Circuit City Revamps Its Retail Strategy

Circuit City, which has faced tough competition from Best Buy and Wal-Mart, responded with discounts that have eaten into profit at the Richmond company.
Circuit City, which has faced tough competition from Best Buy and Wal-Mart, responded with discounts that have eaten into profit at the Richmond company. (By Mike Mergen -- Bloomberg News)
By Ylan Q. Mui
Washington Post Staff Writer
Friday, February 9, 2007

Circuit City, still smarting from the vicious price war of the past few months over flat-panel TV sets, yesterday announced plans to close dozens of stores, fire workers and shake up top management.

The moves come after a tough holiday season when the retailer fought bitterly against Best Buy and Wal-Mart. The price of the popular Panasonic 42-inch plasma high-definition television, for example, dropped from $1,762 at Circuit City in September to $1,199 just two months later.

The battle continued up to the Super Bowl, with Circuit City advertising 172 varieties of televisions, compared with 134 at Best Buy, according to a recent report by investment firm CIBC World Market. The average discount on a liquid-crystal-display TV was about 18 percent in November and December, and 16 percent in January, the report said.

Such aggressive discounting has hurt the consumer electronics retailer's bottom line, and chief executive Philip J. Schoonover said he was moving quickly to make up for it.

"The steps we are taking . . . represent the initial efforts toward getting our cost structure more in line with today's marketplace," he said.

Circuit City, based in Richmond, plans to close seven of its 643 U.S. stores this month, though none are in the Washington area. The move is to affect about 210 workers. In Canada, the company plans to close small stores known as the Source by Circuit City, spokesman Bill Cimino said. Circuit City is to continue operating about 500 stores and 300 dealer outlets in Canada.

The company also announced that its chief merchandising officer, Douglas T. Moore, is leaving after 17 years. His duties would be assumed by Senior Vice President David L. Mathews, who is to oversee merchandising, marketing, services and supply-chain teams. Executive Vice President George D. Clark Jr. is to be in charge of all retail channels and Circuit City Direct.

"We've realigned our executive management team, and I think Doug [Moore] took that as an opportunity to leave the company," Cimino said.

Circuit City told analysts in May that it hoped to bring its operating margin to 5 percent in three to five years. The retailer said it planned to make more changes over the next six months.

For fiscal 2006, Circuit City's operating margin was 2.1 percent, Cimino said. For fiscal 2007, it is estimating an operating margin of 1.2 to 1.4 percent. In December, it also reduced its sales growth estimate to 8 to 9 percent, down from 9 to 11 percent. Forecasts from growth at stores open at least a year, a key measure in retail, were also lowered to 6 to 7 percent from 7 to 9 percent.

Circuit City shares closed yesterday at $21.67, up $1.07.

"We know we needed to change," Cimino said. "What you're seeing today is us trying to change to become more competitive within our industry."

© 2007 The Washington Post Company