The Circuit City Story Part 1

gonna be a two parter. But before I get into the details, let's talk about why I'm covering this story at all. It's because of a little listener mail. This listener mail comes from Kevin, who says, I really enjoy your shows that trace the history of tech companies. I just finished catching up on the Sony episodes. Actually I was hoping you'd consider doing a similar treatment of Circuit City sometime. I feel like that was a big part of tech in the eighties in nineties, and it's where

I got my first computer and my first stereo. I always thought the store was really cool as a kid, darkly lit, red dion, those glass rooms for checking out sound systems. Anyway, thanks for listening and keep up the great work. With the podcast. Well, thanks for those kind words, Kevin. The Circuit City story is interesting because the chain originated

the concept of the electronics box store. And I don't mean it was a store that sold electronic boxes, although I guess technically it did, but that's not what I mean. I mean it was a box store like Best Buy is today. In fact, best buying Circuit City heaven interesting relationship or did at any rate. Circuit City was kind of best Buy before there was a Best Buy now.

The company was incredibly successful for many years. In fact, it was one of only a dozen or so companies to outperform the Fortune five hundred by at least three times for fifteen years. I mean by a factor of right, by multiplying by three for fifteen years. But eventually those good times ended and the company kind of imploded and went bankrupt in two thousand nine. And today it's a

very different story from its heyday. Before I get into the story at all, I want to recommend a book to anyone who wants to learn more about this company and what happened to it and the management practices that were involved at all stages. It was written by Alan Wurtzel. It's actually the son of one of the co founders of Circuit City. He wrote a book titled Good Too Great To Gone, The sixty year Rise and Fall of Circuit City, and you can read a lot more about

the company in that book. If this podcast wets your whistle at Wortzel, by the way, admits that he's not exactly an unbiased reporter, but also he holds himself accountable to examine the mistakes that he he credits to himself, also to his father and others in the company, and the book is an easy and interesting read on the subject of business practice is So, we're gonna talk a lot about business practices and how it relates to the operation of an electronics store, and not so much about

the tech side of things, because Circuit City was a retail establishment. They didn't create electronics, they sold them, but they did play a very big role in the tech world for many years. So now on with the show, and our story begins in Sea Bright, New Jersey, on March second, nineteen o seven. That's when Samuel S. Wertzel was born. His mother, Flora, was originally from Russia. She moved to the United States in her early twenties and she ended up opening up a grocery store. Um. She

actually did that after she divorced Samuel's father. It was an arranged marriage and it did not work out, which meant that Flora ended up raising Samuel and his siblings by herself. That was four kids in total. Samuel had two sisters and a brother. So she had very high hopes for her children and demanded that they study hard in school. And she managed to get some help from her parents to open up the grocery store and was

able to eke out a living that way. Now, Samuel went to night school to study accounting after a fairly tumultuous high school phase in which he was, according to his son quote often a discipline problem end quote. Now Alan attributes this primarily to the fact that Samuel didn't have a father figure for his childhood. Uh and so he ended up acting out quite a bit, and once he started to mature, he began to really apply himself. He was charismatic and he turned out to have an

aptitude for business. He and his older brother first opened up a wholesale butter and egg business, you know the way every tech retail esta establishment gets its start by selling butter and eggs um. His estranged father actually worked in that business too, and they ended up having a working relationship, although not a familial one, and that ended

up not working out either. He then went on to work for a company called June Dairy, but this was also during the time of the Great Depression UH, and he was not able to hold onto that job for long. He was actually laid off, so he then moved on and from nineteen thirty eight through nineteen forty seven he worked for a company called Packing Products UH. And that was a company that was actually created by his father

in law. And a family vacation in nineteen forty nine would change his destiny, and that is the beginning of Circuit City. Now I'm going to jump into that in a second, but first I want to give you a little more information about his family because they played a very important role in the evolution of Circuit City. First of all, Samuel married a woman named Ruth Mann in nineteen thirty two. He had met her in nineteen thirty

one and a year later they got married. Now, Ruth came from an upper class background, very different from Samuel. She was also a college educated woman, which was not necessarily common at that time in the United States. Her father, Leon was in the clothing manufacturing business and was really successful, and later he became an entrepreneur who funded the efforts

of various inventors and engineers. One of those inventors had created a packaging material for eggs so that they could be shipped without the risk of breakage, or at least reducing that risk. There was actually a different invention that was already patented in the United States, or that one a patent in the United States, and so Leon ended up convincing the inventor to give up the patent rights in the US and concentrate on a market in Europe.

And so that's when he created this company packing Products. Uh. Leon and Samuel got along great. Leon instilled in Samuel two qualities he thought were important in business and beyond, which were humor and humility. From Alan's perspective, reflecting back on the stories of his father and his grandfather, it sounds as though Samuel saw in Leon a father figure he had lacked in childhood, and Leon in turn treated Samuel as his own son. Because Leon didn't have any sons,

He had a daughter named Ruth. Samuel and Ruth however, did have sons, two of them, Alan and David. Alan Wurzel would go on with Samuel to create the Circuit City Empire. But even empires have humble beginnings, which brings us back to that family vacation I mentioned. So Samuel and Ruth were going on a golfing vacation with their family in order to clear their heads and plan for the future. This was a and things had suddenly kind of turned south for the couple financially. The Packing Products

company had transitioned into a broker company. Now, a broker company doesn't hold its own inventory. Typically, what a broker company does is they get in the business of matching buyers with sellers. The idea was that the company would find someone wanting to purchase a particular commodity, then they would find a seller who was going to sell that commodity, and they would match the two together, making some money

in the middle of this. And it may even be that the company buys the commodity from one entity, sells it at a mark up to another entity, and that's how you make your profit. But someone at the Packing Products Company made a really bad decision. They ended up buying a large amount of steel without first securing a customer. So, in other words, no one had said that they wanted

to buy steal. But apparently this person at Parker Products felt that the steel being sold was at a price that was too good to give up, so they went in and purchased this large amount. But then the steel market collapsed in the United States and as a result, the company was and shambles. Leon by that point had retired and he wasn't really in a financial position to help bail out the business or to start a new one.

So Samuel, Ruth and their kids went on this trip in nine or to get a new perspective and figure out, well, what are we gonna do now? They weren't destitute or anything like that, but they didn't They couldn't go any further with the company that had been working for They had to start over. At this point, Samuel's forty two years old, So they were in Richmond, Virginia in nineteen forty nine when Samuel got into a conversation with a

local barber. The cutter of hairs told Sammy that the very first Southern television station had just started broadcasting the previous year in April, not quite a full year before this actual encounter happened, and already the number of television stations was on the rise, as as were the number of homes that were getting TV sets, but they hadn't quite reached the tipping point. It was still one of those things that was obviously on the upswing, but wasn't

anywhere those to the to the peak. So Wortzel saw this as an opportunity to create a new market, and he uh said, well, you know, if you've got a television broadcast station down here, then clearly you've got to have televisions to broadcast two. So later in nineteen forty nine, Samuel Wurtzel relocated his family to Richmond, Virginia and opened up a store called the Wards Company on West Broad Street.

He took the thirteen thousand dollars he made from the sale of his home, which was the equivalent of more than a hundred and twenty thousand dollars today, and rented a storefront in Richmond that was several blocks from the big department stores, so he wasn't right next to the places that were already selling televisions under various brands. Now, the Wards store only sold television's at that time, they didn't sell anything else. That was all he did was

sell TVs. And you might wonder, well, why did they he call it Wards? Well, first of all, it's W, A, R, D, S, no apostrophe. The reason for that is Wards is actually an acronym. It stands for the initials of Samuel's family. The W stands for Wertzel, the last name. A stands for Alan, our stands for Ruth, D stands for David, which was Samuel's other son, and S stands for Samuel. And he said, I don't want an apostrophe in there because I don't want it to come between me and

my family, which I think is cute. Wertzel didn't go in on this venture on his own for very long. Shortly after he established this place, he took on a business partner who became the co founder of the Wards Company, and that partner's name was Abraham Haste who invested thirteen thousand dollars of his own money into the new company. Now, Haiti's chief responsibility was to manage buying and vendor relations,

so he was looking at the supply side. Sam was concentrating on the sales side, so he was looking towards the customer, whereas Haste is looking towards the supplier, and both men shared a common set of values. Although they were very different people, they both felt very strongly about certain principles when it came to working with other people,

whether they are vendors or employees or customers. They believe that what goes around comes around, and that keeping interactions friendly and helpful gets better results than a more you know, uh negative or pressure approach. Samuel and Abraham created the company at pretty much the perfect time. So at this time it was post World War two UH, and America was very different from the America that was that was

around during the depression years. During the war, American industry was almost entirely devoted to military support efforts, either directly or indirectly, and business was booming in more ways than one. But the important fact for this story is that after the war was over, those military production efforts were able to shift into a civilian role, so things that had been dedicated to producing tanks could end up being used

to produce other stuff. And also at the same time, you had soldiers returning home after serving overseas and then they started families. The United States had a baby boom going on. US population would increase by more than thirty percent over the next couple of decades. So consider all

the conditions that are present. You had a lot of young families, you had a booming commercial sector, you had a lot of people with disposable income, and over on the technology side, you had the development of reliable televisions. They had gone through the first few iterations, and these were sets that were expensive, but with the right plan, were within the reach of the middle class. Just a few years earlier, they were almost exclusively owned by wealthy people.

They were the only ones who could afford it. But using uh in intelligence sales techniques, salespeople could make a television more affordable to a much broader variety of people. You also had a growth in the number of television stations around the country, which meant you had a lot more programming for folks, which created a more more of a demand for TVs. And it was an absolute perfect storm for a company getting into the television retail business.

Along with appliances like a washer, a dryer, and a refrigerator, the television became part of the standard model American home. Now in nineteen fifty less than ten percent of homes in the United States had a television set, but just ten years later that number was eighty five. That's an enormous amount of growth. So it ended up being a great business to get into if you could be competitive. Now, that kind of sets me up for my next section. But before I get into that, let's take a quick

break to thank our sponsor. All right, we're back, and now I want to talk about the actual business decisions that Samuel and Abraham had. Now, first of all, they had no idea how to make television's. That wasn't their business model. They would buy televisions from a manufacturer. In fact, they had one specific one in those early days. They knew a manufacturer in Long Island, New York called Olympic TVs. So they would buy their televisions from Olympic TVs and

then sell them in their store in Richmond. Their first inventory was just twelve TV sets in the entire store. That's it. At this time in US history, there were only a few types of stores that you could find. In general, there were big department stores like Sears, Roebuck, and Montgomery Ward. Now those mainly carried store brand items, and maybe some major brands as well, but those were the only ones that they would carry. Right, anything that was not a major brand or a store brand you

really couldn't find in those department stores. Then you had some variety store chains, kind of like Woolworth's was still big at that time, but they were on the decline. It was clear that Woolworths was not long for this world in that particular incarnation. Then you had the small business owners, the independent owners, the mom and pop stores, and they might have one or two shops at most,

and they would cater to customers in the cities and towns. Now, the Wards Company was one of those, really, and they faced a lot of competition even in Richmond, both from department stores that sold larger brand name sets and other independent shops. So to set Wards apart from these other places, Samuel began to offer home demonstrations of televisions. And here's how it worked. It was pretty smart. Customers could arrange to have a TV set delivered and set up in

their homes. So Samuel hired a driver who could also carry heavy things, because back in those days TVs were hefty. The screens were small, but the cabinets were enormous. This was vacuum tube technology, so vacuum tubes take up a lot of space and these were big, bulky, heavy sets.

So he hired a strapping guy who picked up the television set, put it in a truck, and would drive it out to a potential customers home, deliver it, set it up, and the family would get to test the set out for a full day, and the following day summer, someone from the company from wards would come by either to claim the television, pack it back up, take it back to the store, or start a sale, and usually this would involve a cash installment, and then they would

have an installment plan that would last between eighteen and twenty four months to space out payments for the television set, which is not a bad idea for a world that had not yet invented edit cards. This gave customers the opportunity to purchase a television set even if they thought that it was outside of their budget, because they could break up that expense over several months instead of having

to do a big upfront purchase. Samuel also became an expert at sales strategies, many of which involved a good deal of social manipulation. That's a nice way of putting it. In fact, if you read up on the strategies, you might feel a bit uncomfortable as a consumer. But these were ideas that worked in sales. So here's an example. You could teach sales people to act as though a potential customer had already made a decision to buy a product without actually having done that. So someone comes into

your store. There you're showing them, say, a new television set, and you pretend like the customer has already decided they are absolutely going to buy the television set, and you just start asking questions that kind of hint at that this actually adds extra pressure on the consumer to walk away buying a television set. So you wouldn't say something like would you like to purchase this, because that's giving the consumer and out. Instead, you might say, do you

like this one better? In the dark wood cabinet or the lightwood cabinet. See, you've already made the assumption that they're going to buy one or the other. You take away the option of saying, oh, I'm not I'm not buying anything. It adds that extra level of pressure. Or you might begin by showing a customer a base model that has very few features, and honestly, you don't really want to sell the base model because you're selling it at a very low price and the margin is very low.

In other words, the profit you make from the sale is negligible, and really you could not sustain a business selling those style television sets. The purpose of showing the basic model is to then move the customer over to higher end models that have more features and us cause ust more and have a better sales margin, so you make a bigger profit from the sale. Uh. Some people call this the bait and switch. Samuel preferred to think

of it as a step up approach. He felt that customer service was really important, so it wasn't like it was an outright attempt to be a snake oil salesman. He was interested in employing the most effective techniques to move products. But he also felt that honesty was important and that the message he and his employees gave to vendors and customers and others should always be the truth,

because keeping track of lies is a hassle. If you tell different lies to different people, maintaining all of that is a huge headache. So just be truthful up front

was his policy. Reconciling the sales approach with the company's values requires a little bit of mental gymnastics and perhaps some generous allowances, I'll say, but one of those sales practices was that the price tag of the televisions in the Wards Company store and later other appliances that they started to sell after a couple more years, wasn't actually

a fixed price. Every product had a listed price that was the starting point, and then every product had a bottom line lowest acceptable price a salesperson would be allowed to sell that item for. So your goal as a salesperson is to sell it as close to that ticket price as you possibly could. But customers can haggle, they can bargain, and the salesperson would get a commission based upon how high above that lowest acceptable price they were able to make a sale. So it was better to

make a sale than not make a sale. If you absolutely had to go to the lowest price in order to move a product, then it was better to do that than not. But you would get a bigger reward if you could sell the product at the higher price, the closer to the list price as opposed to the secret lowest acceptable price. So if you happen to nab a customer that's not terribly aggressive, you can make a big commission off a hefty sale. It's another UH idea

that a lot of modern shoppers find particularly shady. It also falls into the category that a lot of people will associate with buying a car, and in fact, Circuit City has a connection to car sales as well. I'll get into that probably in Part two, not so much in Part one. Now paired with this was a customer

service policy that went above and beyond the pale. So every salesperson was expected to follow up with a customer to make certain that the delivery, installation, and operation of their brand new television's met expectations, and if they didn't, the company would work to make things right and even send along a conciliatory present or two to smooth things over.

So Samuel felt that great customer service would help word of mouth, but perhaps are importantly, it would help the company avoid bad word of mouth, which tends to travel faster and farther than good word of mouth. People love

to complain, and that's something that's still true today. If you read over the comments or reviews on things online, you'll see that people who are dissatisfied uh often will go to much greater lengths to express that dissatisfaction than folks who are happy, and may even seem that uh that the happy folks are are far outnumbered by the

dissatisfied folks, even if the overall rating is high. It's because people who are happy might be willing to give like a five star review on something, but not actually write anything, just say of five stars, whereas people who are unhappy want to tell you about it. Anyone who's got a podcast out there knows what I'm talking about, and it can be really demoralizing. But Samuel's point was

that he didn't want bad word of mouth spreading. His business was all one in a tight community, so he wanted to make sure he maintained a good relationship with his customers. He also saw the value in hiring and developing good employees. He relied heavily on using personality tests when evaluating candidates, particularly for sales or management positions. He also considered the potential impact any higher would have on

other employees. He didn't wanted demoralize anyone by hiring someone from outside the company to lord over other people, and he wasn't in a rush to fill empty positions just to have them filled. He wanted to make sure he got the right people for the right job. He also believed in promoting from within the company, which helped to build employee loyal team. He was also known for being pretty lenient with folks who weren't living up to what

they're they were accountable for. So let's say a manager, Uh, it turns out the manager who has been promoted above their ability to perform. One of the things that Samuel would do is instead of firing someone out right eight, he would say, listen, it was a mistake, obviously to promote you to this position. You were not ready for it. That's no fault of yours. It is a fault of

ours for making that decision prematurely. How about we move you down to an assistant manager position that you can then work at and gain more experience, and then later on maybe revisit this idea of you being a manager, which allowed people to hold onto their jobs and to get into a position they were more comfortable with and more suited for, as opposed to just saying Nope, you

couldn't cut it. You're out. He also instituted a policy in which the vice president of Personnel was to sit down regularly with employees a couple of times a year to talk about how the company could improve existing jobs, especially the low level employees, like the entry level positions, and then he would work to actually implement those suggested changes,

at least when the changes made sense. And he also was a big believer in providing training opportunities for people and began to hold annual store manager meetings in exotic places.

Those meetings would have like a really concentrated period of training and and and deep discussions, and then the following weekend everyone would just stay at whatever exotic locale the meeting was taking place at, and their families would join them, and then they would just kind of have a little weekend vacation and say Hawaii or Puerto Rico or something,

which is kind of cool. The company also had no vacation policy for management positions, meaning they didn't have a policy in place, not that managers couldn't take vacation, in fact, they were encouraged to do it. In fact, sometimes they were told very sternly, hey, you got you need to take some time off. Managers were expected to get the job done, period. That's it. As long as that happened. They could take as much or as little vacation as they liked, but they had to get the job done.

They also didn't have regularly set hours, but Samuel discovered that this approach actually seemed to encourage managers to work longer hours than they otherwise might have done on a set schedule, on like a nine to five each week. So it was a strategy that I've seen used in

the tech industry quite a few times. A lot of companies would have these sort of open hour rules, and people would end up spending more hours at their job than they would if they were required to show up at say, nine am and clock out at five pm. And I don't know what that's like, Dylan, Do you know what that's like? Dylan is shaking his head, but

also snort laughing. So take that as you will. As the company began to find financial success, Samuel and Abraham began to stock it with other TV brands, not just those Olympic TVs. They also categorized the various television vision sets in steps, like I was saying earlier, with each step representing a price range and a set of features. So the goal was always to get customers to land on the highest step they would want to go, and that would represent the models that pose the best profit

margins for the company. So if you could sell them on the most luxurious TV set to make the most profit, but each step had to have features that justified that that increase in step. You couldn't just have a model that had a certain brand name to it and it's automatically a step up over other models. It had to have demonstrable features that showed that value. In other words, the customer had to actually get something for that higher price point. So this goes back to that customer satisfaction

uh concept. It's not just that the company wants to make money, they want to do so in a way that is at least remotely ethical especial certainly ethical by nineteen fifties standards. So by the mid nineteen fifties, Wards had opened three more stores and enrichments. They had four store fronts at that point. The company also began to carry more items than just television's, like refrigerators and other appliances, and the appliance boom in the nineteen fifties was kind

of similar to the TV boom. These were all products that promised to increase convenience and save time for households. They were also selling this concept of comfort and prosperity, so it's it's not just selling products but an idea, like a representation of a goal that every American was envisioning as this is where I want to be. And as the company saw more success, the owners branched out

further and attempted to open stores in other places. They opened one in Roanoke, Virginia, and one in Greensboro, North North Carolina, but they didn't Those stores didn't work out. Those efforts probably were a little too ambitious, a little too early, and both of those stores closed within twelve months of having opened. The big problem here was that Samuel and Abraham found they couldn't manage those remote locations

personally the way they could the Richmond offices. Like they could put managers in charge of those stores, but they couldn't oversee the day to day operations, and if there were problems, they couldn't respond to them in a timely enough fashion for the store to remain profitable. So it

was an expensive lesson. But Samuel learned that he needed to develop someone to oversee each remote store at a managerial level and find a way for managers to send meaningful data back for him in order for him to make some high level decisions. A few years after opening the company, Samuel and Abraham brought a third person onto the team, the management level team like this sort of senior management. Uh. This guy was named Martin Rosenswig, and

Rosenswig had an accounting background in New York. Samuel and Abraham actually gave him a stake in the business even though he had not posted an investment into it. So, in other words, Ross as they called him, got a percentage of ownership of this company, although he was not one of the investors into in the company, and the three of them ran the Awards Company until the mid

nineties sixties. Now I got some more to talk about out some of the advances that Samuel instituted in the Wards Company that that set it apart from other stores at that time. But before I get into that, let's take another quick break to thank our sponsor and we're back. So, in an effort to keep track of inventory, which all had to be done by hand back in those days, there were no automated systems. Samuel actually purchased an IBM

punch card equipment system. He saw the value in this burgeoning technological field for using it in order to do supply chain management, inventory management, keep track of sales, profit margins, and to to have a really good look at how each store was doing so that if there were any early warning signs, they could sweep in and fix things before they became too problematic. By nineteen sixty six he had a data processing department to keep track of all

of this. He also adopted the IBM three sixty computer system in the mid sixties to help manage the growing chain of stores. UH Samuel used the data to see which stores were doing well, which ones weren't, and, like I said, jump in if things aren't going well. As for Alan Wurtzel, Samuel's son, he would play an important role in the rise of Circuit City. First, he went on to study economics at Oberlin College and later at

the London School of Economics and then Yale University. He passed the Connecticut Bar in nineteen fifty nine and became a law clerk of the U. S. Court of Appeals in Washington, d C. In nineteen sixty, so he was studying at that point, not yet part of the company. Meanwhile, business was going really well for the Wards Company, so well that Samuel took the company public, as in it became a publicly traded stock in nineteen sixty one. Now,

out in actuality, that was a move of necessity. There was a lot of opportunity for expansion, but that costs money, and the company lacked the capital to do that expansion on its own. But by going public, Samuel could raise capital needed to expand further and make bigger profits. So

to that end, the Wards Company got into the discount industry. Now, this was a time where we started seeing big stores show up that were either open membership or closed membership discount stores uh such as g e M International or Gym International if you prefer. It's sort of like what Sam's Club is today. Wards was dipping their toe in this pool by opening up departments in already existing stores, So they weren't opening up their own discount store with

open or closed membership. Instead, they would partner with an existing store and they would manage a specific department within that store. It was almost like a precursor to the shopping all, except instead of a store space within the mall, it was a department space within a larger, almost like warehouse style building. So imagine walking into one of those big warehouse stores like Sam's Club and one whole department is managed by an entirely separate company like Wards. That's

essentially what was going on. So Wards would lease space from a bigger store and get access to that stores customer base in return. The company sold one ten thousand shares in December of that year, and that amounted to about forty point four percent ownership of the company, and collectively those shares represented about five dred thirty six thousand, two hundred fifty dollars, which meant the overall companies valuation

was at one point eight million dollars. Uh small for tech companies these days, for for any company considered a major company these days, but but big, big news to Samuel. I mean, this was like he was on dream Street. At this point, about fifty percent of the company's ownership still belonged to the Hastis and the Wurtzels. They owned

about half the company together. The other ten percent ownership was all slightly less than ten percent because the stocks represented forty point four those belonged to other early investors. So five years later, nineteen sixty six, Alan Wurtzel ends his private law practice and goes to join the family business. His initial role over at Wards Company was to be the official legal counsel for Wards. Now. At that time, the company consisted of four stores in Richmond and twenty

seven licensed departments and other parts of the country. In those big discount stores I was talking about, sales were about twenty two point eight million, with earnings of around six hundred sixteen thousand dollars. And father and son began to expand the company by buying up smaller companies that sold appliances. That not only expanded the company these regional reach by getting into areas that they didn't have an

existing store. That also boosted the variety of products the company began to offer to customers, so again more than just TVs at this point. In ninety eight, the Wards Company joined the American Stock Exchange. The following year, Wards makes a concentrated effort to buy up local chains and discount stores, converting them over to Wards stores or launching them under a new name. So one of those chains was a chain called Custom Hi Fi, and that gave

Wards a foothold in the hi fi audio business. Those stores were mainly in the Washington, d c. Area, but they represented one of the ways the company was beginning to diversify, and they chose to keep the brands separate from the overall a Wards Company. They named the stores Dixie Hi Fi, So if you ever heard that name, that's where it comes from. It. It was originally Custom

High Fi and then acquired by Wards Company. And in nineteen seventy Samuel Wurtzel transitioned into the position of chairman and named his son Alan as the president of the company. Abraham Haste at that time retired and in nineteen seventy three Allen Wertzel took over as CEO of the Wards Company. Now, that was a rough time for Awards Company, not because of Allen's leadership, but rather because of just economic conditions in general. Around that time, the company was on shaky ground.

Sales were at around sixty million dollars. That's definitely a lot of money. But the company had also expanded pretty quickly in a short time. So there was this this fact of you know, what, how does sales match up against the expansion. Also, there was an economic recession in the United States, which was making an enormous impact on the company's revenues. Uh several stores had turned unprofitable, and Allen Wortzel really had his work cut out for him.

So in nineteen seventy four he decided to make the take a pretty big risk. The company tried something new. They opened up a forty thousand square foot retail showroom. They called it the Wards Loading Dock, so this was an enormous showroom dedicated to audio and visual equipment. Now. The size meant that the company could sell a much larger volume of products, which meant that they could buy them at a lower cost and sell them for a

lower price than a lot of their competitors could. The Loading Dock also had a much wider variety of products from various brands than most other stores, so that was a customer value and they were able to branch far beyond the basic TV and appliance business that had to find the company in years past. The store also offered services that you would have found in the old Wards Company store back in nineteen forty nine, like home delivery

and installation. They also had an in store repairs department there. This would become the model for their superstore, but at the time it was a pure experiment. That same year, in nineteen seventy four, the company began to close down

those licensed shops and discount stores an the country. Most of them had long since stopped being profitable, and this marked a switch in strategy in which the Ward's company would no longer rent space, but have their own space their own stores and expand that way instead of renting out a place in someone else's store, and that would lead the towards the company's future in retail. It was the birth of the superstore. So by nine the company was beginning to open new concept stores that they were

calling Circuit City showrooms in the DC area. These were smaller than the loading Dock showroom, but about twice the size of the old Rewards stores, and they were pure electronics stores. Uh They included not just a showroom, but also service departments similar to what the loading dock had, but on a smaller scale, and they made sure to staff them with knowledgeable employees who could answer lots of

questions about the products that were on sale. The experience for the customer is one that I think a lot of you are familiar with, at least on some level. You'd walk into a showroom, the show is filled with lots of shiny products from different manufacturers. You can see him side by side and take a look and even test out certain features, depending upon what it is you're looking at. So, for example, televisions, you can see the different picture quality and you might point at a single product.

Let's say it's an enormous twenty four inch television and you say, I want that, So then you buy it, and you're not buying the one that you're looking at. That's a display model. Instead, the salesperson calls for a boxed version of the same product to come from the back room storage space, and an employee brings the box out and maybe even carries it out to your car and loads it up for you. That was a brand new sales model in the late seventies. It's not like

that was around. Circuit City was one of the pioneers of doing it in this way, and it worked. By nine sales were at a hundred and twenty million, wise as much as just a few years earlier. By wards, company had thirty six Circuit City style stores and boys. That hard to say in the Southeast, man. I'm glad I didn't say in the Southeast. Right after all those others. At this time, the shopping mall phenomenon was just getting started, so Wards Company began to jump in on that as well.

It's actually not that different from the discount store approach. They started to end up getting storefronts and malls. Some of those storefronts they called Circuit City. The company also acquired a New York retailer called Lafayette Radio Electronics Corporation, which had eight electronics stores in the New York City

metro area. The ticket price to purchase that bankrupt company was six point six million dollars, which sounds like a lot, but it was actually a shrewd deal because Wards earned a thirty six point five million dollars in tax credits. So it all worked out for Rewards with that particular acquisition and gave them access to a New York market, something that they had not had at that point. Now, at this stage, Wards Company was operating four different store

chains simultaneously. There were the Circuit City stores, which were the relatively smaller retail electronics outlets. Think of something like a radio shack in the mall. Then there were the Circuit City superstores which were modeled after the loading dock, and we're really the big box style store. Then you had the Lafayette stores in New York, and they also had a discount discount store brand out in California called Zodi. The company made the vast majority of its revenue from

electronics sales, not necessarily appliances, but electronics consumer electronics. This was a new era where beyond televisions and radios, you started seeing other types of electronics uh emerge. And some of that was even coming off a particular product I talked about not too long ago, Sony's Beta Max video cassette recorders. They were also earning big sales with other big brand names. Pioneer Audio Systems is a great example. That was another one of their brands that they would

offer in these stores. In the company hired a computer hardware and software business owner by the name of Richard Sharp. He was brought on as an executive vice president, which might seem like a pretty big leap from the whole promote from within strategy. He came in at an executive level, but Sharp's leadership was a very important role part of

circuit cities fate. It's actually a little controversial. Some people point him as saying that he's the reason Circuit City flourished in the eighties and nineties and and just exploded in profitability. But others say that he actually laid the groundwork for the company's eventual eventual collapse. And we'll talk more about him and his decisions in the next episode. In sales hit two hundred forty six million dollars, so the company had read bounded big time from that shaky

ground it was on in the early seventies. Now, before I sign off for today, I have to finally get to nineteen eighty four, not the George Orwell book. This is the year that the Wards Company finally transformed officially into Circuit City. They changed the name of the company from Wards Company to Circuit City. In the company joined the New York Stock Exchange and listed under the code c C okay, So that's the birth of Circuit City.

In the next installment, i'll talk about how the company shot up the stock exchange, outperforming most other companies, and then we'll look at how and why the company faltered and eventually collapsed. As well as get a glimpse into what's going on with the name Circuit City today. If you guys have any questions, suggestions for episode topics, or requests for guest hosts or interview subjects in the world of tech, drop me a line. My bel address is tech stuff at how stuff works dot com, or you

can contact me on Facebook or Twitter. The handle you will need to use in order to do that, I mean, like to go to don't use this handle, it's mine anyway, It's tech Stuff hs W and I'll talk to you again really soon for more on this and thousands of other topics. Is it how stuff works dot com.