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Circuit City Finds Salvation In High-Tech Sales

Amid a brutal retail environment marked by sharp promotions and diminished dollar volume, Circuit City chairman and CEO Alan McCollough is taking solace in solid sales of new technology products.

During the holiday season, “the consumer retreated and didn’t live up to expectations” he told TWICE during CES. Compounding the problem for retailers was a promotional environment “exacerbated by extraordinary competition.”

But aside from $55 DVD players, $9.99 CDs and other low-priced traffic builders, Circuit City also enjoyed a “robust” business in big-ticket items like flat-panel TV.

“A lot of [opening price point] units went through the store, and a lot of high-end products did too,” he said. “New technology, complex technology all did very well. People were not afraid to invest in cool, new technologies.”

Indeed, McCollough believes that flat-panel displays will be the big story of 2003, thanks to the recent digital cable TV interoperability agreement between the cable and CE industries, softening price points, and the product itself.

“When the consumer comes in and sees the LCD and plasma displays in our stores, there’s a ‘wow’ reaction. Then they look at the price and there’s a ‘wow’ reaction to that. But prices will come down, and even small changes will help. I think the industry will be surprised by how much business will be done in flat TV.”

Not all categories will fare as well, however. Audio continues to suffer as people move away from traditional systems to home-theater-in-a-box, while digital satellite system sales “had to modulate” due to high saturation levels, McCollough observed.

And then there’s the “P” word: promotions. “Folks took steps to overcome the slow business and decided to be promotional to drive traffic,” McCollough noted. “But if people aren’t in the buying spirit, chopping prices won’t get the job done. You won’t sell additional quantities or see any share shift.”

But despite the seemingly self-defeating behavior, Circuit City needs to remain competitive. “We don’t want to be above the market [on promotions], but we see no benefit in leading the market down,” he said.

In other Circuit City matters, McCollough said he was “happy” with the visual look of the chain’s approximately 300 remodeled stores, although he is deferring comment on their performance — and a timetable for retrofitting the balance of locations — until a forthcoming financial update.

McCollough was also reluctant to offer a forecast for the new year. “I’m not an economist,” he said, “and even they were wrong. But you can’t be scared by what you can’t control.”