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Circuit City Bows New Store Format; Plans Fall Rollout

5/22/2006 02:00:00 AM Eastern

Circuit City will roll out a new home entertainment format to more than 500 of its 630 stores in late autumn.

The revamp, described by senior executives as the largest remodeling effort in company history, is based on tests of two different formats at four of its 20 “Generation C” lab stores in New England and southern Florida. The nationwide retrofits, which represent the fruits of Circuit City's “Home Entertainment Innovation Project,” will feature elements from each of the formats, including plasma display walls, home theater vignettes and revamped audio demo rooms.

The idealized format, which is currently in operation at Circuit City's test store, here, features an 8,000-square-foot home entertainment area anchored by a 70-foot-long plasma TV wall. The home entertainment area has unobstructed sight lines, and is supported by home vignettes and redesigned audio audition rooms that are “fully integrated into the home theater experience” and allow for faster A-B comparisons of components.

Circuit City said that more than 70 percent of shoppers visit the plasma wall, and linger there 35 percent longer than at other “innovation” stores. Average TV tickets also run 15 percent higher at the Nashua prototype compared to other lab stores, and 80 percent of sales associates interviewed said the plasma wall was “essential” to assisting customers.

The audio rooms also experience 62 percent more traffic than other test stores, the company said.

Circuit City unveiled the new format here last week during its 2006 Analyst Conference, where senior executives also outlined a range of strategic initiatives. Top operational priorities will include:

  • Retail Improvements: The nation's No. 2 CE chain will work to improve the customer experience, and hopefully the conversion rate, in its retail stores. The company said its conversion has increased for each of the last 12 months compared with the prior year, and estimates that a 1 percentage point improvement in conversion rate would generate incremental revenues of approximately $320 million.

  • Services Opportunity: The chain's services business, which was profitable in fiscal 2006, is expected to grow at a 117 percent compound annual growth rate from fiscal 2005 to fiscal 2007, the company reported. Circuit City estimates that the U.S. services market, which includes home installations, PC services and digital subscriptions services, will reach $20 billion by calendar year 2010. The company plans to launch a new brand name for its IT and custom install services this fall.

  • Multichannel Performance: The retailer expects its Web-based sales to reach $1 billion during its current fiscal year, with more than 62 percent of those sales being picked up by customers in Circuit City stores. The company also projects its direct channel sales to grow at a double-digit rate annually over the fiscal 2008 to fiscal 2011 period, and expects that this rate of growth will significantly outpace the rest of the industry.

  • Store Expansion: The chain expects to step up new store openings to 75 to 100 locations per year by fiscal 2009, up from about 35 this year.

  • Supply Chain Improvements: Circuit City is striving to reduce domestic net-owned inventory — defined as merchandise inventory less merchandise payable — to zero by fiscal 2010. In fiscal year 2007, the company plans to reduce its net-owned U.S. inventory by $50 million to $100 million at year-end while improving store in-stock levels by 300 basis points.

  • Information Technology Investments: Information technology expenses are expected to rise to 1.3 percent of sales in fiscal year 2007, while associated capital expenditures are expected to total $153 million. Circuit City expects to maintain its higher rate of IT investment.

  • Long-term Strategic Framework: The chain will introduce a new “strategic architecture,” or operating model, based on suggestions by “innovation teams” comprised of employees recruited from throughout the organization.

During the analyst meeting, Circuit City's president/CEO Phil Schoonover remarked that due to the analog to digital changeover, the CE business has now entered “the strongest product life cycle in my 22 years in the industry.”

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