...Journal of Business Cases and Applications The rise and fall of Circuit City Amy Hart The University of Tampa Erika Matulich, Ph.D. The University of Tampa Kimberly Rubinsak The University of Tampa Kasey Sheffer The University of Tampa Nikol Vann The University of Tampa Myriam Vidalon Nielson Abstract Circuit City paved its way in the consumer electronics retail market by committing to its Five S’s operating philosophy – selection, savings, service, satisfaction, and speed. However, the company fell victim to several poor business decisions in the early 2000’s that eventually led to the filing of Chapter 11 bankruptcy in 2008 and its closing in 2009. This case highlights the importance of identifying appropriate product differentiation strategies, building a distinctive competence, monitoring the competitive landscape and making sound business decisions. It will landscape, also aid the student’s understanding of the role and impact of management and explain the importance of employee engagement, satisfaction, and retention. Keywords: Circuit City, Five S’s, customer service, product differentiation, competitive ity, landscape, employee retention, Alan McCollough, Philip Schoonover, layoff, Chapter 11 bankruptcy Rise and fall, Page 1 Journal of Business Cases and Applications INTRODUCTION history This case covers the time period in Circuit City’s history between the decision of CEO Alan McCollough to halt the sale of appliances in 2000 and the decision of CEO Philip...
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...This case covers the time period in Circuit City’s his Alan McCollough to halt the sale of appliances Schoonover to lay off 3,400 employees in 2007 sound strategic business decisions, target marketing, and customer input. points to the need for a retailer in such a competitive marketplace, with both brick and online competitors, to find its c customer value are keys to success. This case is suitable for both undergraduate and graduate courses in Marketing and/or Business Administration or Management, in areas where the students are stu Business Strategy or Marketing Planning. BRIEF HISTORY Circuit City opened its doors to the public in 1949 under the name of Wards Company. This date marked the beginning of the electronics superstore concept in the United States (BCRC, 2009). Within 10 years, Wards became a four store chain with total sales of $1 million per year (BCRC, 2009). In 1965, the company began its expansion through the acquisition of several television and home appliance stores in the United States (BCRC, 2 came under new management and the focus shifted to consolidating the business. all unprofitable stores and invested the revenues generated in a $2 million electronics superstore (BCRC, 2009). The store shifted Ward’s focus from home appliances to the growing consumer electronics market. It offered more than 2,000 products, including video and audio equipment and major appliances. Due to the company’s high volume sales, it was able...
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...Case Study Part1 From the case “The Rise of Circuit City Store, Inc.”, I have learned a lot about the development of the nation's second-largest consumer electronics retailer. Even though it went bankrupt, I still admire its whole development process. It was founded in 1949 by Samuel S. Wurtzel and became pioneer in their business of consumer electronics. However, I also see some problems here which cause the company failed. The first problem I want to say is that the company went on a store expansion too fast which resulted in too many stores in neighborhoods. As I learned from the microeconomics, marginal revenue will goes down as the number of stores goes up. That means when the scale of the store reaches to a certain degree, the profit goes to the maximum. Any new store will only produce a negative income. From the case, we can see that Circuit City kept adding stores almost every year, regardless of the changes in the internal and external environment. I can’t say I agree with this strategy, but at that time, it really increased the sales and profits. However, when it came to the Depression, because of the lack of demand, there was really no need to add new stores. Here, I guess I want to mention another related problem. The case mentioned Interest rates several times, and it is really important for a company. When it goes up, the demand will decrease, at the same time companies may feel hard to loan money. Furthermore, it could cause some credit problems which...
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...INTRODUCTION Circuit City Stores, Inc. was 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 pioneered the electronics superstore format in the 1970s. By the end of 2008, Circuit City was the second largest U.S. electronics retailer, behind Best Buy. There were 567 Circuit City Superstores nationwide, ranging in size from 15,000 to 45,000 square feet. On November 4, 2008, Circuit City announced that it would close 155 stores and lay off 17% of its workforce by the end of the year as a result of continuing difficulties in remaining profitable. On November 7, 2008, Circuit City laid off between 500 and 800 corporate employees from its Richmond, Virginia headquarters. The approximately 1,000 remaining corporate employees were consolidated into one building in an effort to further reduce costs and improve profitability. On November 10, 2008, Circuit City filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. At that time, Circuit City's stock prices traded well below $1 per share (10 cents to be exact), and were removed from listing on the New York Stock Exchange. Starting January 16, 2009, Circuit City began liquidating its remaining stores, and all were closed by March 8, 2009. The former headquarters of Circuit City Stores, Inc., along with the 58 acres of land was sold in September 2010, for US $5.8 million to...
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...Cost Cutting at Circuit City The demise of Circuit City as the number two consumer electronics outlet in the United States in November, 2008 was in microcosm what General Motors and the real estate market were to the country as a whole during the greatest economic collapse since the Great Depression. One could fault the velocity of economic decline as the primary catalyst causing Circuit City ultimately to decide that liquidation was the only viable option in the face of mounting losses, however there appears to be at least one highly publicized decision suspected to be a precipitator of failure – the firing of more than 3,400 established workers to make way for the hiring of lower skilled, lower paid replacements (Circuit City to fire more than 3,400 workers, 2007). Faced with mounting losses and stifling competition from competitor Best Buy, as well as lesser consumer electronic outlet competitors such as Wal-Mart and CompUSA (Rosenbloom, 2008), the Circuit City board of directors chose cost-cutting in human resources as the decision alternative best suited to regain a competitive footing (Circuit City to fire more than 3,400 workers, 2007). Against the backdrop of the Rational Decision-Making Model, the choice appears to have been made in a vacuum in that while problem definition may have been straightforward enough (loss of revenue, decreasing sales), one could reasonably question the rationality of the criteria used and the weights assigned to those criteria (Robbins &...
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...apply the core competencies of efficient and effective logistics also known as service, selection, savings and satisfaction from Circuit City to CarMax. Based on the VRIO framework, Circuit City had a competitive advantage which they applied to CarMax strategy. Their VRIO framework was based on efficient and effective logistics along with the 4w business model of service, selection, savings, and satisfaction which was valuable, rare, and difficult to imitate and organized to capture. By maintaining the same core competencies of Circuit City, CarMax has become the leading used car company with Fortune 500 status. 2. What type of diversification is Circuit City’s CarMax? Circuit City was following an unrelated diversification strategy. Circuit City went from a market of electronics to used cars which has no linkage. CarMax had its own CEO and was managed as a standalone business with profit and loss responsibilities separate from Circuit City. The linkage between electronics and used cars is not apparent. 3. Looking at the core competence-market matrix depicted in Exhibit 8.8, does Circuit City’s CarMax diversification fall neatly into one of the four quadrants? Why or why not? It falls neatly into the lower right quadrant. Circuit City was able to redeploy and recombine core competencies to compete in a new market for them of used automobiles. Circuit City was not building new core competencies to protect and extend current market position nor were the building core competencies...
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...their business decisions of diversification. The first company, Circuit City, was unsuccessful at broadening their business, and eventually had to shut down the business. The other company, Canon, was successful at broadening their brand and scope of the business. This paper will compare and contrast their businesses, outcomes and reasons for the differences. Circuit City was established by Samuel S. Wurtzel in 1949 as the Wards Co. that sold Televisions and home appliances. Over the course of time, it expanded into a national retail powerhouse that rebranded itself Circuit City in 1984. When the store was still operating, it was the “nation’s second-largest consumer electronic retailer” (Mui, 2008, p.D1). When it closed in January 16, 2009, it had 567 stores to close and 34,000 employees out of work. (Haynes, 2009, p.D1). In 2007, the company “posted nearly $320 million in losses, its second consecutive annual shortfall. (Mui, 2008, p.D.1) In 2008, the companies “most recent quarterly showed that it had assets of $3.4 billion with $2.3 billion in liabilities.” (Mui, 2008, p.D1). Circuit City did not have much of an international presence, but it did have stores in Canada which did not account for much of its business. In the economic downturn, “Circuit City neglected to improve its web presence, just as other on-line retailers like Amazon.com were hitting their stride” (Hamilton, 2008). The Circuit City brand was purchased by Systemax, which uses the brand to sell...
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...PERSON: Mike Chalifoux, SVP and CFO ISSUE: Circuit City’s Accounting Practices, specifically, revenue recognition of warranty and extended services WHY NOW: Proposed FASB rule change DETAILS: The Financial Accounting Standards Board (FASB) is proposing that Circuit City use the Deferral of Revenue method of accounting for their extended warranty contracts. Circuit City argues that this would result in a mismatch in Revenue. This issue is important to Circuit City Stores because the accounting practices that they employ to recognize revenue will significantly alter their reported income. The contracts have much greater relative profit margins in comparison to the actual retail items. If you compare Circuit City’s Net Sales and Operating Revenues in 1990 - 2,096,588 – and Net Earnings – 78,100 – which includes Warranty Sales, Circuit City would have to report a Net Loss if they couldn’t count the revenue made from Warranty Sales - 112,933,000. Recognizing the $100 profit on the sale of the stereo would increase their income statement, rather than deferring and recognizing it as revenue over the two-year contract period. This will have an overall negative impact on shareholder’s equity. DISCUSSION: Approach 1 – Full revenue recognition PRO | CON | * High revenue | * Least conservative * Highest risks * Doesn’t reflect the matching principle * Overstates the revenue | Approach 2 – Deferral of revenue PRO |...
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...CIRCUIT CITY STORES, INC 1. ¿Cuál de los tres alcances de la contabilidad para la garantía extendida y contratos de servicio es más consistente con la actual substancia de transacciones de ventas con respecto al equipo y al contrato de garantía extendida? Explique su selección y razonamiento completo. El método más consistente en este caso sería el de ingreso diferido en la venta del contrato de garantía extendida ya que el equipo y el servicio tienen precios separados y son dos transacciones que se las debe llevar por separado. Los costos directos de proveer el servicio se los reconocen cuando se incurre en estos. El registro de esta transacción se facilitaría haciéndolo por separado. Esto se aplica directamente con el principio de realización que indica que el ingreso se lo reconoce o se registra cuando se presta el servicio. Existe una garantía válida que el ingreso del contrato de garantía extendida se va a dar pero no se puede reconocer este ingreso hasta que no se haya cumplido el plazo del contrato. 2. ¿Qué debe hacer Mike Chalifoux? Lo que tiene que hacer Mike Chalifoux es escribir en las notas a los estados financieros el nuevo método para registrar los ingresos de los contratos de garantía extendida, así quedaría claro y estaría cumpliendo con lo exigido. Además puede explicar que aplicando este método se podría reducir el pago de impuestos. De igual manera si Mike Chalifoux piensa que el método diferido no le permite tener buenos resultados de...
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...Recognition approach had low faithful representation. Since the revenue associated with the service of the contract has not yet been completed, which means the revenue had not been earned; therefore, it was less precise to recognize it at the sale. It will understate the liability and overstates sales revenue because this method realizesfull revenue at the point of sale and adjusts later if “actual costs under the service contract fell short” (Bruns 2). Full Revenue Recognition approach will increase the stock price because overstate of sales revenue. * Deferral of revenue method records the product sales and extended warranty separately, it will have a higher relevance because some of the customer did not purchase warranty. According to Circuit City Stores, Inc. (A), “between 40% and 70% customers would purchase both the item for sale and the...
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...Erik Peterson case Analysis Introduction: Erik Peterson, The general manager of GMCT Telephone Company is facing considerable amount of issues relating to launch of pre operating system. Peterson has to report, Chip Knight the director of pre operating system in two weeks. Peterson is looking forward to talk with knight about his plan for dealing with problems which he is facing. About Erik Peterson: Erik Peterson was native of Minnesota. He was 31 year old, he attended business school. He did BS in electrical engineering from MIT and master’s degree from Dartmouth’s Thayer School of engineering. He had worked as designer engineer at avionics equipment. Moreover he had been an Officer in the US Army Signal Corps. He interviewed companies in industry as part of his second year job search, and interviewed by Ric Jenkins, its president and founder. He had no previous worked experience in cellular industry. Cellucomm Organization was a challenge for Peterson he felt very fortunate to have opportunity to work directly under Jenkins. Background: Erik Peterson was hired as general manager at Green mountain Cellular, (GMCT) one of Cellucomm ‘s subsidiaries. It is a “pre operating “system and still in construction phase. GMCT will serve 400,000 people and operate 21 cell sites, 16 sites were anticipated to be ready by turn on date and five other in eight month following GMCT is one month behind the target because of numerous problem, the revised turn on date is April 1st and...
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...There are many factors involved when there is a successful business, however, when a business takes a downturn that results in failure there are specific factors that can attribute to the outcome of the company’s demise. The closing of the electronic big box store, Circuit City is an example of a failed business. They were leaders in business for 60 years. Due to certain actions of management, this electronic retail giant, who was once the nation’s second largest electronics retailer was forced into bankruptcy on November 10, 2008 . 1 Circuit City’s success was built on a culture of discipline that practiced and followed the “4-S” model (service, selection, savings, satisfaction). “It was because of this consistency that Circuit City took off in the early 1980’s and beat the general stock market by more than 18 times during the next 15 years” (Collins, 2001). The slowly declining economy, housing market, limited available credit, unemployment rates, and increased competition compounded and accelerated the repercussions of the pre-existing problems that Circuit City faced started years before. Internally, Circuit City was already suffering from several years of declining sales. The Circuit City organization “made fatal mistakes which resulted in one of the most significant business failures in retail history. These mistakes undermined their own progress and ultimately killed them” (Eames, 2009 ). Today, many business leaders use this once thriving organization...
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...consistent with the actual substance of sales transactions involving equipment and extended warranties. Circuit City matches up almost perfectly with the five criteria in Exhibit 2. They incur the selling costs, they have a service network in place and warranty expenses are forecasted with a great deal of accuracy. Very few customers go above the allocated cost of the service warranty, thus Circuit City does not employ a deductible. After a warranty is purchased, Circuit City’s cost and profit can be expensed with a reasonable degree of accuracy. The uncertainty is so low, it’s almost as if the warranties were like any other physical product, and can be treated as such under Approach No. 1. With all of this in place, it would be unnecessary to use Approach No. 2 (deferral of revenue). Circuit City warranties are not comparable to insurance contracts as stated in Exhibit 3, because unlike the insurance contracts, Circuit City warranties are paid up front, and in full, and buyers cannot cancel their warranty or renegotiate the terms after their warranty has expired. Circuit City also has enough experience and data to show that warranty expenses are very predictable and hardly deviate from their expectations. It is almost like selling another product, where the cost and profit are known well in advance. I would steer clear of Approach No. 3 (partial revenue recognition) as Circuit City warranties do not match up with most criteria necessary for this approach. I.e. only 40-70% of...
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...replacement of highly paid workers with lower-paid workers did or did not cause Circuit City to perform so poorly. How confident are you in your evaluation? Why? After reviewing the article, one can be confident that the replacement of highly paid workers was what made Circuit City perform poorly, which led to Circuit City closing. One can be confident that high paid skilled workers is what hurt Circuit City due to Best Buy being able to outperform Circuit City with less quality people and lower wages. Highly paid workers hurt Circuit City due to Circuit City not being able to compete with Best Buy; then replacing the high paid skilled workers with lower paid unskilled workers is what put Circuit City over the edge. The only way that Circuit City could compete with Best Buy is through customer service and when it replaces the high paid workers, it lost the customer service too. 2) Do you believe that the compensation changes at Best Buy are a major reason for its current difficulties? Since Best Buy is making cuts in departments that will not affect customer service, one can determine that the compensation changes are not a major reason for Best Buy’s current difficulties. The major reasons for Best Buy’s difficulties are increased competition from discount stores like Amazon, Wal-Mart and Target. 3) Why are Walmart, Sam’s Club and Costco doing better than Best Buy (Circuit City)? Do they have high pay? Walmart, Sam's club and Costco are performing better than...
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