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Circuit City (CC)
Circuit City Craves Change
Although Circuit City is the nation's second largest electronics retailer, the store that holds the number one position - Best Buy (BBY: Charts, News, Offers) - seems to be leaving Circuit City in its dust. Circuit City has been struggling for years to try to keep up with Best Buy, but especially in recent years Best Buy has seemed to be doing strongly while Circuit City has been anything but strong. The two stores continually look to the other to see what they are doing right (or wrong), and to try to make improvements and figure out ways to stand out from the other. Both companies have been making lots of announcements and changes lately; is Circuit City finally getting on the right track, or will it continue to remain well behind Best Buy in the years to come?
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Circuit City's newest idea is the opening of several retail locations that are smaller than their current stores. These stores are called "The City", and are about a third smaller than the rest of the stores. These stores maintain a similar look and feel to the rest of the stores, with some improvements in areas such as lighting, but the decrease in size helps the company save money by decreasing their costs. In addition, they're hoping to attract people to a smaller, more intimate atmosphere. Part of the reason for doing this is based on the speculation that for many electronic items, their size will continue decrease, or more items will be sold virtually, decreasing the amount and size of items to be sold within a physical store location.
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Part of the encouragement behind this change came when Wattles Capital Management recently purchased a 6.5% share in Circuit City, and began making many changes, especially within the board of directors. Last week we learned that the Chief Marketing Officer and the former president of "The City" chain both lost their jobs, effective last week. Jeffrey Stone was hired a few months ago as executive vice president of new business development, and he will take over control of the new "The City" chain.
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Circuit City has also tried to make decisions that will attract new customers or turn one-time visitors into loyal, repeat visitors. One situation where the company has done this is with the HD DVD/Blu-ray debate, which recently has come to a conclusion as HD DVD maker Toshiba has announced they are stopping making HD DVD players and movies, leaving Blu-ray as the winner of the battle. Many stores have reacted to this in various ways; Circuit City has announced that they have modified their return policy to give customers a 90 day window, as opposed to their previous 30 day window, to return HD DVD players if the customer changes their mind regarding their purchase based on this recent news.
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Circuit City's recent quarterly reports have been very poor. They haven't posted a gain in over a year, and in their most recent report they lost over $200 million, compared to the same quarter the previous year which only lost about $20 million. The company expects they will also be posting a loss for last quarter as well. Best Buy, on the other hand, is doing just fine - in their most recent report they posted a gain of over $200 million. Best Buy has hit a few struggles recently - they had to cut their outlook for the upcoming year based primarily on the recent prevalent economic concerns, and they were also recently downgraded from "Buy" to "Neutral" by an analyst from Banc of America, which has caused their stock to slide. But despite all this, Best Buy has strategies of their own - such as the recent news they released that they will be opening a number of new stores in China, as well as beginning online sales to the country of China, hoping they will do well in China despite whatever problems they face from the United States economic situation.
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Circuit City seems to be taking steps to try to climb out of this deep hole they have fallen into; it will be hard, as long as their financial statements keep showing the same bad news. They simply are not making a profit, which is quite disheartening, especially as Best Buy continues to do well, despite the market conditions which might predict otherwise. These new smaller stores might not be enough to make a difference for Circuit City - but they can hope that this is the first of a string of good ideas which will be enough to turn the company around. Otherwise, we might see the gap between these two companies growing larger and larger.
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