Welcome to tech Stuff, a production from iHeartRadio. Hey there, and welcome to tech Stuff. I'm your host, Jonathan Strickland. I'm an executive producer with iHeartRadio.
And how the tech are you? So? Last week, this is.
A Friday, so we're doing a tech Stuff classic episode first, get that all the way. But last week we started the Circuit City story with Part one. This week we shall conclude the Circuit City story with Part two. This episode originally published way back on February eighth, twenty seventeen.
Enjoy.
So in nineteen eighty four, Alan Wurtzel really concentrated on implementing a new plan based off the success of the Circuit City superstore concept that originally was just called the Wards Loading doc. Now, that plan involved creating an all most cookie cutter approach to store space, and if you've ever been to more than one Circuit City during its heyday, you probably noticed the layout was remarkably similar, probably almost identical, and that was by design.
Wurtzel.
My experiment would changes at one location just to see how they would do, and then perhaps implement some changes across the board, but by and large they remained almost identical. Now, the store layout embodied some of the same sales philosophies that Samuel had established back when he had first started
the Wards Company. You might remember in that last episode I talked about how he used various manipulation techniques to increase sales, not in a way to be dishonest or to you know, otherwise trick a customer into buying something, but rather to entice a customer into spending as much money as possible. There's a fine line there between and admirable work ethic and kind of creepy manipulation. And he
walked it carefully, or at least appeared to well. Alan wanted to do the same thing, and he incorporated that into the store design itself. This is going to sound really familiar to.
Anyone who's been to.
A big box store, because now it is standard practice. What they would do is they would put all the popular brands, all the big ticket items that people were really interested in in the back of the store. That meant that customers would have to walk through the rest of the store in order to get there, and they
would see lots of other stuff on the way. So this was an effort to try and boost sales of slightly less popular items by having people walk through you see the same thing today, Like most electronics departments in a lot of stores are toward the back or somewhere deep in the middle of the store, and it means you have to walk through other departments to get there. And as you're doing that, you're thinking, oh, right, I do need to buy a new two piece bathing suit
or something similar. I mean, I think that way too frequently anyway. The late seventies and early eighties marked a new age in consumer electronics, and Circuit City was benefiting from that. When it started off as just a television appliance and radio business, Suddenly those store shelves got way more crowded with other stuff. New gadgets were joining them. You had VCRs and both the vhs and the Betamax formats. You had laser disc players, you had cassette players, record players.
Later on you would have CD players. You had cordless phones, microwave ovens. Much much later, like in the late nineties,
DVD players would join that. So this succession of new products ended up giving Circuit City the base to succeed, and because the superstores were so large, they could carry all wide variety of products all in one location, and the storage space, the warehouse space in the back of the store was big enough to allow the stores to purchase items from vendors in large amounts in bulk essentially,
and that lowered the cost of purchase. And then that meant they could maximize their profit margins when they sold it at a higher price to the customer when they made that sale. Now, Wurtzel led the company into an intense phase of expansion. Circuit City began to move into new markets like Atlanta and Florida. The company would open numerous stores in a relatively small region, so they'd open
maybe five or six stores in a metropolitan area. This accomplished a few goals, all of which were benefiting the company and a few were benefiting the consumer. For one, adding lots of stores in the city meant customers wouldn't necessarily have to travel so far to get to a specific store. You know, if there's just one location in the city, may you have to travel to that location, no matter where you may be.
If there are.
Multiple locations, you have some choices. That being said, Circuit City had made it a practice to purchase cheap land, so they were mainly looking at places that weren't necessarily in the most populated or convenient spots. That was another reason to open several stores. It helped balance that because customers would still have to travel a bit, the stores didn't tend to be in areas that were convenient to residential.
Areas for example.
Now it also meant that they didn't have to spend as much money promoting and advertising any individual store, because they could group stores together in a single advertising campaign for whatever city it might be, and all the stores would benefit from this, and that ended up being a kind of a money saving effort for the company and cutting costs. And this was all new back then. It's something that we see a lot of today, or at
least we have seen a lot of today. You might argue, we don't see it as much, mainly because of the move to online marketplaces. We'll talk more about that a little bit later in this episode.
So they were keeping the company's.
Bottom line healthy by managing these costs, by consolidating costs, and by maximizing the amount of exposure they were getting to customers. But some sad stuff was happening too around this time. In nineteen eighty five, the co founders of the Wards Company, the company that became Circuit City, Samuel Wurtzel and Abraham Haste. Both of them passed away that year.
They lived long enough to see this little humble TV retail shop they had opened way back in nineteen forty nine grow into a substantial chain of electronics superstores that were in multiple states across the US, But then they both passed away in nineteen eighty five. In nineteen eighty six, Alan Wurtzel retired as CEO of Circuit City. Now he would remain on the board of directors until two thousand and one, so he was still active with the company.
He just wasn't acting as CEO anymore. At the time of his retirement, the chain included ninety stores, and sales were hovering around the one billion dollar mark.
In fact, from.
Nineteen eighty three to nineteen eighty seven, Circuit City had the best return on investments on the New York Stock Exchange, meaning if you invested money in Circuit City in nineteen eighty three, your return was better than any other investment you could have made that year, and it remained so for the next four years, and even since nineteen sixty five it had been listed on the Fortune five hundred list of companies nineteen sixty five on it consistently made
that list and would continue to do so up until nineteen ninety five. But that gets a little bit ahead of where we want to be right now. I'll get into more of the troubles that led to the fall from Grace in a bit now. Alan Wurtzel's successor was a man named Richard Sharp, and in the last episode I mentioned that Sharp had been hired on at an executive vice president level outside the company, so that was kind of counter to some of the company's core values,
which included promoting from within. Instead of promoting from within, they found this very intelligent, capable hardware and software guy and brought him on. His performance was impressive. He had designed a computer system for Circuit City that made operations much more efficient and effective, and when he stepped in as president and CEO of Circuit City, the company was
on the rise. He would end up pushing it farther, going into the stratosphere, though a lot of people have argued later on that it might have been his leadership that ultimately set the company on the path to self destruction. I'll let you go, guys, kind of decide what you think once we get to the end of this episode. I'm not entirely sold on the idea that Sharp was
the beginning of the end. I think he made some decisions that were ultimately poor ones, but I don't know that they were ones that Circuit City couldn't have rebounded from. And so we'll get into that a little bit. Let's talk about who he was first. So Richard Rick Sharp was born on April twelfth, nineteen forty seven, just two years before Samuel Wurtzel founded the company that would become Circuit City. He grew up in the Washington, DC area
and attended George Washington High School in Alexandria, Virginia. He first went to college to study electrical engineering at the University of Virginia, but discovered that that really wasn't his cup of tea. He wasn't so much interested in electrical engineering as he was in computer science, so he dropped out of college and for a short while he pursued some slightly less academic interests, like playing poker and shooting pool. I usually do the opposite. Shooting poker, however terrible. I
don't recommend it. He wasn't idol for long, and soon he was attending the College of William and Mary studying computer science and then went on to attend the Harvard Business School's management program.
When he was twenty.
Seven years old, he founded a hardware and software business development company, and he was really good at what he did. He impressed the folks at Circuit City, which is why they hired him on at that executive vice president level. He joined in nineteen eighty two, and just four years later he became the leader of the company. By nineteen ninety four he became the chairman of the board. Now, while the company was opening new locations in Georgia and Florida,
it also was working toward eliminating unnecessary drains on profits. Now, among those drains were those Lafayette stores I mentioned in the previous podcast. These were the stores located in the New York area and originally they had sold stereo equipment. When Circuit City, back then the Wards Company, purchased those stores, there were only eight. By nineteen eighty six they had fifteen,
but they weren't performing well. They were unprofitable, so the company shut down the stores and it would continue having trouble penetrating the New York market because the New York market was already saturated with lots of stores that would engage in price slashing. That was not really a model that Circuit City was suited for. Circuit City was still using commissioned sales, and the commission sales depended upon salespeople trying to sell products at the highest price they could.
Doesn't really work for price slashing.
So the Circuit City experience was supposed.
To be haggle free, but you could often argue down a salesperson from the price that was on the ticket, at least in the old Wards Company days, and Circuit City just couldn't survive in a market where other business owners were regularly cutting prices in order to compete for customers.
Also, in nineteen eighty six.
Circuit City shut down one other relationship it had earlier established, that would be the discount store in California called Zodi's. I mentioned them in the last episode two. They At that point, Circuit City had been operating four different lines of stores. You had the superstores, you had the smaller Circuit City stores, you had Zodi's, and you had the Lafayette stores. By getting rid of the Lafayette and Zodi's, they were able to consolidate Circuit Citi's strategy and simplify
matters From a managerial standpoint. The money the company reclaimed from operating those businesses could be reinvested by opening more superstores in California and the southeastern United States in nineteen eighty seven and eighty eight. The company prospered and grew, and it was fueled by this demand for consumer electronics like the VCR, which by that time was viewed as a standard component in your typical home theater system.
Sales grew over.
One billion dollars a year and the number of stores increased to one hundred fifty.
Circuit City had already.
Experimented with mall store fronts in the past, and decided to try and give it another shot with a new idea new brand.
This time.
The company planned to open twenty stores, and they branded them Impulse And I think that's a pretty clever name for a store that specialized in selling small electronic devices, particularly the kind you might purchase as a gift or
a stocking stuffer. It's the very definition of an impulse buy. Now, whether the executives at Circuit City intended that meaning to be part of the name or not, it definitely was the foundation for their sales strategy and it worked and a few years later the company made plans to open dozens of other stores in malls within their territory. That's good to mention that more than a billion dollars in sales is not the same thing as a billion dollars
in profits. Profits are what you get when you deduct your costs from your revenue. Now, Circuit City's profits by nineteen eighty nine were just under seventy million dollars. Not still a heck of a lot of money, but it shows how much work the company had to do in order to make that kind of profit. A billion dollars in sales for seventy million dollars in profit. Also, the company managed to do this while there was another economic recession in effect.
So how did it do that? Well?
Mainly their success hinged on new consumer electronic products coming out. So, as you guys are probably aware, I've been going to CES also formerly known as the Consumer Electronics Show, every year in Las Vegas, Nevada since two thousand and eight.
Circuit City would be.
A company that would pay very close attention to trade shows.
Like cees, the.
Company depended upon new compelling products to come out so that they could offer them in their retail stores. In fact, stores like Circuit City are why those trade shows exist. Now, sometimes we in the tech media I include myself here, we forget this as we walk around waiting to be blown away by a groundbreaking product or a new category defining technology.
But the real reason.
Those trade shows exist is to let retailers get a look at the products that will soon be available for customers so that they can create a sales strategy for the near future and figure out which products they want to carry in their stores.
That's the real reason for those trade shows.
The press's presence is really just icing on the cake. Who has the stuff we report on ends up being advertising for both the companies making the cool products and the ones that are going to end up selling them. Back in the eighties and nineties, those retail establishments were primarily superstores like Circuit City, So in many ways, Circuit cities booming years can be attributed to advances in consumer electronics, from the migration of cassette players to CD players to
the similar trend of VCRs to DVD players. Much later, Circuit City also got into the personal computer retail business, beginning in nineteen eighty nine. Now by nineteen ninety, the company's sales had hit two billion dollars. Circuit City began opening smaller stores and markets that seemed to be too small to support a full superstore, and a few years later the company introduced a new department in superstores that sold music like actual albums as opposed to just the
equipment that plays music. This was a move that put a ton of pressure on smaller independent music stores and music chains. I remember a lot of those, both the chains and the independent businesses that used to specialize in selling music. In my neck of the woods, we had a regional chain called Turtles Records and Tapes. I remember fondly going into Turtles because that was where not only would you buy albums, you could purchase tickets to concerts there.
And then there were the truly independent mom and pop shops. Turtles was still a chain, but there were lots of independence stores too, and all of these were pressured by the superstore movement into their tis territory. Now that we've crept up into the early nineties, it's a good time to talk about some of the competitors that rose up to face Circuit City. But first, let's take a quick
break to thank our sponsor. Okay, you can't really talk about Circuit City without mentioning their chief competitor, which I would argue was Best Buy. I could do a full episode on the best Buy story, but let me give you the cliffs Notes version. Do they even still have cliffs Notes? Do you guys get that reference? Well, anyway, here's a summary to tide us over. Best Buy began as a chain of music stores in Minnesota in nineteen
sixty six. It was founded by a man named Richard Shulz, and originally.
The store was called Sound of Music.
I don't know if the hills are alive in Minnesota, but they did have the Sound of Music stores. In nineteen eighty two, one of those stores was damaged in a tornado. The store held a special tornado sale and they called it a Best Buy sale. The event was so successful the company decided to hold one every year. That being a special sale, not holding a tornado. The company didn't schedule tornadoes. I don't think you would want to.
Those things are.
Terrible, but the sales went over like Gangbusters. Eventually, the company changed its name to best Buy, the same name as those sales that made it famous, and that made more sense than Sound of Music anyway, because by that time the stores were also beginning to carry lots of unrelated stuff, things that had nothing to do with audio or music. Throughout the eighties, best Buy began to grow, and by the early nineties it had expanded into a
national chain. Circuit City still dominated the market at that time, and it seemed like no one at the company really took best Buy seriously. In fact, Alan Wurtzel said that at that time, no one at Circuit City really considered any competition as being anything more than just an annoyance. Now you could call that hubris or arrogance, but at the time it seemed like Circuit City was firmly on
the prosperity highway and hindsight is twenty twenty. Best Buy, meanwhile, benefited from Circuit City success because Best Buy executives were able to learn from the path that was forged by Circuit City. They could employ the most successful strategies and avoid the pitfalls that Circuit City had identified during its growth phase. Because Circuit City was sort of the pioneer. Best Buy, following behind, could say, oh, well, we want to go this way, but we won't make the same
mistake that they did. We can avoid that, save money, and expand faster. So it gave Best Buy a chance to catch up quickly to Circuit City. With companies like best Buy biting at Circuit City's heels, the company became motivated to get into the price slashing business.
This stay competitive. Now.
At this point, Circuit City was still in the lead, and Richard Sharp had decided that the company should diversify what it offered. What if the company could sell used cars? Well, that's a step too far for just a Circuit City brand, but it provided the inspiration for Sharp to guide Circuit City into launching a new company that was a subsidiary, and it specialized in selling used cars. And I bet you've heard of it, because in September nineteen ninety three,
the first CarMax location opened in Richmond, Virginia. And yes, CarMax originated as a Circuit City company. And while Circuit City would eventually die in two thousand and nine, spoiler alert, CarMax is still around. But in those early years Carmacks had a rough start, and since Circuit City had a stake in the company, it also hit Circuit City pretty hard. Also, launching Carmacks wasn't going to stave off those competitors best Buy.
To do that, Circuit City stores began to engage in that price slashing, at least in the markets where Best Buy stores were trying to get a foothold. So if you happened to live in a city that had both Best Buy stores and Circuit City stores, you benefited from this because you could get a better bargain for your product.
If you shopped at Circuit City.
But if you lived in a place where only Circuit City existed, you didn't see that benefit because there was no need for them to slash prices. Best Buy wasn't there to siphon off any of the business. The two
companies had very different sales strategies. At Best Buy, employees were trained to be able to answer basic customer questions and assist when necessary, but largely customers had kind of a help yourself approach, like walk into a store, see the thing they wanted to buy, put it in a cart, and go to checkout.
That's how it would work. At best Buy, you.
Might get asked by an employee if there's anything he or she could do to help you find, but that would be about it until you made your purchase. But over at Circuit City, salespeople were still working on commission, so the experience was very different. You walk into a circuit City, you would see demonstration models of various products, but for the most part, you couldn't pick anything up.
Everything was in boxes in the warehouse and you would talk to a salesperson who would make a sale, establish whatever the price was that you're paying. Then they would go into the back and get the thing that you were interested in buying, bring it out to you, and then you would go.
And purchase it.
So very different models, and it meant that over at Circuit City, a salesperson made more money if they made more sales, they had an incentive to sell more to more customers.
At best Buy that wasn't the case.
People were on an hourly wage, no commissions, so the customer experience at Circuit City was very different from Best Buy. If you walk into a circuit City and you encountered a salesperson who didn't have a particularly subtle approach, you might feel pressured when shopping for electronics, which a lot of folks react negatively toward. Circuit City executives felt that their approach was actually the best one, which is why
they stuck with it for so long. It motivated their sales force and it drove revenue because salespeople were selling those higher margin products, the things that cost more money and you would make more profit from because the cost to the consumer was much higher than what it cost Circuit City to purchase.
From a vendor.
The company at that point was valued at more than a billion dollars, and they continued to grow and open up new superstores in various markets. Meanwhile, Best Buy was starting to gain ground, and by nineteen ninety five, it was competing with Circuit City in about half of the larger company's markets. So half the stores that Circuit City owned were competing with Best Buy. The other half were in markets the Best Buy had not quite penetrated yet.
Best Buy was also taking a different strategy when choosing store locations. Remember I mentioned that those Circuit City superstores were located on cheap land, which wasn't always convenient to local populations. It could be really out of the way.
Best Buy tried to avoid that same problem and find areas close to population centers and pay that higher upfront cost because it was access to more customers, and they figured that people would be more willing to go to a store that's closer to their home rather than travel across town to go to a competitors superstore. Other stores besides Best Buy were also pushing up against the giant, which created a much more competitive environment for Circuit City. Still,
at that point, the company was really doing great. It hit seven billion dollars in sales in nineteen ninety five, with earnings at a twenty percent growth rate.
It seemed like the company was unstoppable. It was too big to fail.
Accept it totally wasn't bump bump bomb. Nineteen ninety five really is the turning point year. That's the year where we see Circuit City doing incredibly well, and afterward we start to see it falter. In nineteen ninety six, Best Buy sales officially outperformed Circuit City sales. Now Circuit City was still doing well, just not as well as the company had been doing in previous years. This would become
a familiar story over the next few years. The company continue to see earnings grow, but they were growing by smaller amounts with occasional rallies over the next few years. So you might say, in one year they'd see twenty percent growth, the next year they might see fifteen percent growth, the next year might be seven percent growth. And like I said, there were a couple of rallies. But seeing the growth slow like that is terrifying to companies, particularly
publicly traded companies, because shareholders expect a return on their investment. Now, that continued to go until about two thousand and two, when the company had what folks in the industry referred to as negative growth, which means the company last money. It didn't grow at all. It actually shrank a bit. It was only a tiny amount. It was zero point seven percent negative growth, but that is a terrible sign.
Best Buy, meanwhile, had experienced a pretty wild growth rate over that seeing period of time, but it was always in the positive space. So some years it was growing a lot, some years it wasn't growing as much, but it was always positive.
And part of the reason that it's kind of.
A zigzag wild ride for best Buy was that the company was ramping up the number of stores it opened, where as Circuit City was already pretty well entrenched. Meanwhile, another store was starting to pinch at Circuit City's performance, and this time it was Walmart. In the mid two thousands, Walmart redesigned its stores and product lines to include more electronics, including high end brands like Sony. Now that put Walmart in competition with Circuit City.
Walmart was able.
To do some serious damage by offering something that I I think we all have had experience in. It is the bane of my existence when I go into a brick and mortar store, and that is the upsell with extended warranties. Extended warranties are profit machines. It is a way for a company to make crazy amounts of money
for relatively little investment. And Walmart was really putting the hurt on Circuit City and Best Buy by offering these extended warranties at a much lower cost than you would find at the other stores.
And like I said, there were almost pure profit for stores.
In fact, extended warranties accounted for all of the operating profit for Circuit City in two thousand and five, and a third of the profit for Best Buy that same year. So Walmart's move to undercut warranty prices was a shot right across the bow at the electronics superstores, and it was an effective one. According to a retailing analyst named Todd Kurt, a tiny drop in warranty revenue would result in a massive drop in operating profit for Circuit City.
And when I say massive, I'm talking about if you drop one percentage point decrease in extended warranty revenue, it would end up having a twenty nine percent decrease in operating profit. And Circuit City saw a five percent decrease in warranty revenue that year.
Huge impact.
And when you see that your business is so heavily dependent upon a single point like that, you start getting awfully nervous. So Richard Sharp started looking into ways that he could possibly turn this around, and he thought that maybe diversifying Circuit City's products was a potential answer, and he did this in a couple of different ways. He
did some home security stuff that didn't work out. But the real big one that people like to point to as being a huge misfire happened in nineteen ninety eight. That's when the company would end up carrying a new product called Divics DIVX, which is a type of digital movie disc, and it was sort of like a disposable DVD, although those were two different standards at that time. The disc could store encoded digital video, but you had to watch the disc within forty eight hours of purchase or
you lost your chance. So this was kind of a move to get into the video rental business.
Circuit.
City's kind of moving into blockbuster territory with this, But there was no risk of someone running off with a copy of a film. You would just produce the Divics disc, sell it to a.
Consumer, and then they would have two days to watch it.
Divic's players had a phone connection that had to be active for the video to play. So anyone who's used to computer games that have an online component requirement, even if it's just a single player game, you know what I'm talking about. This is digital rights management, right. It's the attempt to make sure that the use of the product falls within certain parameters. In this case, you have
forty eight hours to watch your movie. A central computer system kept track of everything, even unplayed movies, which drives me crazy. Is amazing that this ever was considered a good idea. Let's say that you wanted to rent a movie. So you hit your local circuit city and buy a Divic's disc and bye bye. I mean, you're really just renting the chance to watch a movie for forty eight hours.
So let's pick a specific film. I'm gonna pick your favorite film, which we all know is Big Trouble in Little China, classic movie starring Kurt Russell, directed by John Carpenter. You have great taste, fantastic favorite film.
Good on you.
You pay a few bucks, maybe four or five dollars, and because this is a rental, you don't have to pay more than that.
You know you're not buying the movie. You take the disc home, but you're a busy person. It turns out you.
Don't have time to enjoy that film within those first forty eight hours. Well, that's central computing system knows this. It's tracking it because your Divic's system hasn't called in to say, hey, this guy's watching Big Trouble and Little China, or this lady is watching Big Trouble and Little China, or this family isn't watching Big Trouble and Little China. And forty eight hours have passed, and since you didn't have the decency to watch it when you were supposed to your.
Build another three dollars. Isn't that crazy?
You were charged for not watching the movie you rented.
You go, you rent a movie, you're not supposed to return the disc. You throw it away after you.
Use it forty eight hours passes, you get dinged for not watching the movie. It's like a late fee for a movie you don't have to return. Yeah, can't imagine why that standard lost out to DVD, So I'm sure you're familiar with the DVD format. I'll probably do a full episode more about DVDs and encoding and also if you say the where DVD fast enough? You sound like
you're Twiggy from Buck Rogers. But it was early days for both of those standards back in nineteen ninety eight, and Circuit City had gone all in on the devics bet, but other retailers weren't so excited about that technology, which meant that Circuit City had to work extra hard to educate customers and convince them that the Divic's format was the way to go, and that was a tough job.
They tried to convince.
Studios to create exclusives, stuff that would only come out on Divics and not on DVD, but with very little success, and in nineteen ninety nine Sharp knew that this was a bad idea and he pulled the plug on the whole project. Now, the price tag for that mistake was about two hundred and thirty three million dollars for the development and promotion of Divics.
Not good news.
In two thousand, Sharp transitioned from president and CEO to chairman. Now, like I said earlier, Sharp's tenure included high highs and low lows for Circuit City, and some things like the Rabbit expansion in the late eighties and early nineties had really paid off, but others like the Divik's debacle and a similar misstep with the home security sales and installation were big misses. At that point, Alan McCullough, who had previously been the president and COO of Circuit City, became
the new president and CEO. Two years later, McCulla would take over the title of chairman from Sharp, and from two thousand and two to two thousand and five he would be the head guy in charge. I got a lot more to say about that, but let's take another quick break to thank our sponsor. All Right, we're heading forward the slide into bankruptcy here. But first let's talk a bit about McCullough. He had worked with Circuit City since nineteen eighty seven, so he had been there for
a while. He was invested in the company, at least professionally invested, if not financially invested, and his tenure began with a big change in Circuit City strategy. His tenure as the president, that is, president CEO, the company said it would no longer sell appliances. It would focus only on consumer electronics and get out of the appliance game. The appliance market, like consumer electronics, had become much more
competitive over the past few years. It was largely due to big stores like Home Depot and Lows offering major appliances. Getting out of the business was thought of as a way to cut costs and to focus on consumer electronics more exclusively so that it could be more effective. Appliances also take up a lot of space when you're trying to sell them, so by getting out of that business, the company wouldn't need to maintain as much warehouse space, and it would also cut down on delivery costs.
So the whole idea was.
We can save a lot of money this way, but getting out of the appliance game also meant that suddenly some jobs weren't needed, like a whole lot of them,
like a thousand jobs. Circuit City closed six distribution centers as well, and the decision was made so quickly that it ended up causing huge problems for Circuit City because the vendors that Circuit City worked with, the companies that made the products that Circuit City sold in their stores, weren't informed of the decision in advance, so it damaged
a lot of business relationships. And it also meant that anyone in the market for appliances wasn't going to go to Circuit City, so that resulted in less customer traffic in stores and that ended up hurting. And while the business was operating at a loss for the appliance's section, the sales still went to help cover fixed costs, and now you didn't have those anymore, so that money had to be taken from other places. McCullough would also officially
spin off Carmacs into its own company. Carmacks at that point was facing competition in the used car market space, and it had been a drain on Circuit City's financials. It had a rough several rough early times for carmas Circuit City tried to remodel stores in an effort to
make the more attractive to customers. The company had long been focused on the practice of scooping up that cheap property for its superstores, but again it meant that most of those stores weren't convenient to customers, and Best Buy, like I had mentioned, had gone a totally different way, spending that upfront cost to get those premium locations. Now, Circuit City couldn't just relocate stores, so their next choice was to remodel and redesign store spaces to entice customers inside.
So the idea would be that now customers could come in and purchase a lot of the products just by picking up a box and taking it to check out. They wouldn't have to talk to a salesperson. But they were still running the sales on commission at this point, so a lot of products didn't fall into that category. If you wanted one, you still had to talk to a salesperson. They still had to send someone to the back to get the product to come out to you. Only a few of the products were kind of a
help yourself approach. So it was sort of a half measure, and you might imagine that it wasn't terribly.
Effective, and you'd be right. Now.
The remodeling strategy was scaled back from their original plans almost from the beginning. In two thousand and one. They initially said we're going to remodel one hundred and forty stores, but they only really remodeled about twenty or so, and the reason for that was to save money on the costs that remodeling would incur. It was about a million dollars per store to remodel them.
So they thought, well, well, we'll spread.
Out the costs of remodeling by doing blocks of stores each year. But the problem was doing this meant that the stores were falling further behind their competitive it was putting them in a more dangerous position. In two thousand and three, responding to changes in the market that had happened years earlier, Circuit City finally ended its commissioned sales program. Instead, all employees would get a fixed hourly pay rate based upon their pay grade. It also meant cutting nearly four
thousand jobs all in sales. Four thousand people having their jobs cut because this decision no longer did Circuit City need salespeople who specialized in convincing customers to buy the highest step up on a product they could manage. Instead, hourly wage employees would provide general assistance, similar to the way business was done in shops like Best Buy.
Now.
If Circuit City had made this change back in the nineties, it might have worked, though it still would have obviously been painful for the people who were in sales, But by this point, when the company was already in dire straits, when it was struggling, it meant seeing a decrease in those higher margin sales and further negative impact on revenue, which wasn't something they could easily bounce back from at
this point. In June two thousand and three, the Circuit City Board of directors had a big decision to make. Another company was coming to the table with an offer, and that other company was comp Usa Incorporated. The offer was a one point five billion dollar acquisition deal, but the board of directors decided not to pursue the offer and rejected it. By two thousand and four, things were
looking pretty grim. In a single day, Circuit City announced three thousand, four hundred job cuts and not just any jobs. They cut sales associates, people who had the most knowledge and experience and tenure with the company. They were also, no coincidence, the highest compensated in that department in.
These sales associate roles.
Now their replacements lacked that knowledge and experience that they needed in order.
To succeed in their new roles.
The Urtzels would have found this entire move unacceptable. You might remember in my last episode I talked about how Samuel Wurtzel had always stressed the importance of training and setting employees up for success. Now this move put unqualified people into positions without proper preparation, through no fault of their own, and it was a huge mistake. At the same time, Circuit City executives were awarding themselves big retention bonuses in order to keep various executives from jumping ship.
So this had a devastating effect on employee morale. You've got the most knowledgeable employees booted, you've got people unqualified put into new positions, and you've got the executives at the top rewarding themselves seemingly in spite of all the employees. So this was sending a really bad message not just to employees, but also to vendors and also customers, and losing those experienced employees and demoralizing the rest of the
workforce trickled down into that customer experience. It became increasingly unpleasant to shop at Circuit City. Stores were poorly organized in staff, and customer dissatisfaction was through the roof. Now, in two thousand and five, a man named Philip J. Schoonover became the president of the company. He would then later become the chairman and CEO in two thousand and six, and he would stay in that role until forced to leave in two thousand and eight. That probably tells you that things.
Did not go well.
Now, if Sharp had made decisions that put the company in danger and McCullough had exacerbated matters, you could say Schoonover is the person everyone associates with the death of Circuit City. It may not entirely be Schoonover's fault. He was in a terribly difficult position when he came on board. But Alan Wurtzel said Schoonover completely ignored company values, the ones that Samuel Wurtzel, Allen's father had instilled in the company.
Namely, he said.
That schoonover stopped caring about fair deals and honesty when dealing with employees and vendors alike, which is pretty brutal.
In two thousand and.
Six, Circuit City decided to copy Best Buy, which is kind of interesting considering how many times Best Buy was essentially copying Circuit City but doing it better. Best Buy had launched an electronics service called geek Squad back in two thousand and two. Now, geek Squad provides specialized customer service for things like equipment installation, adjustment repairs, that kind of thing for a fee, and those fees add up kind of like those extended warranties had been a huge
source of revenue for Best Buy and Circuit City alike. Well, this was four years later, but Circuit City says, all right, two thousand and six, we're going to launch our own service, which is going to be a specialized electronics service, and we're calling it fire Dog.
Fire Doog, however, required a big investment.
The company spent millions of dollars in the hiring, training, and resource allocation for fire Doog teams, and it wasn't a very well coordinated effort. Some stores were lagging way behind other stores, and there was a lot of confusion and not clear messaging, and that ended up adding to the expense. Customers were confused by the service, which wasn't promoted very well, and many rejected it. So while geek Squad succeeded over at Best Buy, fire Doog floundered at
Circuit City. Also in two thousand and six, the company made a real bold move on Black Friday, the day after Thanksgiving here in the United States, Circuit City offered an amazing deal at the time. It offered a forty two inch panasonic plasma television for less than one thousand dollars, which was way below the normal price you would find at most places at that time, but it actually created
a domino effect that caused damage. Circuit City began to slash to such levels that the profit margins were almost completely eliminated, meaning the company was selling products very close to what it cost the company to get them in the first place, all in an effort to regain customers. And it's a game you cannot play forever because those profits are never going to be enough, especially for a publicly traded company. Two thousand and eight would see the
end of Schoonover's tenure. Like I said, he was forced out of his role and an investor named Mark Waddles took over the job, which by then was not great. Sales for Circuit City were down by eleven percent and the company had suffered more than one hundred and fifty
million dollars in losses. Things were ugly. In April two thousand and eight, another suitor came calling Circuit City, and this time it was Blockbuster, which is yet another company I could do an episode on and talk about how it failed to be nimble, sort of like Circuit City and ultimately a doomed Blockbuster. But this is Circuit City story. So Blockbuster comes up to Circuit City and says, hey, buy it for a billion dollars.
So this is half a billion dollars less than.
The previous offer had been just a few years ago from CompUSA. But by July one, two thousand and eight, Blockbuster had second thoughts. They had actually looked into the potential deal further and concluded that acquiring Circuit City would be a bad business decision.
Yikes.
So Circuit City stocks plummeted as a result. If someone comes up and says, hey, do you want to go to the problem the you know what, never mind, I can do better. It's probably not going to help your self esteem. The same is true with investor confidence in Circuit City after this event. And yeah, that story comes from Jonathan's past, I'll thank you not to pursue it further.
By November two.
Thousand and eight, the company was baling waters. Circuit City announced it would close one hundred and fifty five stores and layoff more than fifteen percent of its workforce by end of the year, and just a little bit later, seven hundred corporate employees, the people who worked at Circuit City's corporate headquarters were let go.
All the other.
Corporate employees were moved into the same building to cut costs so they didn't have to have as much office space, and on November tenth, the company filed for bankruptcy for Chapter eleven and started searching for a White Night to rescue them. The whole idea was that, you know, by filing for bankruptcy, you get a little breathing room. The goal is to try and get out of bankruptcy and go back to business. But at this point it was
too late. No one was willing to jump forward and try to write a sinking ship, not for a company that lost five billion dollars in stock market value in just twenty four months. There were still hopes that a company could re emerge from this bankruptcy.
It just wasn't meant to be.
There was a brief moment of hope when it appeared that a retail businessman from Mexico might swoop in at the last second, but after purchasing a little less than thirty percent of the company, that just stopped. A lot of questions were raised about why someone would come in and buy up a third of a company that was doomed to failure and not try to do more. So the company at this time was still trying to do
business like. Stores were still open and still trying to sell merchandise, but those bankruptcy proceedings had really hurt them beyond just that backstage stuff. I mean, customer confidence had withered away, and the company lacked the resources to try
anything new to bring customers back in. So in January two thousand and nine, they couldn't keep things going any longer and the company was forced to liquidate all its assets, and over the next few months, the company would close stores, layoff workers, liquidate things until the final store closed on March eighth, two thousand and nine. But that's not quite
the end of the story. On April sixteenth, two thousand and nine, a company called system As Incorporated, purchased the intellectual property of Circuit City, which include the company's name and their customer database. So for several years, Circuit City existed but essentially existed in name only, and system Acts used it here and there until twenty twelve, when they figured this name doesn't really have any value anymore and
they just stopped using it. But you might think this is when the company died off, and you'd still be wrong, because it's zombie time. It's like closing time, only with more brain devouring now. One thing Circuit City had continued to do in this time, despite no longer being a viable entity, was make charitable donations, which is weird, right, You might wonder, how can a company that doesn't exist
fund charities? Well, it's because the company had established a fund and deposited money into the fund specifically for the purpose of making regular charitable donations, and there's still money in it, so the fund still pays out year over year. Last time I checked there's a little bit more than a million dollars in that fund, so it won't go forever. It will eventually drain, but for the time being there's still money from Circuit City funding charities. And now there
are new owners of the Circuit City intellectual property. So from twenty twelve to twenty sixteen, that name remained unused, but then a new group came in and purchased the IP from Systemax. The new CEO is a guy named Ronnie schmol who said that plans are in place to open kiosks and stores. Originally they had aimed at kind of the summer of twenty sixteen, but that didn't actually happen, and according to the new owners, the reason for that is they want to make sure that they do it correctly.
So we're still waiting as of the recording of this podcast to see that happen. But if the owners are successful, we may see a return of the Circuit City brand under new ownership.
It'll be a new.
Kind of not that different from the way Atari came back. But we have a very different marketplace today than we did even back in two thousand and nine. Online purchases are on the rise. Brick and mortar stores are having trouble getting consumers to actually visit physical stores, so it may end up that Circuit City will become an online only enterprise, although that's not necessarily the plan if it works at all, But like I said, the plan is
to open real, actual stores. So perhaps in the future I'll need to record a part three to this story. And that concludes our two part series about Circuit City, a store that you know, was kind of a trailblazer in some ways and then blazed right out and in pretty much every way that counts. I hope you all enjoyed this two part retrospective look at Circuit City, and yeah, I look forward to doing a lot more episodes about
stores like this. I really need to do a deep dive on radio Shack, because I think I actually did do episodes about radio Shack once upon a time. But I really need to do another one because that story gets bonkers. But we'll have to leave that for another time. In the meantime, I hope you're all well, and I'll talk to you again really soon. Tech Stuff is an
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