Circuit City Trims Remodeling Plan
By Alan Wolf -- TWICE, 1/22/2001
LAS VEGAS -Circuit City will significantly curtail its ambitious store-remodeling program due to the slowing economy and the high costs and unacceptable disruptions associated with the renovations, chairman/CEO Alan McCollough told TWICE.
Circuit City's effort initially called for each of 140 units to receive a $2.5 million makeover this year that would have revamped adjacencies, improved sight lines, widened aisles and replaced signage.
Under the latest plan, 20 to 25 stores will be remodeled at a more modest cost of $1.5 million per unit, while still achieving the desired improvements.
"There was a lot we liked about the full remodels, but two major things we didn't like were the cost and the disruption in the stores," McCollough said of the 180-day process. "It was disruptive beyond what I was interested in seeing, particularly during the last six to eight weeks."
By contrast, the scaled-down remodels can be completed in one-third the time. "We think we've found a great way to do this cheaper and faster," he said.
The remodeling program was prompted by Circuit City's surprise decision last summer to abandon the major appliance business-a decision that McCollough said is vindicated by his stores' post-appliance performance and the continued softness in the white-goods sector.
"We more than matched our appliance comps with replacement products," he said. "The amount of business in video games, software, peripherals and accessories more than made up for it. And when I look at Sears with its 'no money' til 2002 promotions' and refrigerator sales this month, I think 'Thank God. They can have it.'"
Circuit City is turning its undivided attention toward escalating demand for digital devices. "I think it will be a good TV year and a good year for digital cameras," McCollough said. "And even though we sold a lot of DVD, there's still a lot of legs left in the $149 to $199 arena."
On the competitive front, McCollough said that beyond the Internet, Circuit City has no plans at present to explore additional channels of distribution, a la Best Buy in its acquisition of high-end A/V specialist Magnolia Hi-Fi and Musicland's mall-based stores. Indeed, the company has learned first-hand the rigors of running mall stores through its small-format Circuit City Express units, whose ranks have been reduced to 39.
"Mall rent is very high, and you need apparel margins to have an effective business there," he said. "We do pretty well with our Express stores if they're in a great mall. But going to a mall is a hassle. Have you ever tried parking in one? And it isn't a location that those [consumer electronics] customers most actively search."
By contrast, the small-store format works for RadioShack "because they aren't paying a lot of rent," McCollough said. "Most of their stores are in strip malls, where they have the great advantage of convenience. And their ad campaign is pretty good."
So at least for the time being, Circuit City will stick to its core big-box competency. "There's nothing else on our radar screen at the moment. The best thing we can do right now is to run a good business," he said.
