Circuit City's Liquidation: Schoonover Could Have Saved It but Didn't

35,000 folks will lose their jobs..they can thank former CEO Phil Schoonover. What is sad is that it did not have to happen, there were many opportunities to save it. What Schoonover did should be criminal.....

The News:

Circuit City Stores Inc. says it has reached an agreement with liquidators to sell the merchandise in its 567 U.S. stores after failing to find a buyer or a refinancing deal.

The second-biggest electronics retailer in the nation says in court papers it has appointed Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC and Tiger Capital Group LLC as liquidators.

Calls to the Richmond, Va.-based company and the liquidators were not immediately returned.

Circuit City filed for Chapter 11 bankruptcy protection in November. U.S. Bankruptcy Judge Kevin Huennekens gave the company permission to liquidate if a buyout was not achieved.

In June of 2007 I said:

As a trade, any good news could vault shares up immediately. But, I do not see the conditions that could create that good news anytime soon. Maybe they could get bought out and that would cause shares to jump, but, I am reluctant to invest on the prayer someone rescues them. An Eddie Lampert, based on past history would just be as likely to wait for these buffoons to run it into bankruptcy and buy it there even cheaper than now. Why pay a premium to the current price when in bankruptcy he could get it for a fraction of it?

At their current rate CC will be out of cash before Thanksgiving and then the fun really starts. This assumes they do not start ramping up debt to pay for operations and also assumes no further economic slowdown. Should the economy slide even more, see ya...

Then CEO Schoonover then fired good employees to save costs causing sales to plummet, ramped up debt, lowered bonus levels for his hand picked executives, Spurned a possible takeover, spurned an official offer from Blockbuster (BBI), was actually interviewed by the WSJ about "how to execute a turnaround", tried some new platforms and had one of the most visited web site during the 2007 holiday season but due to high prices could not convert them to sales.

This news is the result....sad for those losing jobs.

Disclosure: None

Comments

[usblues:]

Its not surprising to see this happen. When i go into Circuit City, Best Buy, etc.. prices are always way higher than if you buy the same thing online. Often i'll go into the store, check out a product, and then buy it from Amazon and save 25-50% .. I've been using this site to find some good deals online:

www.zingsale.com

It's a free service that tracks prices of products from online stores (like amazon) and sends you an email when the price drops.

Jan 18 11:42 AM

[Inkfeather:]

People are going to lose their jobs but in reality it did not have much to do with the change in personnel.

If you went to Circuit City before the change in personnel you were greeted by arrogant employees who gave of the feeling that you were disturbing their conversation with co-workers.

Few of the employees were as knowledgeable as a consumer who had done research on an item on line.

After June all that changed is that management paid less to new employees who also spend lots of time talking with their co workers and who also were not as knowledgeable as the educated consumer.

Of course there were exceptions ... a comment as general as the above is not fair to every employee ... but in the case of Circuit City they forgot the first rule of business - the only differences between you and your competitors are price and the quality of customer service.

RIP Circuit City.

Jan 18 03:24 PM

[ChicagoJet:]

There were a number of mis-steps leading to the end of Circuit City, but most of you missed the major one. It was not the waste of millions of dollars into the failed Divx DVD concept. It was not the decision to exit the appliance business (just as Home Depot, Loewes and Menards exploded into the market; notice that Best Buy did not pick up any noticable portion of that market share). It also was not the public relations nightmare that you mentioned (the firing of 3400 of the highest paid associates) in 2007.
The real crux of what went wrong was before Schoonover was in charge. It was the decision to give up on the commission based business model in Feb. 2003, and not have a clear strategy of how to implement that change.
I am not saying that the decision itself was wrong. The Wal-Mart Effect and Best Buy were threatening the profit margins that fueled commissions. The buying public was voting (with their dollars) and proving that consumers were not staying loyal for better service and more knowledgable staff.
The problem was that the company did not know how to manage an hourly workforce model, and the field management was not given enough (or proper) training and/or guidance on how to make that switch.
Feb. 2003 was when Circuit City cut it's "Best" employees, not 2007. To be brutally honest, a lot of the associates that were fired in 2007 were over paid, in relation to their productivety.
The field managers did not know how to attract, and motivate their workforce with out spending more money than the market justified.
These mistakes not only took their toll on the hourly associates, during the next 2 to 3 years, the turn over rate with in the field management skyrocketed also.
This was the major cause of the demise. There were a number of other contributing factors to be sure, but this is where it truely started.

Jan 18 04:44 PM

[dieuwer:]

It seems people are snapping up products are Circuit City stores just because "Liquidation Sales" signs are out!

kotaku.com/5133983/the...
www.alleyinsider.com/2...

Perhaps Circuit City should have had a "Liquidation Sale" every so many months, they would be still in business...lol

Jan 18 05:01 PM

[CC guru:]

Another poorly written article by Todd Sullivan. I have no clue why this guy hates Schoonover so much. Did Schoonover do a poor job? Yes. Did Schoonover have the experience for the helm? No. Did Schoonover get involved with a company that had countless problems that kept getting swept under the rug way before his time so when he came into the position he inherited them. Most definitely. While Schoonover did make some bad calls, I think we need to also point the finger at 10 years of bad management. Oh and if you read this Todd, spurning a deal from Blockbuster actually isn't a bad thing. Blockbuster is the next major retail to go under. Good luck to all the CC employees and anyone else who is in a position within another company that is now unemployed.

Jan 19 09:43 AM

[AR:]

If the Circuit City stores around the nation were anything like the store in my town, liquidation was a long time coming. There is not one positive thing that could be said about their customer service. Not only could we not find an associate to get access to locked items, we would be ignored while WAITING AT THE REGISTER! If I did decide to give them another chance I would only be met with more disappointment. I think my town can only benefit by freeing ourselves from the dead weight of Circuit City.

Jan 19 09:48 AM

[Quickdraw:]

Regarding your observations on Todd Sulivan's comments about Phil ... I think your term 'hate' is a bit harsh. I believe 'contempt' would work here ...

Phil would have loved to reap the kudos, if there were any. He was certainly in position long enough to effect change at Circuit. Phil is a moron who was 'way over his head' at BBY, and got out while short-term results said otherwise. His short-sightedness was eclipsed only by his own sense of self-importance. Circuit didn't just make a handful of mistakes and then have their luck fail also; they were soooooooo far behind in the great retail race, from their perpective they thought they were ahead. Todd Sullivan was correct to predict that the only viable option for any prospective buyer, would be to let 'em die and pick the bones.

We will only hope to imagine if poor 'ole Phil is being hit hard, like the other 34,000 employees. We will more likely imagine him sitting on the beach, drinking something wonderful out of a pineapple.


On Jan 19 09:43 AM CC guru wrote:

> Another poorly written article by Todd Sullivan. I have no clue why
> this guy hates Schoonover so much. Did Schoonover do a poor job?
> Yes. Did Schoonover have the experience for the helm? No. Did Schoonover
> get involved with a company that had countless problems that kept
> getting swept under the rug way before his time so when he came into
> the position he inherited them. Most definitely. While Schoonover
> did make some bad calls, I think we need to also point the finger
> at 10 years of bad management. Oh and if you read this Todd, spurning
> a deal from Blockbuster actually isn't a bad thing. Blockbuster is
> the next major retail to go under. Good luck to all the CC employees
> and anyone else who is in a position within another company that
> is now unemployed.

Jan 20 09:57 PM

[billddrummer:]

The business model may have worked if the company had paid out the leases it was liable for on closed and relocated stores, rather than continuing to make payments to the landlords.

That strategy cost approximately $89 million a year, and when top line margins are getting squeezed with competition, $89 million is not a paltry sum.

By the time the company had those leases set aside, they were already in bankruptcy, and suffering from a dramatic sales decline (the company's attorney said sales had dropped 43-50% since the Nov filing, as people fled the stores even faster than before).

It is a shame, and several hundred million dollers worth of shareholder value has been vaporized over the past 18 months.

Let's hope someone at Harvard Business School can dissect the demise of this once-great company and allow others to learn from it.

Jan 21 11:10 AM

[phil'spal:]

bill:

you're right that carrying unproductive real estate had a lot to do with their unravelling but let's look a little deeper. not only did schoonover neglect that aspect of their operation, (it was only weeks before the great collapse that they finally scrubbed their new distribution centre) he tried to 'turn it around' through expanding their store count. wrong approach and a bad idea when you consider that a bigger problem was that their year over year same store sales were dropping. in effect, the problem was not directly addressed. their 'solution' to slumping sales only compounded the original problem. however, again, you're right, harvard biz school can perform the final autopsy because it's all academic from here... except for the intertan issue in canada. court date is for tomorrow. mark me down for 'no credible buyers could be found'.

wow! i just passed 100 posts!

Jan 21 01:35 PM