Circuit City from Good to Great to Gone

Circuit City Closed

Circuit City Closed

It is a sad day to see Circuit City finally close their doors.  There was a small hope that they could close a few stores, make well with their creditors, and continue doing business after filing Chapter 11 last year.  The problem is the chances of this happening are next to none.  In fact, this has never happened with a big box electronics retailer.

After all, who would loan money to a failing business?  Who would allow products to be sold on credit and hope that the company would be able to pay their bills next month?  A company with a great status and credit rating is able to have all of this.  In fact, they were proclaimed in 2001as a great company by Jim Collins in his book, “Good to Great: Why Some Companies Make the Leap… and Others Don’t.” They apparently could not be great forever.

“The study began with a field of 1,435 companies and emerged with a list of 11 good-to-great companies: Abbott Laboratories, Circuit City, Fannie Mae, Gillette Co., Kimberly-Clark Corp., the Kroger Co., Nucor Corp., Philip Morris Cos. Inc., Pitney Bowes Inc., Walgreens, and Wells Fargo.”  The book stresses the need for great companies to have great people to propel it forward and all of the previous companies had this at the time of publishing.  It is deemed the flywheel effect – as long as great people are continuously propelling the wheel forward it will not completely stall.  The momentum from the wheel moving forward drives innovation, development, sales and eventually profit.

Most people would agree that the majority of the problems started occurring when Phil Schoonover took over as CEO on March 1st, 2006.  Exactly a year later, in March 2007 he decided to layoff 3,400 of its highest paid sales people.  The exact thing that Jim Collins said makes a great company he just got rid of because they were “too expensive”. The good sales people were at the front of the wheel, pushing the product out the door and when that slowed so did everything else behind it. This effectively slowed the motion of the flywheel and less than a two years later it came to a complete stop.   Did Phil Schoonover not read this book or even hear about it?  Did he not realize that people mainly shopped at Circuit City for the customer service and knowledgeable sales staff?

Probably not.  After all, what is personal in your face customer service in a big box retailer anymore?  It is one of the only things that they have above online retailers.  The other thing that they have is the physical product on display.  They have the ability for the consumer to inspect, hold, try out and instantly take home the product.  They need to exaggerate this, have their best salesmen trying to convince you to purchase and make the shopping experience phenomenal.  If not, why not go home, purchase the product for cheaper online and wait 3-5 days for it to arrive?

Even with the the liquidation sales at the remaining Circuit City stores, do not expect to find an amazing deal.  This was noticed at their first round of closing during the end of last year.  It was typical to find an item marked up to Manufacturers Suggested Retail Price (MSRP) or higher and then the discount taken from that.  This means that the same item whether laptop, flat panel TV, or speakers could usually be found at a competing big box retailer for significantly cheaper.  It was always cheaper through an online retailer. The only time that a deal might be found is in the last week or two of the liquidation sale when the percentages are 40-50% off, but by then not much worthwhile could be had.

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