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Flat-Panel Woes Prompt Moves At Circuit City

2/12/2007 02:00:00 AM Eastern

Circuit City has overhauled its corporate structure and will close stores in the United States and Canada in a dramatic bid to improve its financial performance.

The company said it took the actions in response to the profound price and margin declines in the flat-panel TV category which have severely crimped the company's profits. The No. 2 CE chain had made advanced TVs the pillar of its merchandising strategy in its attempt to recapture market share.

The reorganization consolidates Circuit City's reporting structure by placing David Matthews, formerly president of Circuit City's multichannel direct sales operations, in a new, unnamed uber-post overseeing the company's merchandising, marketing, services and supply chain teams.

Similarly, executive VP George Clark, formerly president of retail sales, has been given responsibility for all retail channels, including all domestic and international retail stores and Circuit City Direct, as multichannel sales executive VP.

Doug Moore, executive VP/chief merchandising officer, has left the company.

The moves, the company said, were designed to improve execution and accountability, better align all retail channels, and better coordinate its merchandising and marketing functions.

"We have reshaped the larger organization, bringing all retail channels under one leader and all merchandising, services and marketing efforts under another," said president/CEO Phil Schoonover.

Schoonover said the company has also taken steps to "fundamentally realign our businesses. To increase speed and limit bureaucracy, we have restructured key business teams and cross-functional structures that are responsible for the day-to-day operations of the company as well as support our longer-term strategic direction."

Schoonover said the management changes will "foster improved teamwork and execution while driving accountability across the organization. I believe that world-class multi-channel retailers need to offer a seamless experience to their customers."

In addition, the retailer has accelerated the timing of planned initiatives to improve sales and gross margin and improve the efficiency of its expense structure. The first phase includes the closing of seven U.S. stores this month; a distribution center in Louisville, Ky.; 62 The Source by Circuit City stores in Canada; and Rapid Satellite, an online seller of DirecTV services that was acquired in 2005 and had since been put on sale.

The company said the U.S. stores are older-format units that are being closed for "brand image reasons," but are also either cash flow negative or very low-volume, low-cash flow locations.

Circuit City expects to incur upwards of $105 million in the fourth quarter of fiscal 2007 as a result of these actions, and is developing other initiatives that it expects to implement over the next six months.

"The steps we are taking today represent the initial efforts toward getting our cost structure more in line with today's marketplace," Schoonover said, which is characterized by the "intensified gross margin pressures that we saw in the third quarter within the flat-panel television category."

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