate my entire ACE (small electronics, phones, keyboards, etc...) workforce. It was the plan coming into the day and I knew that, but she was adamant that the terminations had to happen that day. The day of 9/11! I was astonished by her callousness and knew my time was short in coming!
4)Sales targets - The plan was simple; if the commission sales associates couldn't earn $2000 per month then they had 3 months of employment at the most. If not the managers were to coach / correct / terminate in short order the ones who couldn't make it. Leaving (theoretically) only new associates, hired as replacements and big $ sales people. Then here comes the infamous rug trick! If you make over $20 per hour, you are no longer employed. See how it works, you don't make money you are no good - goodbye! If you make too much money, we can't afford to keep you - goodbye! Stores are stuck with no veterans, usually 1 or 2 middle of the road, non hungry sales people and a bunch of noobs! Now, run comps my little ones! Run Comps!
I loved this company! I gave everything I could for this company and I know hundreds of others over the years who did the same. But, instead of talking to the people who could make a diffrence they assumed they knew everything! I remember Birnbaum and Rick Sharp actually talking to the sales people one on one and having the best among the "troops" come to Richmond to help the company look to the future. But that ended and the rest is and is going to be HISTORY.
It is sad to see the company I remember so fondly having been raked over the coals by its own leaders for so long.
Sorry, and Sad...
Timm Booker - 2008-29-9 17:08:00 EDT -
As one of many employees that were fired by Circuit City (after 12 years of devoted service), I can't shed a tear for this guy's exit. He came in promising to fire managers and replace them with "better" (read "Best Buy") managers, and that would make all the difference. Now it's just a bunch of kids working there, at lower salaries. I hope the only job he can get is at Wal-Mart for $8.60/hr.
David Russell - 2008-29-9 16:50:00 EDT
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