For Circuit City, holidays not looking happy

While many retailers are understandably nervous about what this holiday will bring, none is likely more so than Circuit City.

Blockbuster rescinded an offer to buy the beleaguered chain earlier this year and its CEO stepped down in September. Its stock has been languishing below $1 for long enough that the company has been notified it could be delisted from the New York Stock Exchange. And now the company has been forced to close 155 stores right before the crucial holiday sales period because of the dearth of credit available in the market right now.

(Credit: Circuit City)

For all intents and purposes, it appears the nation's second-largest electronics retailer is on the verge of disaster. Even if this season's sales results end up not being as bleak as some are predicting, it's unlikely even that could save Circuit City at this point. Circuit City did not respond to a request for comment for this article.

Though Wall Street analysts who watch Circuit City closest aren't ready to go on record to go on a death watch for the electronics chain, suffice it to say, its pulse is getting weaker and things aren't looking good.

The global credit crunch is hurting Circuit City in particular. The retailer buys TVs, stereos, laptops, and other gadgets on credit, usually at a good rate from vendors with the promise to pay it back once the company sells the goods in its stores. But as the company has racked up huge losses, vendors are not giving Circuit City reasonable financing rates. Though Circuit City hasn't come out and said so, some vendors could be convinced altogether that the retailer flat out won't be able to pay the money back and could decline to send Circuit City any products at all. At that point, it becomes almost impossible for Circuit City to operate.

Because of this, the business model of Circuit City and other electronics retailers doesn't work without very fast growth. And sales of many of the big-ticket items like notebooks, flat-panel TVs, and even gaming consoles (it's the first year in awhile there won't be a hot, new, hard-to-get console), are tapering off.

No doubt, the slumping economy is causing some consumers to be more conservative about purchases this year. Consumers polled by the Consumer Electronics Association say they plan to spend $200 less this year than last on holiday items.

Add to that a fundamental shift in the way media is consumed--more online video and digital downloads, slowly moving away from packaged media and accompanying players--and the future of the electronics retail business doesn't look so bright. As prices drop, it gets harder to grow business. And without that growth, it's impossible for Circuit City to pay back those loans, much less suddenly become profitable, said one analyst who asked not to be quoted.

In the meantime, Circuit City is closing some stores and renegotiating lease terms on some of its store locations. Shutting the stores will save money in the long run, but the company needs cash and especially credit now.

Liquidating those stores, or selling all of the products in those stores at closeout prices to a liquidating company, should bring in some fast cash. However, Circuit City still has to pay the vendors for their product. Without some sort of margin on the liquidated product, it's unlikely the liquidation will have any immediate positive impact on the company's current financial plight. If the company doesn't bring in a decent profit this holiday, 2009 could bring about bankruptcy for the chain.

Circuit City is, of course, not alone in its struggle to keep up with the changing retail electronics business. Specialty electronics retailer Tweeter succumbed last week, and in early December last year--right in the midst of the crucial holiday season--CompUSA announced it was closing up shop.

Buying a lot of products on credit up front means retailers are stuck with paying the bill even if consumers don't buy the products at the price they paid. As a result, retail isn't a particularly forgiving business for anyone even if they make one mistake, said Stephen Baker, who follows the retail electronics business for the NPD Group.

"The supply chain and the way (products) go to market continues to reinvent itself. It puts more pressure on retailers," he said. "And they have the least flexibility and are culturally the most resistant to change."

[adam_hartung]

Does anyone remember that Circuit City, just a few years ago, was the best performing company in Jim Collins' book "Good to Great"? Obviously, Mr. Collins' approach to management is worth some reconsideration given the fall of Circuit City. It would seem a new approach to management would be worth considering. Read more at http://www.ThePhoenixPrinciple.com

[rexworld]

I've bought frequently from the store in Antioch, TN, which is on the closure list. And while I hate to see anybody lose their job, frankly the employees of the Antioch store needed to find another profession anyway. Because they sure weren't good at retail, they were largely an indifferent bunch. On a couple occasions I tried asking for help and on both occasions walked away about fifteen minutes later because they hadn't been able to find anybody who knew that section of the store. And once I walked out the door I just went 150 feet to the nearby Best Buy and bought what I needed there.

I tried to support Circuit City, because I think it will be bad to have a single category leader (Best Buy) with no real competition. But Circuit CIty didn't know how to run its stores, and more importantly did not know how to staff its stores with the right kind of people or how to train them properly.

[grvdog]

I agree WHOLE HEARTEDLY with everything you said rexworld! Circuit City reminds me of the way the employees at Radio Shack used to be in the '70's when I hung out there as a kid,...at 15, 16 years old I could tell their customers WAY more than the sales people could. I used to stand around and wait for a salesman to be trying to look something up in their catalog he had NO CLUE about...I'd tell him within seconds from memory the approx. page the item was on and immediately start spouting out all the specs in front of the customer. I did this for a reason, they hired pocket protecter WANNA BE's. They had the pocket protector, but that was about it...Well, the years have come & gone and I own my own gajillion track digital recording studio and companies are still hiring the same slugs...Always wondered about Radio Shack, don't do much business there anymore, but when I have, the employees sure seem a heck of a lot more knowledgeable about their product than the wanna be future geeks of the Radio Shack of the '70's (Maybe THAT'S why circuit City is going out of business and Radio Shack keeps truckin' along!!

[adam_hartung]

Does anyone remember that Circuit City, just a few years ago, was the best performing company in Jim Collins' book "Good to Great"? Obviously, Mr. Collins' approach to management is worth some reconsideration given the fall of Circuit City. It would seem a new approach to management would be worth considering. Read more at http://www.ThePhoenixPrinciple.com

[letsgethightech]

I do give Circuit City credit for having the most amazing deals. When they have a sale, they beat Best Buy on great prices!

[mnsima]

Well, there you go. Relying to make sales on "sales" items... just don't do it in the long run for any companies. That's a narrowed margin not bringing enough cash to sustain operations. Best Buy does have higher prices than Circuit City, but I like the service better at Best Buy, so I shop mostly at Best Buy. Same reasons as why I DO NOT go to Wal-Mart, but prefer Target. For some folks, just cheap prices aren't kings. We also want to be treated better, and that comes with a price... :-)

[zincmann]

I dont care about service to be honest, I am self service, I know what I want, I dont need the 25 yr old kid that is about making his commission to show me the TV thats "HOT" or the Stereo reciever that he needs to sell one more to make his bonus for the month. As long as you have it in stock, I buy on price and price alone, I have done my research, I dont want to pay your overhead, so if you have the lowest price on the same item you get my business. So I think LOW PRICE IS king, service offer it to someone who cares.

[Xtoo]

For your information, no big-box store employees make any commissions program at the store level. They all are hourly and salary based. That is why the service sometimes sucks. For some its a career but for the majority is just a transitional job.

[grvdog]

I can agree with that

[huuu1962]

I think there are three categories of customer: those who know what they want and wish to pick it up and pay for it and leave, with minimal hassle; those who want to be handheld by a high-service salesperson, and those who have a question or two, and want the salesperson available to provide a competent answer and then to leave them alone. Circuit City doesn't provide any of those environments; they barely manage to staff the registers and keep the lights on. Salespeople who don't care about the customers breed customers who don't care about the store. Of all the things CC has done wrong, I think the way they've chosen to staff their stores is the worst.

[thelemurking]

Circuit City deserves this fate. More often than not, I see the employees just standing around talking to each other and they act as if they are astonished that I had the audacity to ask for some to either help me, or proceed to the check out counter so I can make a purchase.

I have never been in a Circuit City where the employees where friendly and helpful... it's almost as if it's company policy to hire the rudest bunch of applicants they can find.

[topnotch777]

I think they are just playing out the string, soaking it for all its worth. The vendors know the truth and the vendors have sent up red flags all over the place. I think its cosmetic at this point. The name is so sullied, no one wants to be associated with it. Circuit City is a lost cause. They are paying on 80 vacant buildings already so now add another 155 vacant buildings and you have 235 leases to pay for nothing in return. If I were a leaseholder I would die before I let them out of their lease. They have been scripting this whole scenario and soon they will go to bankruptcy and probably tell the shareholders, we tried.

[jb200486]

Heh, I am one of those employees that will be laid off as of soon. I really will have to agree with you guys on the change in service. I was hired in at 18, while I attend college. I was always taught when I first came that "customer first" that it didn't matter if they bought anything as long as they knew that they could come back and know they can trust and purchase something. Now, since Schoonover, and his mass firing's (I missed that by a dime), and his idea of being so forceful in sales that things have gone down hill. I was a part time employee that hated when things started to change, to be "shady" or to annoy people is just disgusting. I miss the old way, the way that worked, when I first joined up it was $26 a share, then at the end of 2006 it was at $36. Growth was great, then the company got greedy. Good Luck to C city, they are gonna need it.

[1kingsfan]

I've said it on here before...don't count Circuit City out yet. Unfortunately price is all people care about anymore. Pretty soon you all will be picking a tv or stereo system from a bunch of so-called specs and pictures without ever seeing, touching, or hearing the product in person. If service is what you want you should come by the Circuit City in Nor Cal where I work...no one there wants us to go out of business and EVERYONE in my store cares about taking care of the customer. The worst thing Schoonover ever did was let go the employees who knew best. Who the hell in upper management has any idea what goes on at the store level? We've slowly but surely built up a decent customer base and we've hired people based on skill - not on the bottom line - so hopefully things will turn around in the future. And JB200486, sorry to hear about your store....but it definitely seems like you were one of those associates who everyone rants and raves about. When we heard about the store closures I, along with the rest of my management team, were in tears. You seem to be agreeing with everyone else. Is it because you've lost your job - or because you never really cared in the first place?

[SCIOn_xB]

I work at a circuit city and I agree that circuit city had lost all of its customer first friendliness but now the company is refocused and has a new leader that believed in the way circuit city made there name...CUSTOMER FIRST! We now guarantee that every that comes into any circuit city store will have the very best service they have had from any retailer and if we dont have or carry the product we will find if for you even if its at another store. I believe in circuit city and that as a company we can pull through this. Hopefully people will notice this change in enough time to help the company out.

[rocketbaby85]

I started working for Circuit City in July; I just wanted a retail job with flexible hours so I could go to school. I thought it would be cool to work for an electronics store because I could learn about TV?s and computers and MP3 players. Boy was I wrong! First of all, since the company hasn?t been doing very well they don?t hire enough people to help customers and they definitely don?t take time to train associates. Also, shortly after I started we lost our store manager, our operations manager and our tech manager to better jobs and did they hire people from within the company who knew what they were doing? No, they hired from outside the company and they hired people who are unwilling to learn their jobs. I am constantly being asked how to do things only a manager should know how to do, and if I have a question there?s only like two people in to whole store who know what they?re doing and if they are off or at lunch or helping a customer I?m pretty mush screwed. This company really doesn?t know how to run a business. I can see why people would choose Best Buy over us and in fact, I might do that as well.

[mishmash0101]

CC shouldn't have to pay for its merchanise if it doesn't sell. Most retailers have terms with their vendors where the vendor guarentees to buy back unsold merchandise. Even worse is that CC most likely charged the vendors fees to place the items in the store in the first place or at least extracted fees for cooperative advertising.