Is the Circuit City deathwatch on?
Posted
Apr 09 2008, 02:08 PM
by
Kim Peterson
Rating:
Walk into the Circuit City in my town, and you'll suddenly get a strange sensation. Look around...you're the only person there. Wait, someone must work here. Hello? Anyone? Then head over to Best Buy, which is packed with customers and ringing up sales.
Why is Circuit City struggling while Best Buy shines? There are many reasons: prices, marketing and sales strategy top the list. Look at the stock prices of the two: Circuit City shares have fallen from nearly $19 a year ago to $4.30 today, while Best Buy shares have stayed in the $40 to $50 range all year.
Circuit City might see some big changes soon. BusinessWeek reports that the retailer may have hired Goldman Sachs to look into sale possibilities. This comes after the company's turnaround plan has failed. Analysts say one of the worst decisions executives made was to fire 3,400 of the most experienced workers and replace them with lower-paid ones, according to Business Week. Customer service went out the window.
There is some good news. After a money-losing streak that lasted several quarters, Circuit City's cost-cutting has put it back in the black. The company made $4.85 million in the quarter ended Feb. 29. Yet that profit wasn't due to a sales boom: same-store revenue fell 10.4%, while overall revenue fell 8% to $3.65 billion. Best Buy same-store sales fell just 0.2% in the fourth quarter.
Today, Circuit City said it faces the "toughest macroeconomic environment in years." A Sanford Bernstein analyst said the company's outlook is weak due to sluggish store sales and margin erosion.
What can be done to save Circuit City? One of its most vocal shareholders wants to replace all 12 members of the board and sell the company. CEO Philip Schoonover is pushing ahead with a turnaround plan that includes improving what he calls the "selling culture," cutting prices on warranties and unveiling smaller concept stores called "The City."
These are tough times for any retailer, and Circuit City is smart to be exploring a sale. But in this economy, and with a huge rival like Best Buy, can anything be done to save this company?
Further reading:
Why Circuit City must be sold now
The Why of Best Buy
Circuit City and profits: still more questions than answers
Circuit City Q4 earnings call transcript
