Though very few jaws dropped when Circuit City announced it was going into Chapter 11 this week, the common thinking was that the retailer was simply hit by the economic downturn and decreased customer spending. That assumption, though, fails to consider that Best Buy, one of Circuit City's chief rivals, reported a quarterly profit of two hundred million dollars when Circuit City had nearly two hundred forty million in red ink on the books. Though tough times have hit all retailers to some degree, a closer examination of Circuit City business practices shows why the retailer languished. Looking back a decade, it is easy to see that Circuit City, then a dominant force in electronics retailing, became complacent. The chain failed to secure better locations for their stores or move onto the web, didn't move as aggresively into gaming as their competitors, and failed to get behind emergent electronics such as the iPod. Compounding the problem is that to increase profit margins when sales began to lag, Circuit City laid off many of its better compensated (read: capable and motivated) employees in favor of cheaper workers. The end result is that what was once a one-stop for consumer electronics became a essentialy an empty warehouse of outdated merchandise. Circuit City may resurrect itself, but in order to do so it will have to drastically alter its business plan. After having been away for so long, customers will not be lured back by a store that is merely as good as Best Buy. [Time]
