Circuit City's Tragic Humor

Leave it to Circuit City's (CC) Philip Schoonover to inject humor into the recent turbulent market. The problem is, I do not think it was his intention to. Apparently, giving up on trying to compete with Best Buy (BBY), Schoonover and crew have decided to open 50-60 smaller well staffed (theres an idea!) locations called "The City".

Early plans have the 20,000 square-foot stores being about 40% smaller than the typical Circuit City, but a redesign eliminating obsolete warehouse space results in having nearly the same amount of selling space. That means CC is sitting on 8,000 sq. feet per location of unnecessary warehouse space? That is a stunning number, if true.

This means either one of two things. Sales are just really dismal and it is not necessary to stock extra items in current locations, hence the "extra space". Or, CC plans to cut way back on inventory, in which case potential customers will constantly be hearing the words "we do not have that in stock here, can I call another location for you?" Neither scenario is a good one.

While execs at the failing chain may think "The City" is a novel idea, it has been done before. It was and still is called Radioshack (RSH)!! The problem is that Radioshacks CEO Julian Day could out-manage Schoonover from the grave.

In response to a question about selling the company, “We have a solid plan, we have the capital to continue this multi-quarter turnaround, and management feels that at today’s stock prices it would not be in the best interest of the shareholder to sell the company,” Schoonover told Reuters.

Perhaps it would have been a little over a year ago when they dismissed out of hand an over $20 a share private equity offer? For those of you not keeping track, shares trade at $4.70 currently.

"We have the financial capability (debt) and the access to sustain a multiquarter turnaround," Schoonover said. "While we're learning from some of the errors we made, we're making significant progress on that turnaround, as we think on behalf of the shareholders that at today's stock price, we're better off staying the course."

By staying the course does he mean "making the stock worthless"? I mean, it is down 80%. Here is the kicker, execs said that by the middle of next year, they hope to have a plan for applying some of the best things about The City format to older stores. "Middle of next year"? Translation? Another dismal year for shareholders. I will say it now for Schoonover before the next earnings call, "clearly we are disappointed by our performance".

Disclosure: No position, Pity for shareholders

Comments

[User 151931:]

Although he talks of errors made, I don't think he realizes the largest one that still continues. The hiring of former Best Buy employees just because they used to wear a blue shirt is not helping stores. It seems everyone of these hires is someone who was either fired for theft, unethical behavior and failing or someone who could not get promoted by the boys in blue. Whichever it seems the poor decisions are driven from the top down.

2008 Feb 20 03:23 AM