Circuit City's (new) Management Has A (new) Plan But It's Dependent On Others For It To Work.

Implications: In addition to loosing hundreds of millions of dollars and significant market share, letting things get so bad for so long has resulted in CC loosing control - now it's largely up to others if CC will survive.  1. Vendors - at this point vendors are on top – without vendor support there will no reason for consumers to come in. 2. Consumers - CC management is talking about regaining consumer “relevancy”. Consumers have long memories when it comes to a bad retail experience, but short if it means saving money.  CC must deliver a compelling, relevant message backed up by quality in-store execution if they hope to regain any consumer support for the holidays. 3. Employees -  If the front lines are disenfranchised, they disenfranchise customers.  CC must re-energize their front line employees immediately.

Analysis: Today, along with a $239 million dollar loss for Q2, CC management announced 5 key areas for focus going forward:

1.   Focusing on easily implemented tactics to enhance the customer shopping experience.

Were they really not trying to focus on the easy stuff before? They said they were. That’s why the were able to let the more highly paid, more experienced store associates go – it was all about process, not people.

2.  Improving the company’s in-stock position on key items and advertised products.

If the merchandising staff was not focused on this before, what were they focused on?  Are there supply chain processes and/or vendor relationships holding them back?  CC announced a decrease in payables attributed to slower turns from weaker sales performance – makes sense, but may also be an early signal of tightening trade credit.

Yes vendors are “supportive”, but will they put their flesh in the game and job on the line to be actively supportive? This is not a good environment for vendors to line up receivables insurance  (or factoring deals). Circuit City is likely trading dollars for credit – faster pay for greater discounts – if so, will they be able to sustain through the holidays?

3. Upgrading in-store signage and visual merchandising.

Is there really time to pull off a redesign  “that matters” before the holidays?  For this to really move the needle the change needs to be more revolutionary than evolutionary.   And, if they do, do they have the in-store discipline to execute and maintain properly? Even tightly run Best Buy has a difficult time executing this area consistently.

4.  Finalizing the chain-wide rollout of the “Simple to Shop” selling concept in home entertainment.

Complexity is their enemy; simplicity is key – if they feel they can pull this off with integrity and not distraction, great.

5.  Launching a new marketing brand campaign supported by traffic-driving offers.

CC is losing share in the fastest growing CE categories - flat panel TVs, notebook computers and video games.  "Traffic driving offers" sounds like code for low margin and/or low-ticket items.  Can cheap movies and games and barnburner pricing on flat panel TVs save CC? Circuit City has to get shopper share-of-mind to get traffic back in their stores for the holidays, and they better be able to execute once they get the customers the door, or they will get cherry-picked on loss leaders and drive down margins. 

One bright spot is their online business. CircuitCity.com is expected to do almost $1.5 billion sales in 2008 – up 25% from last year to 13% of total sales. It’s everything the stores are not – easy, efficient, reliable, predictable and with a differentiated value prop from Best Buy, WalMart, Target and Amazon (free shipping on orders over $24 or store pick up in 24 minutes).

With most consumers suffering a shortage of both time and money for holiday shopping,  Circuit City should dial up the volume on CircuitCity.com shopping benefits heading into the holidays and be realistic about how much they can change how fast in their stores so as not to create more chaos before the critical selling season. 

October 1st is Wednesday.  Holiday key buys, promotions, hiring and training strategies need to be in place and executed flawlessly.


Bottom line: Circuit City has a damaged brand. Damaged by a series of bad decisions. Damaged by putting too much value on executives and too little on the front line, and damaged by denial.  Denial of how bad their store experience had become and how far behind they slipped in execution throughout the organization. Denial about how damaging a CEO in denial is.

Was Phil Schoonover the only one in denial? Hard to believe, but if so, it could be energizing for the executive team, the staff, vendors and even consumers if they squarely address that they gave a crappy experience (today’s earnings call seemed to be a start) and move on from there.  Getting back to the basics is what Circuit City needs to do - Management may have a plan for this, but clearly is dependent on the support of vendors, consumers and employees to execute it.