Flat-Panel Sales Easing: Circuit City

Richmond, Va. — Circuit City is still enjoying double digit growth in flat panel TV sales, but the gains are down from the triple-digit increases it has enjoyed for the past six consecutive quarters.

Implying that the pace was unsustainable, president/CEO Phil Schoonover assured analysts during a second quarter earnings conference call that the company's core flat panel business “is still fundamentally strong.”

“We expected flat-panel comps to settle after last year's growth,” he said.

Aside from tough year-over-year comparisons, Schoonover also cited the general economic and competitive environments as contributors to flat traffic and slightly diminished close rates. Without naming names, he said that Circuit City's three main competitors, Best Buy, Wal-Mart and Costco, had reset their video and home theater departments, revamped their labor models and offered aggressive finance promotions to gain share, much as his own company is doing.

“We will be competitive in our stake-in-the-ground businesses,” he said, adding that traffic has since rebounded, and that third-quarter sales have been “strong to date,” aided by newly lowered flat panel pricing. Circuit City will compensate for the decline in average selling prices through the sale of pricier 1,080p models and the “transfer of plasma to LCD in larger screen sizes,” he said.

To prepare for battle, Circuit City is remodeling 500 video departments by October; will refresh 30 stores in three markets by the holiday period; is rolling out new premium brands including Mitsubishi, Denon and Boston Acoustics; and launched its firedog brand of IT and home theater installation services. Marc Sieger, senior VP for services, said the decision to keep both service arms under one umbrella, unlike Best Buy, will help position the company for the coming convergence of PCs and TVs.

Circuit City plans to open or relocate 12 superstores in its fiscal third quarter, and 13 to 16 more superstores in its fiscal fourth quarter. And the chain is on track to increase the number of new or relocated stores to between 75 and 100 a year by fiscal 2009, and is also rolling out a 50-store pilot program, based on a 10-store test in Texas, that's designed to make “labor dollars more productive,” said CFO Mike Foss.