Circuit City: Recent Research Findings

This sample paper on Circuit City offers a framework of relevant facts based on the recent research in the field. Read the introductory part, body and conclusion of the paper below.

Circuit City is currently the number two store in the consumer electronics industry and the number three seller of consumer electronics products. Circuit City operates exclusively in the United States. Circuit City has been falling into trouble in the past few years. There have been extensive layoffs as well as reconfiguring of the management system in order to cut costs.

 The external force that is greatly affecting Circuit City is the economic times; the disposable income of the consumer is key to the consumer electronics industry. There is intense pressure from rivals Best Buy and Wal-Mart, without change Circuit City will continue to fall below its competitors.

In the internal environment of Circuit City the marketing aspect of the supply chain is very weak. The service aspect is where the value is located.

For Circuit City to fully take advantage of their core competency it is necessary for them to create more value in the marketing segment. Circuit City must address the customers, competitors, suppliers, and economic forces in order to succeed in the consumer electronics industry. Strategic alternatives that will address these issues include updating and controlling technical and operating systems, shifting management from top-down to bottom up, and creating an identifiable “brand”.

The key strategic alternative that Circuit City must address in order to succeed in the industry is creating a “brand”.

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A marketable image must be created that will create loyalty among consumers. In order to successfully implement this Circuit City must update its image, create buzz, increase marketing efforts, and create their own niche. If Circuit City successfully implements and carries though the recommendations to re-brand itself, they will succeed in the consumer electronics industry. By creating a new image they will successfully secure the number two spot behind Best Buy, with distant goals of surpassing their competitor.

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Issues and Outlook Profile Budi

“In a year of 2000, Circuit City has a physical store in 45 different states. Circuit City operates more location in more than any other consumer electronics specialty retailer. The company has more than 600 retail outlets, 7 service centers, and 10 distributions center. In a year of 2002, Circuit City Stores, Inc. completes the separation of CarMax. The separation eliminates the company’s tracking stock structure and two common stock series – Circuit City Group Common Stock and CarMax Group Common Stock. Effective October 1, 2002, the Circuit City Group Common Stock is renamed Circuit City common stock and represents an ownership interest only in the Circuit City business, and CarMax, Inc. becomes an independent, separately traded public company.

In a year of 2003, given the strong sales lift and internal rate of return seen with relocated stores after their first six months, Circuit City accelerates its relocation program. In fiscal 2004, Circuit City relocates 18 stores and opens eight new stores. In a year of 2004, Circuit City agrees to sell its private-label credit card operation, including both its private-label Circuit City credit card accounts and its co-branded Circuit City Plus Visa credit card accounts, to Bank One Corporation. Circuit City and Bank One will enter into an ongoing arrangement under which Bank One will offer private-label and co-branded credit cards to both new and existing customers.

Circuit City announces it has purchased the assets of MusicNow, a leading digital music platform. InterTAN, Inc., a leading consumer electronics retailer of both private-label and internationally branded products with headquarters in Barrie, Ontario, becomes a subsidiary of Circuit City following a tender offer in which Circuit City acquired the outstanding shares of InterTAN, Inc. As part of its store revitalization program, Circuit City plans to open 60 to 70 new Superstores with a fairly even split between store relocations” (http://www.circuitcity.com/cccareers /about/history .html). “Recently in 2007, Circuit City Stores Inc., which is cutting jobs and restructuring to fend off competition, swung to a fiscal first-quarter loss and withdrew its financial forecast for the year.The results came a day after rival Best Buy Co. reported sharply lower first-quarter profit and downgraded its 2008 earnings outlook.

Both retailers say shoppers are turning away from high-margin items such as flat-screen televisions. Circuit City said sales fell 4.3% in the quarter ended May 31; sales at stores open at least a year fell 5.6%.The Richmond, Va., company said in March it would replace 3,400 highly paid workers with lower-paid employees. “In the first quarter, the amount of change that we introduced to the company led to significant volatility, which we expect to continue through the summer,” Chief Executive Philip Schoonover said. “Combined with an uncertain macroeconomic environment, for the time being, it is difficult to project sales and earnings performance for the balance of the fiscal year,” he said.

Circuit City said it still expects to open 60 to 65 new and relocated domestic stores this fiscal year. It said more than half of them would be in a 20,000-square-foot format. UBS analyst Brian Nagel said the results show Circuit City is still struggling to turn around. “We remain disappointed with the continued slow pace of recovery at Circuit City,” he wrote to clients. The loss is the latest dismal news for the company, which has lost several top executives while battling for market share with Best Buy. The companies and others engaged in a price war during the holiday season and slashed prices, particularly on LCD and plasma televisions. Goldman Sachs analyst Matthew Fassler called the results “predictably problematic.”

Circuit City is experiencing the same problems as Best Buy, but at amplified levels, across sales growth and margin rate,” Mr. Fassler wrote to clients. “Moreover, as Circuit City invests aggressively in systems, an understandable priority, it subjugates near-term results to longer term investment.” In the most recent quarter, consolidated gross profit margin narrowed to 22.5% from 24.5% in the same period last fiscal year.

At the end of March, the retailer turfed 3,400 employees in the U.S. and Canada because it thought they were overpaid and announced plans to replace them with cheaper workers. Betty Owen, 56, of El Paso, Texas, was one of them. Owen, a part-time worker logging full-time hours, was pulling in $10.10 per hour (all figures U.S.).According to published reports, the company decided to get rid of workers whose wage level was at least 51 cents above Circuit City’s “established pay rates.” From a dollars and cents perspective, the move seems to make sense. Take 3,400 workers, assuming they work 40 hours per week, slash their wages by the lowest amount (51 cents) and the company will save at least $3.6 million every year in labor costs.

That’s not small change. Or is it? Considering Circuit City had 42,000 workers and $11.6 billion in revenue in 2006 and net income of $162.5 million, $3.6 million doesn’t seem like much. And from a public relations standpoint, it’s a disaster. The announcement was met with calls to boycott the store and at least one lawsuit. Three employees in California have filed an age discrimination suit they’re trying to have certified as a class-action lawsuit. Fighting that battle alone could dissolve the savings from the wage cuts. The repercussions are bound to echo beyond bad PR. Most of the workers being let go have been on the job awhile, and their experience is walking out the door with them.

Training costs will increase and customer service will undoubtedly suffer. And exactly what kind of workers are going to be filling these roles? When it made the very public announcements about wage cuts and terminations, Circuit City might as well have hung a sign on all its stores stating that, “good, talented workers need not apply.” But that’s the new reality in retail, right? The Wal-Martization of the business means retailers have to keep wages low to stay competitive and there’s no room for good HR practices, right? Wrong. A little outfit called Costco is punching all kinds of holes in that thinking. The Issaquah, Wash.-based warehouse club pays its workers generously. By some reports, they start at about $10 per hour and their earnings rise to about $44,000 per year after four years. They also get a strong benefits package.

The result is low turnover and a very loyal staff. In 2004, Business Week decided to put Costco’s labor practices to the test. It compared Costco to Sam’s Club, the membership warehouse operated by Wal-Mart. It found that “by compensating employees generously to motivate and retain good workers… Costco actually keeps its labor costs lower than Wal-Mart’s as a percentage of sales.” Costco pulled in $13,647 in operating profit per hourly employee versus $11,039 at Sam’s Club. Jim Sinegal, Costco’s CEO and founder, has resisted pressure from investors to cut costs, shrugging off comments that it’s better to be an employee at Costco than a shareholder.”

We think it’s good business. In the final analysis, you get what you pay for. Better employees mean higher productivity. We’ve proven that with our business model. We want to turn our inventory faster than our people,” he said. “(Paying low wages) doesn’t keep employees happy. It keeps them looking for other jobs. Plus managers spend all their time hiring replacements rather than running your business.” The lesson? Better paid employees are more productive and happy, and that translates into a healthy bottom line. That’s an idea that seems to be lost on Circuit City”.