VCU Brandcenter favorite and Richmond VA based Circuit City to close 155 stores (23%)

News has leaked out that once GREAT* Circuit City will shut down 155 stores (of about 670; 23%) by the end of 2008. The Consumerist reports that employees in car installation and Firedog will be let go within 48 hours. This seemingly extreme decision must be a reaction to an NYSE warning to de-list Circuit City as it’s stock has averaged below $1 for 30 days.

What was earlier thought to be a rumor became more real when one employee posted an official letter from CC about the store closing (go to The Consumerist post for the whole letter).

Interestingly, in the same paragraph the letter mentions, “Circuit City has not yet determined whether it will provide severance pay in connection with this layoff.” and “You will continue to be bound by the terms and provisions of the Circuit City Code of Business Conduct.” Certainly one employee meant to say, “If you mean *uc* off by ‘not yet determined about severance pay’ then *uc* you and your business code” by sending a presumably confidential letter to a trade blog.

This is news too close to home not only because Circuit City is a Richmond, VA based company (where the VCU Brandcenter is located, duh) but as a local company it is one our Brandcenter professors like to challenge us with all the time (and considering that I wonder…^). I’ve worked on the brand on different projects both in my first and second semesters here.

Some surface level opinions: Circuit City is a very good case study for branding students. Retail is a tough business to create magic with a new ad campaign in a new year. The best definition of a brand I’ve heard is from Kelly O’Keefe; he says, “a brand is not what it says, it is consistent predictable behavior.” Retail is probably where this definition becomes most evident. Let’s take the 4 P’s of marketing:

  • Product: The actual product retailers sell are mostly commoditized by their availability at competitive stores (A no brainer for Target. The dignified looking, comfortable, leather cover chair I bought this summer from Target cost me $40. My friend got a swivel chair like mine from a thrift store, for perspective.)
  • Price: As prof. Don Just would put it, “Wal-Mart’s got the screw on price.” Circuit City tried it with price matching, but if I’m looking for the lowest price I’m either going to Wal-Mart if I need it TODAY or I’m going to pricegrabber.com. Best Buy was smart and brave to ditch penny pinchers by making changes to their return policy. With so many online stores the share of the price sensitive population must have severely shrunk for stores like Circuit City.
  • Place: Best Buy overtook Circuit City on number of stores too. To give CC credit, their “buy online and pick up from store within 24 minutes” is a good idea to leverage the physical presence. Again, online stores steal a big portion of early adopters and serial buyers market.
  • Promotion: In a business saturated with promotions what more is one to do when one doesn’t hold the screw?

In both the projects I did, the teams were convinced that to make any difference Circuit City had to work on it’s product, that is what you get when you are inside the store. Unfortunately any change in-store would take considerable investment and a long time. When a business is judged every quarter and the solution lies in long term changes, any idea would seem impossible for the board. I wonder how many “risky” ideas from how many agencies were turned down in all these slow years for Circuit City because they seemed too radical. Yet a day comes when something as radical as closing down 23% of stores is forced reality.

This could be (hoping) this is a blessing in disguise for the company. With less profitable stores purged,one can hope that making the store better from the inside should cost less. With over 90% of the stock value lost in a year ($7 to $.2) is there any dough for a new “Open” sign even?

* – Jim Collins writes about how Circuit City went from Good to Great and stayed great for at least 15 years in his book Good to Great.

^ – We’ve worked on Circuit City several times, it being a local company. But I don’t remember ever being assigned a Phillip Morris brand; once my team chose cigarettes for a segmentation study just for kicks.

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