|  Circuit
City Stores Inc., once the largest consumer electronics
retailer and currently the second largest, just announced
they will lay off all of their 30,000+ employees. They will
be liquidating all inventory and closing down their remaining
567 stores by March 31, 2009.
Circuit City's problems do not stem from our
current economic problems. Circuit City's problems started
years ago when they changed their focus from consumer electronics
to other ventures. In 1993 Circuit City began investing and
testing a new retail venture: selling used cars. At the time,
upper management claimed that the used car business had no
clear industry leader, so CarMax was born. In 1997 shareholders
approve a plan to track CarMax stock separately than Circuit
City stock.
Circuit City's Biggest Mistake
In 1997 Circuit City made their biggest mistake. Along with
a group of greedy entertainment lawyers, they invested over
$100 million dollars into a new video format called DIVX (Digital
Video Express) that they believed would revolutionize the
movie rental industry. That mistake Circuit City caused a
major backlash. Our website,
fightdivx.com, started out as a site that was against
this format, and we have since kept the name.
In September of 1998, the first DIVX was released.
At the time, the DVD format was relatively new, and DIVX discs
were "enhanced" with copy protection and sold as
a benefit to their customers. The DIVX players played DVDs
and DIVX discs but cost on average $100 more per player.
DIVX players had a built-in modem which automatically
dialed in occasionally to Circuit City to report what movies
the customer watched. DIVX discs cost $4.50 and could be watched
only one time. If you wanted to watch a movie more than once
you could because the disc was yours to keep, but it would
cost you an additional charge.
Circuit City did everything to brainwash their
employees to sell these players as they disparaged regular
DVD players. They even offered incentives to cashiers and
janitors if they could entice a customer to buy a DIVX
player!
In June of 1999 - just over a year after the
first DIVX was released, Circuit City announced they would
no longer support the failing DIVX format. They offered a
$100 refund to customer who had bought a DIVX player to try
and save face in light of public criticism. The DVD obviously
won the format war Circuit City created.
Circuit City's after-tax cost of closing the
DIVX business totaled $114 million. Circuit City had a $88.2
million loss in the first quarter of 1999, compared to a $12.5
million gain the previous year. The company never really recovered
from this.
Circuit City Stops Selling
Major Appliances
In 2000 Circuit City decided to leave the appliance business-one
of the most profitable parts of their business-by replacing
appliances with small electronics like computer software,
MP3 players, and music CDs. As a result, they alienated some
of their long-time customers, leaving them to shop at Sears
or Best Buy for their large appliances.
By this time Circuit City was feeling the squeeze
of internet companies. Customers had no reason to shop at
a Circuit City store since they could find more information
and better prices online for their consumer electronics.
Circuit City Goes to Hourly
Employees
In 2003 cut approximately 3900 sales counselor positions company
wide. This move cost Circuit City $16 million dollars in severance
payoffs alone. Circuit City replaced their knowledgeable sales
staff with low-cost, untrained hourly workers. No longer was
Circuit City a great place to get help on complicated electronic
purchases.
In 2005 Circuit City rejected a $3.25 billion
cash buyout offer from Boston investment firm Highfields Capital
Management LP, in hindsight a huge mistake.
In 2006 Circuit City launched a PC services and
home-installation business called Firedog. But competitor
Best Buy had the upper hand with their Geek Squad, and Circuit
City continued to fall further behind Best Buy.
Replaced Employees with Lower-Paid
Workers
In 2007 Circuit City laid off about 3,400 retail employees
and replaced them with lower-paid workers. Things were getting
worse for this once retail giant, even though big US economic
problems hadn't even begun yet.
In May of 2008 with Circuit City stock dropping
fast, Blockbuster was considering a takeover. By July of 2008
Blockbuster withdrew their takeover bid.
Circuit City announced in early November of 2008
that they were closing 155 stores in 55 markets by the end
of the year. They laid off 17% of their employees including
nearly 700 employees at their headquarters in Richmond, VA.
They filed for Chapter 11 bankruptcy protection, listing assets
of $3.4 billion and debt of $2.32 billion.
Liquidation Announced
On January 16, 2009 Circuit City Stores Inc. ran out of options
and announced they would liquidate their estimated $1.2 billion
in inventory. Circuit City creditors will receive the first
70.5 percent. Circuit City stockholders will end up losing
everything.
If Circuit City had kept their focus in the last
90's, valued their longtime customers, and treated their employees
better they might still be a thriving company today. But a
myriad of managerial blunders and a whole lot of corporate
greed took down this industry giant. We can only hope other
large corporations might learn from their mistakes.
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