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Published:

3.07.09 / 3am

Best Buy Circuit City

Circuit City Stores, Inc. (Pink Sheets: CCTYQ) is an American retailer in brand-name consumer electronics, personal computers, entertainment software, and (until 2000) large appliances. The company opened its first store in 1949 and liquidated its final American retail stores in 2009 following a bankruptcy filing and subsequent failure to find a buyer. As part of its bankruptcy, the company is selling its Canadian subsidiary, InterTAN (which operates as "The Source by Circuit City"), to Bell Canada. Circuit City now operates in the United States as an online-only retailer as a company of Systemax Inc. (NYSE: SYX).

On May 11, 2009, Systemax bought the brand, trademark and e-commerce business at an auction. Systemax had earlier acquired CompUSA and TigerDirect which now operate as online retailers. Systemax in April 2009 signed a stalking horse agreement for $6.5 million which is an initial offer for a bankrupt company's assets.

At the time of liquidation, Circuit City was the second largest U.S. electronics retailer, after Best Buy. There were 567 Circuit City Superstores nationwide, ranging in size from 15,000 to 45,000 square feet (1400 to 4000 m²), when the company announced total liquidation. An additional 155 stores were closed when the company filed for Chapter 11 bankruptcy in November 2008 with the intent of continuing operations. However, attributing its ultimate demise to the lack of consumer spending and overall economic downturn during the late 2000s recession, Circuit City began liquidation of its remaining stores on January 16, 2009, and they were all closed on or before March 8, 2009. A small staff remains on hand at corporate headquarters to complete the company's business, including the termination of its many leases, and the sale of its company-owned real estate and Canadian subsidiary.

History

Beginnings

In 1949, Samuel S. Wurtzel opened the first Wards Company retail store in Richmond, Virginia, at 705 West Broad Street. (Wards Company and Circuit City are completely unrelated to the other former retailer that went out of business in the 2000s, Montgomery Ward.) The name "Wards" was actually an acronym of the founder's last initial and the initials of members of his family (W = Wurtzel; A = Alan; R = Ruth; D = David; S = Sam).

By 1959, Wards Company operated four television and home appliance stores in Richmond. The company continued to grow and acquired stores in other locations including Albany, New York; Mobile, Alabama; Washington, DC; and Costa Mesa, California. During the 1970s and early 1980s it also sold mail-order under the name Dixie Hifi, advertising in the hifi magazines of the day. In Richmond, Wards experimented with several retail formats including smaller mall outlets branded "Sight-n-Sound," "Circuit City," and lastly "Ward's Loading Dock," its first big-box format. The large-format store clicked with consumers, as did the Circuit City name. They were combined into the retail format of the "Circuit City Superstore," which then went national.

Change to Circuit City

Wards Company officially changed its name to Circuit City and became listed on the New York Stock Exchange in 1984. One of the company's early slogans was "Circuit City — Where the Streets are Paved with Bargains." The company, which had leased floor space from the Zody's department stores as well as other department stores, began acquiring retail stores and turning them into Circuit City Superstores. The first of these replacements occurred in Knoxville, Tennessee; Charleston, South Carolina; and Hampton, Virginia.

Wurtzel served as president of the company until 1970. He remained the chairman until 1984. When he stepped down, his son Alan served as chairman until 1994. In 1988, the company began to expand nationwide, constructing its "plug" design stores. During this era, Circuit City became known for its exceptional service, going so far as to have many of its staff factory-trained. Its slogan, likewise, was "Welcome to Circuit City, Where Service Is State of the Art."

In 1991, Circuit City entered the New York City market by acquiring the remnants of the failed Lafayette Radio chain. They operated stores there under the "Lafayette-Circuit City" name for a few years and then exited the market, returning several years later under the Circuit City banner.

Circuit City established the First North American National Bank to operate its private-label credit card in 1990. In 2002, Circuit City began offering a co-branded Visa credit card. It sold both of these operations in 2004 to Bank One (now Chase Bank). Other companies owned by Circuit City included CarMax, founded as a subsidiary and spun off in 2002, and Patapsco Designs, acquired in 1987.

2000s

In 2000, Circuit City exited the large appliance sales market. The previous year, the company had earned nearly US$1.6 billion in sales revenue from large appliances. Every showroom was retrofitted, using the extra store space in its newer superstores for an expanded computer and software selection, and for music and movie sales in its original "plug design" stores. The retrofitting project alone cost the company US$1.5 billion. Investors immediately scoffed at the news, and within two weeks of the decision, the company's stock value plummeted to nearly a third of its 52-week high.

In 2003, Circuit City converted to a single hourly pay structure in all stores, eliminating commissioned sales. Many previously commissioned sales associates were offered new positions as hourly "product specialists," while 3,900 salespeople were laid off, saving the company about $130 million per year.

In 2004, with the expansion of the wireless phone market, Circuit City partnered with Verizon Wireless to include full-service Verizon Wireless sales and service centers in each superstore. These locations were owned and staffed by Verizon Wireless staff. 45 percent of this workforce was laid off due to Circuit City's bankruptcy, with the remainder resigning voluntarily or transferring to other Verizon locations.

On February 11, 2005, a hedge fund headquartered in Boston, Highfields Capital, offered to take over Circuit City for $17 a share, arguing that existing management had failed to maximize shareholder value. Circuit City's board rejected the offer on March 7, but doubled its own share buyback program. As of February 28, 2005, Circuit City held cash, cash equivalents, and short-term investments of US$1 billion. Also in February 2005, a private jet owned by Circuit City crashed in Colorado, killing eight passengers, four of whom worked for the company.

Philip J. Schoonover succeeded W. Alan McCollough as Chairman of the Board of Circuit City Stores, Inc. on June 27, 2006. Schoonover had previously been an executive at rival Best Buy, where his last title was Executive Vice President of Customer Segments.

"Firedog," Circuit City's upgraded in-store and in-home and online computer and home theatre technical support and installation services, was launched in August 2006.

Downturn

In early 2007, the starting wage for new employees was dropped from $8.75 an hour down to $7.40 an hour ($6.50 being the federal minimum wage at the time) and approximately 3,400 employees were discharged from their positions with salaries higher than the cap for their position within the company being cited as the reason. These employees were replaced with new employees brought in at the new starting wage.

On February 8 , 2007 , Circuit City announced that it planned to close seven domestic Superstores and a Kentucky distribution center to cut costs and improve its financial performance. News media reports also mention that 62 stores in Canada were to close.

Circuit City announced on February 23 , 2007 that its Chief Financial Officer, Michael Foss, would leave the company. This unsettled investors and analysts concerned about management turnover. "This represents the third departure of a senior executive in the past six months, and the second departure of a top-five executive in the past month" said Goldman Sachs analyst Matthew Fassler in a client note. Chief Executive Office Phil Schoonover’s "hand-picked team is turning over faster than we would like to see in a turnaround situation."

In a press release on March 28 , 2007 , Circuit City announced that in a "wage management" decision in order to cut costs, it had laid off approximately 3400 better-paid associates and would re-staff the positions at market-based salaries. Laid-off associates were provided severance and offered a chance to be re-hired after ten weeks at prevailing wages. The Washington Post reported interviews with management concerning the firings.

The Post later reported in May 2007 that the layoffs appeared to be 'backfiring' and resulting in slower sales. The blog The Consumerist reported in November on a letter a former employee received from Circuit City, attempting to entice him to re-join the company, in a capacity "comparable to your previous role at the most comp