How Circuit City Got Here
By Steve Smith -- TWICE, 9/29/2008
Circuit City's chairman, president and CEO left the chain last week.
Phil Schoonover ended a tumultuous four-year career there, holding those top three jobs at the chain in his last two years.
His critics, especially those who lambasted him and Circuit City whenever we covered them at TWICE.com and in print, must feel vindicated.
But you can't hang all of Circuit City's problems just on Schoonover. There were deep problems before he got there. And his departure won't make those problems disappear either.
Remember that Schoonover's hiring by Circuit City four years ago was lauded by the industry because he was a well-known CE industry veteran. The industry felt that Circuit's fortunes had been sinking for a while and needed an experienced executive.
1997 is cited by some as a key year in Circuit's changing fortunes, when the industry unified behind one video disc format: DVD. But at the last moment the industry found out one of its leading retailers had a different idea. Circuit decided to invest in a pay-per-view disc format called Divx. After a couple of years, and reportedly tens of millions of dollars (if not more) spent, the retailer pulled the plug on Divx.
In 2000 Circuit City decided to drop out of major appliances, one of its core businesses, just when the category's sales were poised to explode due to the housing boom. National competitors benefited from the move, but independent retailers really got a profitable boost in sales and market share.
Independents benefited again from Circuit City in 2003. That's when Circuit fired its commissioned sales force. Many top suppliers panned the decision, but retail buying groups and their members loved hiring those experienced salespeople.
And back in 2002 Circuit City decided to spin-off its used car division, CarMax, which was then and continues to be a profitable business.
Schoonover took over the top jobs in 2006, but he is far from blameless.
After some positive buzz, the honeymoon ended when more problems occurred, such as having too much old TV inventory during the 2006 holiday season, which hurt the bottom line.
But his inexplicable decision to repeat one of the chain's biggest mistakes — firing its most experienced retail sales associates — was universally panned by everyone, especially consumers, when the chain added insult to injury by saying later in the year it would be willing to hire some of them back ... at a lower salary.
Other problems surfaced and a dramatic drop in stock price, much-documented takeover attempts earlier this year and Schoonover's departure resulted.
Last month, top CE executives at Nationwide's show told TWICE the industry needs a competitive Circuit City (see TWICE, Sept. 3, p. 1.).
It's going to take more than imaginative efforts — bordering on the heroic — by Circuit's new management to turn things around, especially during these times.
If CE manufacturers are serious about Circuit they are going to have to go above and beyond what they usually do in a situation like this to help this chain survive and become a player once again.
