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Circuit City Dropping Majaps

RICHMOND, Va. -- Circuit City will be out of the major appliance business by Christmas.

In a move that will radically alter the retail playing field, the nation's second-largest majap merchant said today that it will replace its appliance assortment with a greater selection of grab-and-go electronics products as part of a three-year plan to sell CE and home office products exclusively.

The plan calls for a major remodeling of the chain's 573 Superstores in which all majaps and related display fixtures will be removed to make way for the expanded CE and home office selection, and to create more flexible selling space. As an interim step, all stores will be reformatted over the next three months by replacing the majaps section with more PCs, peripherals, software, digital imaging products, games and check out counters.

As part of the process, Circuit will eliminate 6,000 jobs and close eight distribution centers over the next 12 months.

Company president and CEO Alan McCollough attributed the drastic sea change to the company's "considerable weakness in major appliances," noting that comp store sales for majaps "remain substantially negative" at this point in the chain's second quarter.

"The major appliance business carries high fixed costs and tends to be more cyclical than other retail categories," he said. "Last year, it represented slightly less than 14 percent of our sales, but its profitability was below average." He noted that the new store design, which generates more traffic and speeds the transaction process, combined with new higher-margin digital technologies that are driving industry growth, will help the company recoup about 30 percent of the $2.5 million-per-store cost of the remodeling.

While analysts largely lauded the long-term affect of the restructuring, its negative impact on second and third quarter earnings sent shares of Circuit falling 17 percent to 27 1/8 in early trading today.

The move takes to a national level Circuit's Florida test of a CE-only format. A plan for freestanding appliance stores in that market has been dropped.

For more details and industry reaction, see the August 7th issue of TWICE.

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