Circuit City Blows a Fuse 9 comments
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Let's check in on one of my favorite whipping boys: Circuit City (CC). Needless to say the news isn't particularly good:
(From the FT): Circuit City, the troubled US consumer electronics chain, is taking urgent steps to keep its business afloat even as the holiday shopping season gets under way, saying it will close 155 stores and cutting 17 per cent of its workforce.
The closures of around a fifth of its stores underline the bleak holiday outlook for many retailers this year, following the blow to consumer confidence delivered by the turmoil on stock markets that began in late September.However, Circuit City was in difficulties even before the financial crisis, and has been struggling for more than a year against competition from its rival Best Buy and from Wal-Mart and Target, the discounters, who have been enhancing their electronics offerings.
In September, it announced another quarter of falling comparable sales, and said it was launching a review of its business under a new chief executive, James Marcum.
It said on Monday that subsequently some of its suppliers tightened payment terms, in some cases declining to extend additional credit to the retailer for holiday demand. It also said that conditions in the credit markets had also made it impossible for vendors to secure credit insurance for shipments, and that some had started requiring payment in advance.
“The current mix of terms and credit availability is becoming unmanageable for the company,” the company said in a statement.
Mr Marcum said Circuit City’s problems had been aggravated by “unprecedented events…in the financial and consumer markets causing macroeconomic trends to worsen sharply.”
“We are making a number of difficult but necessary decisions to address the company’s financial situation as quickly as possible,” he said.
At the end of the day the story around CC hasn't changed much: they're struggling to make money in a market that's proven to be quite lucrative for their competitors, and they've yet to make the necessary changes around customer experience, store layouts, branding, etc, in order to turn things around. What else can you say about a company that is losing money selling nearly identical items, at similar prices as its profitable competitors?
What's happening (at the moment) is that the inability to finance inventory for the coming Holiday season has left Circuit City with no choice but to close down stores, because generally speaking most retailers would rather try and pull out all the stops for the holiday shopping seasons before they start closing down stores. But when faced with difficulties in procuring inventory for the coming holiday season, CC was left with no choice but to close down weaker stores and focus its limited resources on the rest.
All that being said it's important that we don't look at Circuit City as a victim of current times because they've been struggling for years, if we currently had boom era credit markets all that would mean is that CC would be in this position a couple of quarters down the line as opposed to now.
Moving forward I just don't see how CC survives because their currently weakened financial state has them scrambling to find ways to finance inventory, which won't leave them with the resources to make the required internal investments to turn the company around. In the end it's probably just basic human nature: it's hard to think about home improvements (no matter how necessary) when you're struggling to survive.
Their other problem (perhaps the biggest one over the next 3-4 months) is that the coming holiday shopping season is looking to be an abysmal one for retailers, and CC is going to have to contend with deep discounts from competitors (who can afford to offer them) and fewer shoppers overall.
I.e., it's virtually guaranteed that despite it all CC will lose money this holiday season (just like last year's), so how will this company continue to operate after turning in a loss during the most profitable time of the year for retailers?
You can read more here (FT), and a transcript of their last earnings report here (Seeking Alpha).
View the full CC chart at Wikinvest
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
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This article has 9 comments:
If I want to have (and can find) an ignorant sales person whom was only hired because they had a pulse, I go to Circuit City.
If I want endless hoops and red tape when it comes to every rebate denied, I go to Circuit City.
Bottom line: Treat the customer like trash, go out of business.
Wow. Just....wow. You usually have to watch the Republican National Convention to see ignorance and idiocy (not to mention nightmarish grammar) like the crap you just spouted.
If I want to be ignored by every salesperson I walk by, I go to Best Buy.
If I want to get tossed back and forth between salespeople and managers to get a semi-intelligent answer to a question about a product, I go to Best Buy.
If I want to get screwed over by unqualified computer technicians who are nothing more than glorified salespeople with automated tools on a flash drive, I go to Best Buy.
Shop online then, and cut out the useless personal interaction.
I know because I've been on both sides of the fence.
The only reason Best Buy is profitable and Circuit City is not is because Best Buy has better upper management and genuinely care about their employees.
That's a lot of it, but not all.
BBY trains its employees to care about customers. CC fired the employees who did.
The customer's experience is important at BBY. The customer is an afterthought at CC.
But I will agree with you that BBY has some really smart people at the top, and they earn all the millions they do because they're smart. If things don't always work the first time out, they refine them until they do. (BestBuy Mobile took two years from idea to launch, just to give you some perspective.)
I'm proud to say I work there.