Circuit City Is Overhauling Operations

By Alan Wolf On Jun 6 2005 - 6:00am




Circuit City unveiled a sweeping new business plan designed to return the company to a growth track and help it regain lost market share.

The multipronged revitalization program includes a renewed focus on core home entertainment products, particularly flat-panel TV; a multichannel market approach that more fully interweaves its retail stores, e-commerce site and a new direct-mail catalog; the rollout of in-home services; and an overhaul of its inventory, point-of-sale and other key backroom systems.

“There was a call to action to transform,” said executive VP/chief merchandising officer Douglas Moore. “Customers communicated that by not buying and vendors said 'You need to get a lot better.'”

The game plan, which also calls for active talent recruitment and improved customer satisfaction, was presented to equity analysts — and ostensibly the public — during a two-day analyst conference, here, which culminated in tours of its latest store iterations.

The event also served to introduce Wall Street to the company's recently installed management team — led by CEO Alan McCollough and president Phil Schoonover — which now includes Moore; retail stores president George “Danny” Clark; Fiona Dias, president of Circuit City Direct and newly named chief marketing officer; and supply chain/inventory management head Ron Cuthbertson.

On the product front, Schoonover said capital expenditures would be earmarked for the stores' TV and digital entertainment areas, which he described as the company's cornerstone. “Advanced TV is the stake in the ground for us. That's where it all starts,” he said, citing the added revenues from installation services, cables, furniture and extended warranties that TV purchases generate.

Schoonover noted that the company has already gained market share within the plasma display category by offering better financing and more opening price point options, in response to competitive moves by Dell, Wal-Mart and Best Buy.

Other key entertainment categories include MP3 players and satellite radio, all of which will be managed through a “portfolio, rather than a scattershot approach to buying,” Moore said. The company hopes to improve gross margins by increasing its direct sourcing, negotiating better vendor terms, employing auction processes, and eschewing low-margin categories that have reached commodity status.

Schoonover added that the chain will build upon its background in 12-volt installation to expand its offering of digital home services, including home-theater installation and IT support. The latter will be executed through its IQ Crew program, which will be rolled out nationwide later this year. Circuit City will begin a home services test this fall, with a full-scale launch slated for next spring, although it remains unclear whether that function will be developed internally or outsourced. Schoonover said the company's installation service would be faster and less complicated than those of CEDIA-type installers.

Another priority is boosting store traffic, which Circuit plans to goose with product drivers like flash memory, portable DVD players, blank media and promotionally priced DVD movie releases, and online efforts including emailed coupons and announcements of in-store events.

That multichannel link, which led to some $3 billion to $4 billion in in-store sales, will be strengthened by a further upgrade of its e-commerce site this summer, and the test launch of the company's first catalog during the back-to-school period, in order to create a “seamless customer experience,” Dias said, noting that multichannel shoppers spend five times more than those who only shop their brick-and-mortar stores.

The company will also begin to make better use of its 40-million name database, in order to identify and develop the most profitable customer segments.

Behind the scenes, the Circuit City will make a “significant investment in technology,” Cuthbertson said, including enhanced communications with stores, greater data sharing with vendors, improved forecasting, 98 percent in-stock levels on promotional items (and 97 percent in-stocks on everyday items) and the elimination of net-owned inventory. The latter, Cuthbertson said, would be achieved through a more efficient deployment of supply chain assets around key product portfolios, the replacement of core merchandising systems and tools, and the use of vendor-managed and consignment inventories.

On the store front, the company will continue to renovate and relocate its superstores, said chief financial officer Mike Foss, and has also introduced a new, smaller, 20,000-square-foot store format that's cheaper to build and can serve smaller trade areas and urban markets.

Concluded McCollough, “There's a tremendous opportunity to drive more sales through the box and change the close rate.”

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