Circuit City Rewires

When Circuit City expanded the big-box warehouse format to consumer electronics retailing in the 1980s, the company was on its way to becoming the place to go for TVs and stereos. By the late ’80s, it had sidestepped its then top competitor, Silo, and it soon put the squeeze on the likes of Tweeter and RadioShack. Circuit City was doing so well in the ’90s that business consultant Jim Collins, in his best-seller Good to Great, wrote: "From 1982 to 1999, Circuit City generated cumulative stock returns 22 times better than the market, handily beating Intel, Wal-Mart, GE, Hewlett-Packard and Coca-Cola."

Today, Circuit City is in a markedly different position. By 2001, Best Buy had raced past the Richmond, Va.-based chain, usurping its position as the number-one consumer electronics retailer. Best Buy now has 608 stores compared with Circuit City’s 599 and nearly $25 billion in revenue to Circuit City’s $9.7 billion. Circuit City is now ranked by consultancy Retail Forward as the number-three seller of consumer electronics, behind Best Buy and Wal-Mart.

"[Circuit City] was the 800-pound gorilla," says Joseph Feldman, a research analyst with the investment bank SG Cowen & Co. But "they woke up one morning and Best Buy had doubled its size with the same number of stores."

Since then, Circuit City has been trying to catch up to Best Buy, or at least cement its position as a serious contender in consumer electronics retailing. Last year, its top executives announced plans to turn the company into a customer-focused business that delivers a personalized experience to all of its customers across all of its channels (stores, Web and call centers). Michael Jones, who took over as Circuit City’s CIO in January 2004, speaks passionately about the high-profile role technology will play in delivering personalized customer experiences. But before he can achieve his vision of store associates being able to recognize customers through their loyalty cards as soon as they enter the store, he has a lot of unglamorous groundwork to lay. Circuit City’s strategy hinges on a robust IT infrastructure that makes information readily accessible to decision-makers who need it. In fact, everything the company is currently doing to improve its business—from developing more effective promotions to deciding which products should be displayed at the ends of aisles in stores—hinges on data. "This is heavy analytical work. It’s fact-based, data-driven," says Philip Schoonover, Circuit City’s new president who was hired in October 2004, ironically, from Best Buy.

Circuit City is just this year starting to invest heavily in the technology needed to act on this strategy. It’s upgrading its mostly proprietary point-of-sale (POS) system and building an enterprise data warehouse to replace siloed databases. But some analysts say Circuit City’s turnaround effort has been hampered by a stodgy, overly complacent leadership that lacks vision. Its top executives saw the Best Buy locomotive coming but failed to react as it steamed past them. Indeed, some analysts say they doubt Circuit City will ever catch up.

"They are many years behind [Best Buy]," says Bill Sims, a senior research analyst with Smith Barney. "I haven’t seen a vision, a strategy out of Circuit City yet that would enable them to successfully compete with Best Buy."

Circuit City’s experience underscores the importance of vision, focus and leadership in sustaining a great company. It also highlights just how critical up-to-date systems are in running a business and how important it is for IT to proactively find the right technologies to support operations and enable innovation.

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