Circuit City Doesn't Have Enough Cash to Declare Bankruptcy 50 comments
-
Font Size:
-
Print
- TweetThis
Who's Next was the title of a classic rock album from The Who, of course, back in the days of vinyl records, but today when that phrase is mentioned, it's more likely to be referring to the list of troubled companies on the verge of bankruptcy.
Big box retailer Circuit City (NYSE: CC) may be next to declare themselves insolvent, although they are said to be pulling out all the stops to avoid that outcome.
Trading over $8 a share just one year ago, Circuit City's share price has been in steady decline and has fallen off the cliff lately to settle around 45 cents per share. Circuit City has, according to a Market Watch report, been in talks to secure a line of credit to cover operating expenses while in receivership (in anticipation of a bankruptcy declaration), but the lack of available credit in the current economy has left them with no takers willing to finance them through reorganizational bankruptcy.
This leaves the company with little choice other than scaling back operations and liquidating whatever it can for emergency cash. Initial statements suggest that 150 of Circuit City's 1484 stores in the US and Canada may be shut down. As recently as September you will recall that Circuit had announced a slowdown in the planned store openings for the coming year. It seems that wasn't nearly enough.
In addition to the closings, Circuit City may be liquidating up to $350 million in inventory, likely at fire sale pricing. If you're in the market for a big screen TV and you have enough cash left over after filling your gas tank, this might be your opportunity. This hints at one of the causes of Circuit City's troubles. During a period when Americans are uncertain about their personal income, and when they see their net worth falling everyday not only with real estate values, but also with falling 401k and other stock market investments, they are much less inclined to purchase high ticket luxury items like fancy new appliances or entertainment systems. With companies like Circuit City now focusing on cost-cutting and reducing payroll, things are likely to get significantly worse before they get better.
Circuit City is perhaps the earliest and hardest hit by the current slowdown as they were already losing customers to competitors. Having fumbled around with redesigning store layouts and sales structures, Circuit City has been unable to find a retail model that draws customers. No detailed estimate of the number of employees likely to be released was available although the Associated Press, citing unidentified sources put the number in the thousands. My own estimate, based on 150 stores shutting down would put the number between four and five thousand workers. If the remaining stores and corporate operations also pare staff the number could go higher. Circuit City currently employs about 45,000 people, although that number includes both US and Canada operations.
It is not known how many of the reportedly closing stores are in the United States and how many are in Canada. However, one has to wonder how much of an effect this sort of spill over of US economic troubles will have on Canada going forward. If other multi-nationals begin paring operations there as well, we could see the two trading partners reinforcing each other's decline.
Disclosure: none
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 50 comments:
Unlike the Ultimate takeover, where in hindsight Mark Wattles regretted the company's bankruptcy largely because it cost him a lot of extra loot to redeem the company's name, Wattles and his co-horts will definitely take Circuit down the tubes. Circuit City has a horrible reputation in all aspects of the retail business world ... their brand is so bad that it would be worth the millions required to change the name, if anybody wanted to pick up the pieces and rebuild that company. Circuit City didn't just have a short run of bad luck or a couple management errors. They have been the poster child for 'How Not to Do Business'.
Personally, I cannot wrap my mind around whatever a day in the life of a Warren Buffet or a Carl Icahn might look like. I can't imagine what their phone calls might sound like, etc. Phil Schoonover (Circuit's former, now departed CEO) on the other hand, gives us all a great deal of hope for our futures ... he is a complete moron, and rose to the top of a multi-billion $$$ company.
Circuit's hole is so deep, no rabbit can possibly jump out. Their balance sheet is redder than their storefronts. The bankers who have existing agreements with them are huddling in meetings, weighing the options. I predict they will decide to accept any penalties for bailing on their deals with Circuit, rather than go down with the ship. The vendors are in a quandary, because the orders for other retailer's holiday inventories were concluded weeks ago. If they pull the plug on Circuit's credit line, they have few alternative options for offloading their products. No sane, knowledgeable observer would suggest that Circuit will have even an average holiday season; but on the other hand, dismal sales beats zero sales. However, if even a single vendor blinks, the rest will follow like a house of cards falling.
Last year, Schultz Asset Management gave Circuit a transfusion to float 'em through the 4th quarter ... this year credit is a tighter scene for all, and so there won't be any manna from heaven for Circuit. (Even if there was, Wattle's henchmen will torpedo the deal, now that they are running the board.) Look for posturing among guys like Icahn and Keyes, expressing interest in ownership, to divert attention from Mark Wattles. They are his buddies, and they will pretend to be interested in Circuit, to ward off other possible suitors like Sears. Wattles' style is to pay pennies on the dollar for things, and here comes another fire sale. Bankruptcy is the best viable option for whoever wants to acquire Circuit, because they have made such a huge number of stupid decisions; the only timely way to back out of them would be to let the company die and then pick the meat off the bones.
Well put. I, too, have watched this company implode, and now the only thing left is to let it expire. It's been on life support for 2 years now, and major organs are beginning to fail.
As far as which stores would close, the Canadian stores are small (1200 s.f.) and wouldn't present much in the way of savings. The best way to stop the bleeding is to close large stores in the US that aren't profitable now.
But then there are those pesky lease termination costs.
Good for the consumer, bad for the investors.
.I have also been to the stores and was outraged at the condition of the stores.Totaly unapealing to shop at.
The Corporate office has lost site of the status of there stores.
Corporate needs to shut down locations that are disasters.
That might help.
It's too far away from shore to fix the hole at this point.
Blub, blub, blub, blub ...
If you take a tour through the hallways of the corporate offices in Virginia, you'll oserve layer after layer of redundancy. The keeper-of-the-pencils hands them to the sharpener ... who then sharpens them, and takes them down the hallway to the user-of-the-pencils ... who then decides to send the project to the person who uses the pen instead. Then, the keeper-of-the-pen must be summoned.
It's like watching a union railroad job; four or five people, watching one do the work. The new ownership will slice payrolls like the Grim Reaper and make the remaining few work harder.
Someone said that 3,500 people 'work' at HQ in Va.
Now I ask you,
With 45,000 employees spread over 1400+ retail outlets, why does the company need nearly 8% of its workforce at HQ?
The company could probably get by with a third of them.
Thank you for the earlier compliment. Your own commentary is right on target.
Labor costs, as a concept, are totally disrespected at Circuit. Over the last 7 years I have observed instance upon instance of mismanagement of their people. The fat at corporate is mirrored by the waste at the store level. Today at Circuit stores everywhere, they have 'stocking teams' that restock product, set merchandising planograms, and build displays. These employees don't service guests or ring sales ... and the sales help is often forbidden to assist with the merchandising in any way, even though customer counts are dwindling and they stand idle most of their shift.
From the bottom, to the ivory tower, there's a culture of "That's not MY job."
About seven years ago Circuit changed the compensation plan for sales employees to an hourly model, rather than commission-based. The top performers (who also created the most revenue & profits for the company) were dismissed for 'making too much money'. The bottom feeders were shown the door ... a good move in any business ... and the middle were offered a low hourly wage. Since then there have been several ill-conceived initiatives that were designed to lower labor costs, but resulted in scuttling employee morale and becoming noncompetitive in the customer service arena.
Best Buy has only average customer service on a good day. Unfortunately for Circuit, average service always trumps poor-to-nonexistant service. The people who steer the ship there are sooooo far behind in the race for retail understanding, from where they are at it might appear to them, that they are ahead.
Latest case-in-point, hot off the cubicle-sitters think-tank: The One Price Promise. I suppose one of the geniuses there decided to retire the previous price promise ... "If You Catch Us in the Act of Screwing You, Then We'll Match Our Own Website."
It's my pleasure, and thank you for reading my posts.
The One Price Promise is a joke. I work at BBY, and we've been price matching ourselves for nearly 10 years now.
Most, if not all, other retailers do it too. Why these guys think it's a new thing eludes me completely. As I commented elsewhere, it's like saying "What is an iPod, anyway?" after 160 million of them have been sold.
Volume is up but the price is 20 cents. What do you make of that?
Yeah, but why throw good money after bad? He bought in at $11, I think.
Mark spends $40-50 million on a big play like this, about as easily as we might decide what to order from a restaurant lunch menu.
I can't say how ... but I know Mark well personally.
You're right in that any move up from here is a huge percentage gain.
The problem is who would pay more than 20 cents for the shares now?
The par value of the shares is 50 cents, so the market is even discounting the paper the stock is printed on.
If the company files a chapter 11, they would received debtor in possession financing to keep the business going through the holidays, or until a reorganization plan is filed with the bankruptcy court. After that, the court would have to approve the reorganization plan. If it didn't make sense, the company would probably liquidate, and current shareholders would be wiped out. Although you could argue that they're almost wiped out now, anyway.
This took entirely too long. They could have walked away with $6/share if they had taken the Blockbuster offer back in the spring. But the company didn't open its books, and Blockbuster withdrew its bid.
That, combined with the brand destruction, has brought us here.
Having Mark Wattles in your circle of friends is impressive.
But I'm puzzled about what he plans to do with the carcass. Merge with Ultimate Electronics?
Quickdraw's analysis is persuasive, but I don't agree with it. First of all, Phil Schoonover is a great fall guy, but the damage was done well before he got there, as Circuit failed to address the Modified Warehouse business format of Best Buy in a timely fashion. By the time Schoonover was brought in (from Best Buy, and to apply Best Buy strategies to Circuit), Best Buy had already moved onto their "Customer Centricity" model and Schoonover's marching orders from the Circuit Board was to ape Best Buy as best he could. This was a nearly impossible task, as Best Buy executes their plan quite well, so there has been no need for a competitor doing the same thing. Combine that with an unprecedently bad CE selling environment and you have the train wreck you see now.
Circuit has a superior web site to Best Buy's and their buy on the web, pick up in the store model far surpasses Best Buy's. Circuit's site was created internally, while Best Buy's is outsourced. This has to be scored a victory for Schoonover. In the end, CircuitCity.com may be the most valuable part of Circuit.
This was a company who had no plan, then brought in a CEO with marching orders to execute a competitor's plan, and do it in a disastrous selling environment. Phil Schoonover is a smart, engaged guy who just couldn't execute the plan. I'm sure, in retrospect, he wishes he stayed at Best Buy, where he was highly regarded.
The CE landscape is over-stored, so it would be "convenient" for Circuit to go away, but I am not so sure as the commentors (and the author of the article0 that it will be anytime soon. Their problems are deep, but fix-able.
Why do you think they will be able to fix the problems you've identified if they run out of cash before the holidays?
I don't generally quote Jim Cramer, but he has said that good companies don't let their stock fall into penny a share territory. You could lose all the money you put in, if the company is shut down (either by the creditors or management).
I'd stay away and do your own research on the things that matter--sales growth, profitability, balance sheet structure, debt levels, commitments, and market share.
Only if you have money you won't miss AT ALL, go right ahead. But that's just me.
Mark Wattles is not a 'friend' of mine. Recently a business associate, only. I say what I've commented upon here, based on conversations and personal insight after enjoying considerable face time.
To Flatearth
You probably mean well, but are obviously underinformed.
Phil could be reaping the rewards for good decision-making ... if so, then he would be the first to accept the kudos. Instead, he piloted the trainwreck. Everybody gives him the negative credits due. Your view that he was not really in control is a limited vision.
Their other assets need to take haircuts, too. A sober assessment of a liquidation scenario as of today pays the noteholders 80 cents and gives the shareholders a boot to the face. When they finally get around to liquidating it will probably be worse. If you buy this stock here, you're either gung ho on some kind of turnaround plan (there isn't one) or you're hoping for a quick profit on a random bounce.
Summary: there are more exciting penny stocks - and table games - to gamble on if that's your thing, there are better retailers to lose money on if you're the sort of masochist who buys retailers, and there are better sectors to invest in (automakers? aviation? flushing your money down a toilet?) if the concept of profit appeals to you. The only reason to buy CC is to get the certificate and frame it for the hall of shame.
Well put. If you recall, the company did take a $73 million haircut in the second quarter, calling it a non-cash 'asset impairment charge.' What I'd want to know, if I were one of the lenders, is which assets were written down, and how much more is left to discount.
If they write down too much, their net worth will fall further, and they may find themselves in default on the existing credit line.
If the banks want to play hardball and restrict draws, CC is done.
CC is up 5% so far today, in stark contrast to the rest of the market.
But that means it's up from 20 cents to 21 cents.
I'm still not sure that this is a buy signal. As bearfund stated, at the end of the game, the stockholders are kicked in the teeth.
That's actually not a bad idea, in theory. My question is this: Would you propose that firedog do the install/techie work in conjunction with circuitcity.com? TGT launched a similar service, providing installation on flat panel TVs and A/V equipment purchased through its website.
It was thought up by the guy that came up with Geek Squad.
So if there's any value to the firedog brand apart from the store network, perhaps that would be the way to 'unlock shareholder value.'
Good thought. Firedog (like web sales) has been growing faster than retail sales, too.
I'm really thinking of buying 100,000 shares should it fall to .15 or so.
if you know Mart Wattles maybe you could help me. I am intersted in working for him.
Last time I was in a Best Buy store their DVD's and CD's were depleted.. (lost market to online retailers), nobody was buying computers or peripherals... In fact, the local Best Buy has turned into the large screen TV store. Large screen TV's and dozens of salespeople hanging around the TV's asking if you need help.
Best Buy should change their name to Large Screen TV Mart. Actually, it's sorta scary to visit their stores... Reminds of something from an Orwell book... Walls lined with screens...
To see where this will all end up, look at the markets in Japan and the manufactures of LCD's -- not too good.
Me... I figure when our country goes digital, nobody will have enough money to buy a converter, even with the FCC coupons. I'll just pull out the old 1930's tube radio and fire it up as a reminder of the good old days -- Great Depression I.
Unless you're a power-player, senior management or board member type, then you won't be soliciting Mark for a position. If you were, then you'd already know how to find him.
Wattles enterprise is diversified. To name just a few examples: Waldo's Family Dollar in Mexico is a large endevour ... Manuel Clothing (exclusive designer western wear for the urban cowboy/cowgirl types) ... Firebird's restaurants (fine dining) ... and Ultimate Electronics (mid to upper-mid consumer electronics, appliances, and pool tables/home gaming accessories). Appliances and gaming are recent newcomers to that business plan, so it might be logical to expect a name change for that company sometime. Much of the time, a group of investor/management gurus run the empire under the name "Wattles Capital Management". The individual entities have their own tiers of management.
Your best route to any position would be to contact the Human Resources Director for the business that you find is your best fit, and go for it. You won't be interviewing with Mark Wattles.
It would be pretty easy to fix Circuit City. I feel pretty confident about this since I used to work there in Evansville, IN when we were commissioned salespeople and we made money. That, and my sales manager is now a VP. Several things:
1. Customers used to come to Circuit City because the salespeople there were knowledgeable and were able to educate them. This also allowed the well-compensated salespeople to "upsell" the customers into better and more profitable products. When I say well-compensated I mean it. I made over 60k in my best year there, most of it selling very profitable service plans.
2. Teenagers making an hourly wage couldn't care less if you (the customer) purchased something. They're being paid whether you do or not. When we were on commissions, customers were "attacked" by us because every customer was a potential commission. Once in a blue-moon we would get COMPLAINTS about multiple salespeople asking customers if they need help. Now, you have to beg for help. We used to make a killing toward the end selling them high-margin things like accessories (for example: the cables necessary to hook a surround sound system to a TV have EXTRAORDINARILY high margins) and service plans. Now, there are people reading this who will take me to task for aggressively selling these things, but that was where the profit was. I bought a big-screen TV just a few weeks ago and had to ASK how much the warranty/service plan was and WHAT CABLES I needed to hook it up. INSANE!! Also, if I know I am going to a store staffed with people who know NOTHING, I will research assiduously what I am buying first, and I may check every store in town to compare. A person with real selling skills will stop that customer from ever leaving his store... and that is EXACTLY what we did.
3. They took the power to negotiate prices away from the store management teams. There were numerous times when knocking $50.00 off of a big-screen TV got a service plan sale for $399.00 and about $150.00 worth of accessory sales. Do the math... taking that power away from the people who were on the ground was the stupidest thing EVER. Best Buy was about the only competition then... and they DID NOT negotiate, which gave Circuit a HUGE advantage. There is absolutely NO enthusiasm for anything in those CC stores anymore.
I think its just you and me here, most of the time.
I hope the winds of retail blow softly in your favor this upcoming selling season. Unlike the subject of the blog-line, BBY's senior management team are smart people who almost always roll with the punches, and maximize opportunities. You should be in a good place.
what do you think about CC as a buy at .25 cents a share ?? Even though many indicators are pointing against it, I feel like it's a good buy at such a low price.
I don't know anymore. Logic suggests that the company won't last long, but this isn't a logical market.
Par value is 50 cents, so conceivably you could buy in now and possibly get par if another company retires the stock at that value.
I'm not that brave.
Thanks, and I'm not on commission, but promote the benefits of service plans, installation, and accessories with every sale.
I wonder how BBY can train its people to do that, yet not pay them commission?
In my case, I prefer a noncommissioned atmosphere because employee relations seem less strained.
Customers seem to respond positively as well.
In the CE business, most other retailers pay some commission (appliances too). But none of them have the sheer power of BBY to alter the landscape.
BBY is probably the WMT of CE. And it's getting stronger, because it actually makes money.
-Ben C. store 0711
I applaud your wish to completely satisfy your customers, and I'm guessing your store will remain open.
The chain itself isn't making money, so I question your comment about how 'Ccity is making profits.'
Have you read the financial statements?
-Ben C.
Let's see...
Market share has been falling for five years, sales have been dropping for three.
Many stores are in declining malls, with poor visibilty and foot traffic.
The company is paying lease termination costs on stores that have been vacant for years, because in the pre-Schoonover era, leases were struck with 10 year terms, instead of the more normal 5 year terms.
The motivation for the landlords? You have a guaranteed cash stream for 10 years, regardless of how well your mall does. Perhaps that's why there are so many empty CC boxes strewn about the countryside.
The new credit facility that's in place paid off an earlier one that contained financial covenants. Since there was no incentive to improve operating performance as set out by the credit agreement, it gave the company no hammer in case results faltered. Results faltered, and the banks now have more invested than the stockholders.
The investment community has discounted the stock to 42% below par value.
In other words, the decline and fall of CC began before Schoonover took over. Now, the credit agreement was negotiated on his watch, but the long-term leases, product mix, vendor selection and slide in performance started long before he took the helm.
Not that he helped.
I'm struck by how fiercely people are defending CC.
Like a bettor who is down $5000, but still puts his chips on black because 'he's due for a run.'
I don't see a lot of potential with the future of CC. Perhaps a regional footprint would make more sense. Outsource the distribution piece (there are a lot of logistics companies out there that would love this deal), pay off the old leases (with DIP financing if necessary), pare down the HQ staff, close nonperforming stores, liquidate the associated inventory, and maybe, just maybe, the $200 million shelf registration would then get some interest on Wall Street.
Otherwise, it's just a further muddling through, until an antsy vendor stops shipping. Others will line up after them, and the end will come swiftly.
But that's just me.
Yes, Circuit City's stocks are plummeting, but a lot of it has to do with the filth that comes out of people's mouths when they don't have adequate perspective. Since I've been here, I've watched this store go from "I don't care!" to "How can I help?" Corporate is top-heavy. They concentrated on the wrong things for too long. We have a new CEO, and that helps, but what Circuit City really needs is store-level honest-to-God-genuine "I care." Instead of worrying about how much we're paid and what we're paid for, we need to worry about the customer. As far as people who put us down, how about you stand in our shoes. Some of us will go down with this ship, or sail to brighter waters.
1. Dropping appliances. I have no idea why, but that seems to possibly have been a huge mistake. They gave up a billion dollars of revenue and didn't replace it with anything. Foot traffic maybe? No idea, personally.
2. Getting rid of real salespeople. It is a fact: you cannot "cut" your way to profitability unless you manufacture something. A service based industry needs excellent salespeople.
3. Hiring teenagers. Teenagers are unreliable. I was a manager at Best Buy before I went to CC, and managed lots of teenagers. They don't care about anything except getting off as early as they can... and they certainly couldn't care less about the company or it's customers. No successful company is staffed with teenagers as it's salespeople.
You identified three major things that brought the company to its knees, and I'd like to expand on them if I may:
Dropping Appliances--The company did that in 2001, just before the greatest real estate boom in history. How many appliances could CC have sold during the RE boom years?
Cutting the top salespeople--Jack Welch, former CEO of GE, used to cut the bottom 10% every year. And every year, revenues, profits and productivity rose. When you cut the top tier, two things happen: 1)You lose their expertise and knowledge; and 2) people below them see there's no reason to improve, because if they're too good, they'll be gone.
Hiring teenagers--I couldn't have said it any better myself. I work at BBY with a lot of teenagers, and most of them do the work that they're asked to do. Some, though, just take up space, and care more about the new movie that's coming out than the customer in front of them.
I haven't been saying that all the CC stores are poorly run and unprofitable. Only some of them. But those stores are bleeding the company of its cash, and the only way I see to stop the bleeding is to identify and close those stores. After that's done, the remaining chain would probably be a good little business for someone to run.
it's obvious from some of the posts here that there are still reliable, dedicated and caring employees at CC. to those of you that count yourselves in that group, my heart goes out to you. i cant imagine the frustration that you have to be feeling right now. "no skin off my back" only works if you really dont care, or you're rich enough to not have to care (as in the people making the top decisions that got CC to where it is today). yes, it's cathartic to post complaints about a company when your last experience with them didn't go the way you wanted, but you cant take those gripes personally. upper management sucks. that's not your fault either. unfortunately, through no fault of yours, the future of the company is in serious peril. you can do your level best, but the problems inherent in the company still transcend your ability to fix them all. that's not a slam on you at all, but i hope that you're not trying to convince yourselves that a fairytale ending will appear out of the fog just by virtue of your sheer will and the universe's ultimate sense of fairness. at very least, i hope that all the posts that are pissing you off will convince you of the real possibility of an unhappy outcome and the importance of having a plan 'b', should that unhappy outcome become a certainty. the human costs associated with an end to CC are very real, especially for you all, but that is only a part of the whole price to be paid. after all, this website and this article are more about CC's situation as it relates to the investment world. thousands of investors have already paid a hefty price. i've never owned CC stock, but if i did, i'd be demanding blood on the streets of circuit city. having said that, CC has impacted my life and it bothers me to see them continue to do things wrong, promise to do better, screw more people over and repeat the whole process again and again. put in its ugliest terms, jobs lost at CC will be regarded as collateral damage. wall street wont care, the banks wont care, the executive wont care, your landlord wont care, your creditors wont care. i wish you all the best of luck, but if you see a chance to make your own luck, please dont pass it up!
I loved Circuit City
Oh Well
YOGI
Store 0420
And just who will be the first vendor to blink, in the Circuit City bankruptcy games? The award goes to: Sony!!!
This 'little birdie' sat on my shoulder and told me some interesting news. All of the Sony trucks headed for CC were told Thursday, to turn around and head 'em back to Sony. No baloney ... Circuit gets no Sony. My 'little birdie' is always right.
As I stated previously, watch the house-of-cards fall quickly. All other vendors are scambling today to follow suit. The Fat Lady is hitting the crescendo.
And to billdrummer:
Yes, I too was struck by the number of people who were defending CC here, but I completely understand. Loyalty is an admirable trait, and is combined here with the personal feelings about one's job (and financial livelihood) that make it hard to be objective. My heart goes out to the thousands of employees who are about to receive some very bad news, at a most unfortunate time of the year for them and their families.
thanks for the update! wow...we knew it was coming, but it's always a bit of a shock when somebody finally pulls the trigger. it was really only a matter of when, wasnt it?! now the question comes down to how fast the whole thing unwinds. do they go out with a bang or will it be like watching a tire go flat?
I contend that the end began when CC (under pressure from the Music Companies) let Best Buy off the canvass and raised its prices on CD's in the late '90's.
BBY re-grouped with the aid of Anderson Consulting. They re-designed their stores and went after "A" real estate just as Rick Sharp, CC's CEO lost his focus and turned to doomed businesses like used cars, commercial appliances, HVAC, DIVX, ZOOM, etc.
After forcing Richard Birnbaum ( the last top guy who really lived and loved the business) out, the die was cast.
Allan McCollough took over as CEO and made one disastrous decision after another. He fell for the GE myth and that led to an influx of sociopathic "Snakes in Suits", crazy political gambits like backing Bob Dole and Newt Gingrich, an growing fleet of private jets, exploding Exec Comp packages based on stock appreciation, etc. culminating in the exit from Appliances as mentioned previously.
Leaving the field as the second biggest consumer appliance retailer left the company without a summer peak business and made it totally dependent on Christmas sales.
Out of ideas and out of time, they blew their brains out in Jan 2002 by collapsing their field Divisions and management structure based on some poorly understood passages in a book by Michael Porter and in a desperate attempt to bolster their post 9/11 prospects.
The stock in Jan 2002, at the time of this blunder was $60, having clawed up from a 2 for 1 split at $100. Six months later, with no way to comp the Air Conditioner and Appliance sales, it was at $6. That's when they realized that the games and peripherals they put in the appliance spaces did, in fact, have good margins when new; but they had the shelf-life of fresh fish.
By that time, the lunatics were on the path. Promotions and titles flew as they flopped and failed, Yes Men were promoted and fired and the Deep Run Headquarters got nicknamed "The Russian Front". The passion for the product and concern for the customer were gone. Deep Run III was emptied out, Bain Capital roamed the halls looking for people to fire, and fear became the basic state.
Buyers like Carlos Slim might have turned it, but instead they turned to Phil.
Ending the commission era was the right track, but they took the wrong train. CC was a famous and successful poacher of retail talent. A consequence of this was high staff costs, but high quality staff was also the engine that allowed attachment, and sales of ancillary services.
The sucking sound started when, losing sight of this advantageous differentiator, they decided labor was a commodity and fired their highest paid Associates.
Well, it's good and done now. You can stick a fork in them. SONY always hated CC for spiffing and selling junk and disparaging its products.
It's fitting that they administered the coup de grace.
It couldn't happen to nicer bunch of guys.
Good riddance. It's just a shame that so many people had to suffer the collateral damage.