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Circuit City Launching New Home Entertainment Format

5/17/2006 08:59:00 AM Eastern

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

The rollout, 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 laboratory stores in New England and southern Florida. The nationwide retrofits, which are the result of the company’s “Home Entertainment Innovation Project,” will feature elements taken from each of the two 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 Nashua, N.H., test store, 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 that the average TV ticket is 15 percent higher at the Nashua prototype compared to other test stores. Customers stay 35 percent longer at the plasma wall than at other test sites, 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 today during its 2006 Analyst Conference, where senior executives outlined a range of strategic initiatives focused on improving the company’s service offerings, in-store experience, multichannel integration and supply-chain operations during its current fiscal year.

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 services brand name in the second half of calendar 2006.

  • 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.

  • 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 from throughout the organization. Circuit City said the new framework should help improve the customer and employee experience, and that future tests at its so-called Generation C lab stores will shape the long-term implementation of the framework.

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