Circuit City: Simply Appalling

A perennial mystery to this longtime governance observer is how a board can seemingly sit silently by and watch a management trash a business. This seems to be what’s been happening at Circuit City Stores Inc. (CC).

A year ago, the company announced a turnaround plan. A centerpiece of the plan was laying off a slew of more experienced salespeople, to be replaced with lower-paid hires. But get this: Those who lost their jobs could reapply for their old jobs, at the lower pay, but had to wait 10 weeks to do so.

That’s simply appalling.

“That’s the most cynical thing I’ve heard about in a long time,” said Peter Cappelli, in a critique of the plan published by the Wharton School’s Knowledge@Wharton newsletter. Cappelli is a management professor and director of Wharton’s Center for Human Resources . Another Wharton professor, Daniel Levinthal, termed the layoff plan “a massive de-skilling” of the company.

I’m all for companies doing what they feel they must do to survive. But let’s be mindful of what Peter Drucker said: “The purpose of a business is to create a customer.”

When a company takes steps that are repellent in its treatment of its human resources — its work force and its customers — is it really a business anymore? Or a business that should stay in business?

I didn’t write about this abhorrent policy at the time. My personal response was to vow never to set foot in a Circuit City store again, and to leave it at that.

I did wait for the follow-on announcement that the current board members all submitted their resignations — so as, in the spirit of their approved turnaround plan, to allow management to replace them with a newer, younger board, which would be paid a lower retainer and fees than the old directors received. Less experienced? Who cares about that? And the current board, after a cool-down period, would be allowed to reapply for their old seats, at the lower scale, of course.

Funny … I missed that announcement. Did you, too?

Well, a year has gone by and Circuit City is now much in the news. Perhaps my personal reaction was shared by similarly offended spirits. The turnaround seems to have run aground. Circuit City’s results are punk, the stock price has collapsed, and a hedge fund, which has called the turnaround effort “disastrous,” is at the board’s throat. Then, in a bizarre turn, in mid-April Blockbuster Inc. (BBI) weighed in with a merger proposal. That’s being charitable to call it bizarre. It’s also being called “crazy,” “reckless,” and “loony” by deals analysts.

All I can hope is that there were some dissenting voices in the boardroom — “What are they thinking?!” —when management unveiled the HR components of its turnaround plan. It must be a sad day in the life of a director when he or she sees the company’s business and reputation about to be trashed.

Disclosure: none

Comments

[Trader T]

I went into CC to buy a GPS that was advertised in their circular as well as indicated as 'in stock' at the store I visited. It took 15min to find a clerk (the item wasn't on display). I showed the clerk the ad as well as the web page. The clerk then said, we don't have the item in stock and the price on the web site is wrong. So I left and went to BB. It's probably too late for CC to recover - their problems are too pervasive. Into the tar pits they go.

[notsosmart]

is this so hard to figure out.when a board goes along with management re its human rsources all is lost.

[ceguy]

Actually, CC has been going down for over a decade. They have long leases in poor locations, no program to bring new customers into their stores, an incompetent marketing department (and now no senior marketing person), a senior executive running the stores with no sales experience, no profit orientation, and weak human resources. The Board has limited experience in consumer electronics retailing. Their big financial problem is that they have over $4 billion in off balance sheet lease commitments which prevents them from changing their store locations easily.

Schoonover is obviously a weak CEO and had no store operating experience in his background. Firing the experienced people did have a negative effect, but was not the major reason the company is in trouble. With the economy declining, weak companies will fail and CC is one of the weakest companies around.

[ponchovilla]

This horse needs to be shot before the vultures pick it clean. At least a couple of pounds of dog food can be recovered.

[KP]

Why won't the board at least co-operate with Blockbuster and let them see the books-what exactly does this board do other than bury the company

[billddrummer]

To KP,

I don't know, but I'd guess that the board is so divorced from the day-to-day operation that they're unaware of how abysmal the company is performing. It takes a lot of talent to lose money in the 4th quarter. (I know they reported a net profit, but the profit arose from a tax credit--the company booked an operating loss during the busiest sales quarter--and same-store sales fell, too.)

Makes you wonder what the board looks at when they have their meetings. Or do they just get their reports, their checks, lunch, and leave?

[jmualum03]

I guess this is just a place for negative comments on CC. No one is in an uproar when Best Buy, Sears, Nordstroms and other retailers let go higher paid employees, yet even after a year this same issue seems to come up. I guess these so called analyst don't actually analyze anything new or improved the company is doing to turn itself around. I've been into CC and had a great experience recently. Why talk about a company that you have vowed to never enter again, time to pick a new subject to opine about.

[BayMan]

In re Peter Drucker's famous quote 'The purpose of business is to create a customer', CC does create a customer albeit in a different fashion. Get a load of this -- place an order on the CC website for an in-store pick-up, visit the store but you know what you return with a free $25 gift card in lieu of your product you ordered. Why? The product you ordered is not carried at the store. How's that for customer creation and retention! So much for Phil's vision-less and mindless implementation of new Point of Sale System and Oracle Retail products! Millions and millions of dollars invested in these new 'transformation' retail systems have gone down the drain. Public ought to know it is not just the massive lay-off of CC front-store associates that has contributed to CC's becoming a 'has-been'.

[MrQ]

Mr. Kristie is right on, but his anger isn't hot enough for me. As a shareholder in this company (a small player), the board and CEO (does the company actually have one?) has to be the most anemic of any public company in many years.

Having always liked Circuit City, I purchased shares hoping that, as Mr. Kristie points out, someone or several on the board would see the light and go into an emergency turnaround mode. No---they are asleep. Go into any Circuit City store and you can strongly sense the putred work atmosphere that Schoonover has wrought. These people obviously do not like working there, and the last thing they want to do is lift a finger for customers.

Now to cap it off: I am in line two weeks ago at my local Circuit City store to purchase a low-end DVD player. What does the cashier do?? “May I have your phone number please?”

CIRCUIT CITY WANTS MY PHONE NUMBER? (recall the Radio Shack fiasco over phone numbers).

I provided a bogus number, like 222-1111, and the system would not accept it. I said, “Just skip it man! I got to get of here.” The system would not. The cashier had to call a supervisor over to the counter to provide a valid phone number. So again, I leave a Circuit City store disgusted.

The only motive I can see for the leadership allowing the company to consume itself in flames is that they have given up, and instead of walking away, they are hoping to receive a golden parachute from some unsuspecting buyer (Blockbuster? LOL). Meanwhile I suppose I shall sell my shares at a loss and get out. Good Riddance Schoonover. I hope your parachute is big enough to last the rest of your life because YOU SIR will never be a CEO again after this debacle.

[Hands3]

This article hit the target about the once Big Dog of electronics.If only the public knew how a Circuit City Store was really operated they the customers would have stopped shopping there before the associate cut backs.I'm not here to bash Circuit City but their business plans would change weekly if not each day.I know retail must change but at times even the best managers started waving the white flag.I knew of a $12 million dollar store that did $230,000 on black firday best black friday in ten years,only to find out the next day that store lost over 10,000 dollars in profit.Since managers are paid a bonus on PMI (Profit Margin) you knew December was going to be a total loss.The buying was done it was like watching a ship sink a month ahead of time all the time knowing there was know life raft.

[bentheredunit]

The downward spiral started when Froman was passed over in favor of Schoonover for CEO. I was a Store Director for 16 years and watched as store directors and managers resigned, and nobody cared. Entire District Manager teams resigned en masse. The entire Dm team in Oregon resigned on the same day, and nobody cared. The smartest people in the company were allowed to resign and once again nobody cared. At my exit interview I was asked why I was resigning and I said to the HR manager, the people who built this company are resigning everyday, we fired 3800 of the best sales associates on earth, and within a couple of years CC will terminate those who stay today and continue to lose talent at the stores and DeepRun and NOBODY WILL CARE! The final straw for me was the "brillant" plan to drive business by putting our flyers and ads in the surrounding businesses in our shopping center. HELLO! CC had not done a zip code analysis in over 10 years in a town that was growing at the rate of 8000 people a month. Huge new subdivisions with affluent people were not getting our ads while the area's that were getting them was declining in per capita income. and nobody in Richmond cared. My HR manager said, hey thanks for the comments and we'll see ya around ok. Yeah, ok. There's no one left in Richmond that could find the book "good to great" let alone read it and understand the retail culture. Oh well CC see ya around, ok.

[BrittanyMadison]

I was employed by Circuit City up until last month, when they started firing people who had been there for over a year for silly reasons no one ever gets fired for (Late due to traffic accident, drawers being less than two dollars short, unapproved moves in inventory for low cost items) it almost seems like now, they are weeding out anyone who knew old Circuit City, which is quite sad. I'd been with the company for three years, I was a well-liked, extremely knowledgeable sales supervisor, and I was let go for literally being 6 minutes late to a meeting due to a traffic accident. First offense. It was amazing.They gave my job to some kid, and they didn't give her a raise, or the options of bonus that I had. I'm not going to lie, I am very bitter, I cannot wait for their stores to close down. They business tactics were getting so sketchy, I was already searching for a new place of employment. It came down to, "sell it, even if they don't need it," and every bit of bad news was candy-coated. I remember, the last meeting I attended before I was let go, they said "Last year, Circuit City admittedly changed too much about their management structure." When I asked if that meant going back to the old ways, the managers wouldn't directly answer my question, just went at repeating my question, in a non question form. It's unfortunate. I was told by my operations manager that "Weak, whiny women, will never run corporations" such as Circuit City, he also ignored my pleas about sexual harassment from another manager. It's unfortunate, but I'm not the only one, if you look at employment forums and any news forum such as this, you will see disgruntled employees. Ignored by management, badgered by the fact they have been with the company a prolonged period of time, and making next to no money. Seriously, I eagerly wait the day when they close the stores, and I will be sitting in my shiny new office, laughing at what a silly kid I was for being sad about leaving hell.

[Rain Lane]

I went to Circuit City wanting to be able to spend money there as I am a small holder of their stocks...I told the "MANAGER" there that I wanted to buy a camera I knew the model and which one it was and everything. I just wanted one question answered about the batteries she told me some crazy batteries went in there that didn't even look like they would fit...I asked if she was sure because the sales associate had told me a different kind of battery...she advised me of course she was sure she was the "MANAGER" I told her all I wanted to do was open the box quickly and see so I was sure I had the right stuff...I let her know I was going to buy the camera just needed to see the batteries is all...just needed to see the kind I needed because I was buying the camera for a friend and wanted to make sure they had enough battery life for an entire trip...she then trys to sell me some crazy charger that goes with the crazy batteries I told her honestly it didn't look like the batteries she was trying to sell me would fit and if she let me open the box and just see the batteries I would purchase the camera. She wouldn't let me...she stated she would have to restock the camera for much less...I left FRUSTRATED went to Target who not only told me the kind of battery opened the box verified the battery with me..found me the charger...showed me a case it fit perfectly into...Needless to say I bought that exact camera and no it didn't at all take the kind of batteries the lady tried to sell me...if she had opened the box she would have made a 650.00 sale before it was all over with all the additionals I bought...cards card readers extra batteries carrying case charger...

SAD

[billddrummer]

I went into a local CC store some months ago, and was amazed at the lack of attention to trivial stuff--displays showing three different prices on the same product (two of the displays on opposite sides of the same end-cap), nonworking 'demonstration kiosks,' clumps of employees chatting, empty shelves, wide swaths of unused floor space (probably left over from when CC carried appliances--they pulled the product but forgot to revise the sales floor) and stock needing to be put away, but left in the aisles for someone to trip over.

This particular store is adjacent to a Super Wal-Mart/Sam's Club combo building, next door to a space that's held three big-box sporting goods chains over the past 10 years. The Wal-mart lot is always full. The CC lot is usually empty.

I work at a BBY across town, and the CC store that competes directly with us is about to fold. It hasn't made its revenue budget since it opened in November 2006, and looks to me to be a drag on the new mall it's in.

Too bad. Healthy competition is good for everybody, because it forces everyone to come up with new ideas to expand. Unhealthy competition can make companies complacent. Just look at Motorola.

[billddrummer]

I mistakenly reported this post. I'll inform SA as well. My apologies. It was a good one.


On May 05 11:36 PM Beentheredun nit2 wrote:

> The downward spiral started when Froman was passed over in favor
> of Schoonover for CEO. I was a Store Director for 16 years and watched
> as store directors and managers resigned, and nobody cared. Entire
> District Manager teams resigned en masse. The entire Dm team in Oregon
> resigned on the same day, and nobody cared. The smartest people in
> the company were allowed to resign and once again nobody cared. At
> my exit interview I was asked why I was resigning and I said to the
> HR manager, the people who built this company are resigning everyday,
> we fired 3800 of the best sales associates on earth, and within a
> couple of years CC will terminate those who stay today and continue
> to lose talent at the stores and DeepRun and NOBODY WILL CARE! The
> final straw for me was the "brillant" plan to drive business by putting
> our flyers and ads in the surrounding businesses in our shopping
> center. HELLO! CC had not done a zip code analysis in over 10 years
> in a town that was growing at the rate of 8000 people a month. Huge
> new subdivisions with affluent people were not getting our ads while
> the area's that were getting them was declining in per capita income.
> and nobody in Richmond cared. My HR manager said, hey thanks for
> the comments and we'll see ya around ok. Yeah, ok. There's no one
> left in Richmond that could find the book "good to great" let alone
> read it and understand the retail culture. Oh well CC see ya around,
> ok.

[User 217072]

I work at CC and I have seen almost all of these things happen that people mention, probably one of the main reasons is the mass layoffs they did about a year ago. Circuit City was once a great store but now they could care less about their employees by allowing people to quit left and right with no questions ask and giving extremely low raises to great associates. I have personally built an amazing relationship with my customers, on a non commission salary, and I am constantly asked for by name and yet when the option for me to become a manager came up I was told to make sure my numbers were good... are you kidding me? One I have been in the top three since I've been there and I know much more about my department than any of the managers there. This will most certainly cause me to quit and many others.