Learning from Circuit City’s Mistakes

The liquidation of Circuit City’s 567 remaining stores was a bad thing … bad for the economy and bad for its 34,000 employees.

If there is a silver lining, it’s that electronics dealers can examine the mistakes made by these failed companies, according to representatives from three of the industry’s major buying groups -- Home Entertainment Source (HES), Home Theater Specialists of America (HTSA) and Specialty Electronics Nationwide (SEN).

Circuit City, formerly the No. 2 electronics retailer in the U.S., didn’t differentiate itself enough from top dog Best Buy, according to Jim Ristow, executive director of HES. “You can’t ‘out Best Buy’ Best Buy,” he says.

It certainly appeared that Circuit City was melding into Best Buy when it cut 3,400 of its better-paid sales associates in March 2007. It announced plans to replace them with new hires that it could pay “at the current market range for the job.”

Circuit City should have gone in the opposite direction and nurtured its more experienced sales associates, thus differentiating itself from Best Buy, according to Jeannette Howe, executive director of SEN.

"The biggest mistake Phil Schoonover [former Circuit City chairman, CEO and president] made was deciding to fire all of their best salespeople and keep only the marginal sales people. If Circuit City really had to cut back, I would have recommended that he do exactly the opposite," she says.

In the wake of Circuit City’s failure, Ristow suggests that smaller electronics dealers make sure they’re agile enough to react to market conditions.

He adds, “Independents should develop a sound business model, work their books, strive to be better every day and be the entrepreneurs they are. Never settle for mediocrity.”

Ristow, along with HTSA executive director Richard Glikes, have other suggestions for electronics dealers.

Top 3 Lessons from Circuit City

What should CE pros learn from the big-box retailer's mistakes? Ristow and Glikes offer their top three takeaways.

Ristow:

1. Make sure your overall business is viable. Expenses, showroom size, staffing should be scalable as business expands and contracts.
2. Make tough decisions quickly. Circuit had several hundred million dollars in retained earnings. If it made dramatic changes three to five years ago, it would be reaping those rewards today.
3. Find your unique value proposition and build your company around it. You can't "out Best Buy" Best Buy.

Glikes:

1. Appliances are a good thing.
2. Commission salespeople sell more.
3. Location, location, location.