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Project 2501 by Andy Patrizio (bio)

Making sense of an overwhelming sea of information



Blown fuse at Circuit City

Merry Christmas, Circuit City employees. A lot of you are getting a gift of pink paper. I've always thought it was awful that layoffs come at this time of year, but one friend noted it's better now then after running up huge bills during Christmas and then being jobless when they come due. Six of one, half dozen of another, I say.

The company will close 155 underperforming stores (listed here), cancelled plans to open 10 more, and will exit 12 markets (Phoenix, AZ seems to be the largest, although Texas and Ohio are also getting creamed). Judging by the list, it's clearly smaller cities that are taking the hit. The one near me that's closing is about 200 yards from a Best Buy, a few miles from Fry's Electronics and in a low-income neighborhood, so I am not surprised at its demise. Time to go bargain hunting (I need a digital camera).

The company cited the usual excuses: declining consumer confidence, weakened retail environment, vendors facing tightened credit terms from their lenders, blah blah blah. The real question is which act really sealed Circuit's doom.

Some will point to last year's decision to fire the most experienced and therefore most expensive employees and replace them with low wage rookies. This certainly hurt the stores. The few times I went into one, it really looked neglected and chaotic.

It certainly caused CC a massive black eye. That kind of corporate greed in this day and age does not go unnoticed and word travels quickly. Once something like that gets Dugg up and people have Reddit, you are Farked.

But I think it goes back further, to CC's white elephant, Divx. In 1997, when DVD was in its infancy, several studios were not willing to sign on with the technology. That's because CC came out with a competitive product called Divx, a pay-to-play system.

If you think the HD DVD vs. Blu-ray battle was bad, clearly you are too young to remember the Divx vs. DVD war (or too old). It was nasty, and took place on the Internet in its earliest days of commercial growth. My friend Bill Hunt, editor of The Digital Bits DVD site, probably single-handedly sunk Divx just by shining a light on it, and for that many people are forever grateful.

One of the things that made the format war of the late '90s so much nastier was DVD supporters were loudly calling for boycotts of Circuit City and insisting everyone support Best Buy, which was an up and comer at that point. Circuit wouldn't carry DVD, only Divx, and CC's CEO at the time was throwing as much FUD on DVD as he could in an attempt to sink it. That didn't happen with Blu-ray vs. HD DVD because no retailer picked a side, they all carried both formats.

Many early DVD supporters stopped going to Circuit City and never went back, and encouraged their friends not to go, either. They rewarded Best Buy's support of DVD with their business and their loyalty, and Best Buy was smart enough to jump on the right bandwagon.

To be sure, Best Buy was never going to carry Divx and thus enrich Circuit City. Moreover, it has executed as a company far better than Circuit City has. The Geek Squad and Magnolia purchases were brilliant moves. So they have that going for them. In 1999, BB had just 311 stores. CC had 590. Today, Best Buy has 900 and is opening more. CC stalled at 721.

What remains of CC will have to soldier on and try to make a go of it, but you know, closing stores is rarely a path to success. Right, CompUSA?

Funny side note #1: CC said in the press release announcing the store closings that it has been unable to collect on $80 million in taxes from the federal government. That's rather remarkable, given our government's readiness to throw money at corporations that have run aground due to rampant incompetence.

Funny side note #2: the old CompUSA in San Bruno, CA, right near Jupiter's west coast offices, has been gutted like a fish and is being resurrected as *drum roll* a Best Buy. This will be one of the new smaller stores BB has been planning, minus the Magnolia, Geek Squad, auto installation, and some of the larger items. They expect to open by Christmas.   

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10 Comments

Mark said:

Circuit City permanently lost my business over DIVX. Their creation of that no-widescreen, no-extras, pay-to-play system led me to never set foot in their stores since.

Mick said:

Well said:

A) Bill really did rally a LOT of folks, and did so with facts, rather than FUD.

B) On the mark with the loyalty to BB and avoidance of Circuit City.

Since 1998 I've made one purchase at Circuit City, a set of Infinity speakers that were marked down to about 20% of the original price.

Everything else, and there's been thousands of dollars, have been Crutchfield, Best Buy and a few other smaller local retailers.

From the time that circuit city opened in my area (around 90 or 91 if I recall) to the time of the divix fiasco, easily 95% of my AV purchase were at circuit city.

At the time of the Paramount HD-DVD payoff last year (wow, it seems a lot longer) I decided the same thing, never to purchase or recommend another toshiba product for myself or for a friend or client. I guess we'll check back in 10 years and see how they're doing. :-)

Thanks for the trip down memory lane!

David said:

The start of the CC downfall began over 10 years ago while i was living in South Florida.

Divx was one of the worst ideas any consumer retailer and hardware co. ever came up with. And where did CC come off partnering up with a entertainment law firm to make divx??
As far as S. Fl., CC decided to completly remodel, from top to bottom, every single store in the S. Fl market. And they decided to do this at the end of August, right before the most important selling quarter of the year. The stores were a total mess, not ready for business at all.
Who planned that in CC?
No the end of CC has been a long time coming.

Scott said:

Count me as another who never stepped foot in the door again after DIVX.

Adrian V. said:

I do like circuit city to a certain point though. It's nice and quiet and everyone just leaves you alone.......that was a joke. You go to BB and it FEELS like an electronic store should feel like, loud and bright. CC on the other hand, no one really asks you for any help and they leave you alone. Alone as in when I cross the street to shop at the other "loud electronic store." I tell you one thing, this greed with corporations letting experienced people go, well, Wallyworld is doing the same thing........

Dave said:

I got my first HDTV in a Denver Circuit City about 5 years ago. Since then, I moved to Phoenix and have watched the one near me go into a slow decline; yes, Divx was a horrible idea and I remember the fight well, but it also has to do with plain customer service. Best Buy greets you at the door, and each department usually has someone readily available to help you. I had trouble with my Samsung Blu-ray player several times and they were very helpful in getting it traded out, twice. Their stock is easy to browse through and departments are clearly delineated.

On the other hand, I can't tell you how many times I've walked into a CC, and searched from top to bottom for someone to help me. I've actually, more than once, had employees RUN AWAY when they see me coming. Come on, kids, I'm not that scary! I don't mind younger employees as long as they're well-trained but the CC guys, contrasted with the BB folks, seem usually clueless. I did have one very friendly guy appear out of nowhere to help me last time I was in CC, but he was the exception rather than the rule. All I could think was, no wonder these guys are going out of business. I'm sure we all have horror stories for both BB and CC, and a lot has to do with management. But, Best Buy seems to be more consistent with its service and stores, and they will continue to receive my patronage. Bye, CC, you blew it.

Patrick Depew said:

As a former CC employee of about 2 1/2 years (2001-2003), I can't say I'm surprised by this. I saw it coming since, if memory serves me correctly, February 5, 2003. On that particular day Circuit City ended commission pay for its sales associates. But what they also did was simply release people who were making more per hour in commission than they were willing to pay an hourly wage. So instead of even giving those associates the choice of taking an offer they were sure to decline, they just gave them 2 weeks' severance pay plus 1 additional week for each year of service at the company. I had about 10-15 people I worked with get hammered out by this. I was one of the lucky ones that survived. The company was then just totally mismanaged from there. When I started, they were supposedly just emerging from the Divx fiasco. When I left they were bringing in Best Buy execs to steer the company right, and that didn't work either. So when they fired those longer-tenured associates last year, again many people I still worked with, I knew it was just a matter of time. I still went to CC over Best Buy because at the Best Buy closest to where I live, you can never find someone to help you. Luckily, I never need help, but still. I think in the end Wal-Mart's emergence into electronics hurt CC as much as BB did. Just my take. Luckily, the friends I have that still work at CC are safe, because their stores aren't closing...for now.

Chris said:

Good riddance. Every point made by the folks who have written replies is absolutely right on. Divx was one the most mind-blowingly stupid ideas I've ever heard of. Their customer service ALWAYS sucked, not just recently, ALWAYS. Their product line, pricing, delivery, store maintenance, ambient lighting, parking lots, restrooms, carpets, everything was/is horrible. And what is with those random cash registers just arbitrarily placed throughout the store? Checkout lines too much for you, CC? And do they still give you two miles of receipt tape with every purchase nowadays? That was annoying as hell.

John said:

While DIVX was horrible and I vowed never to shop at CC since, that wasn't what brought them down. There stores just plain stink now compared to BB. Their selection is paltry, you can't just grab a TV/DVD whatever and just go to the line. It just feels like you are walking into a masoleum, where BB (though far from perfect) is a far far more fun shopping experience. I really am amazed how a store could just get it so 'wrong'. The only problem with CC gone if it gives BB less incentive to have sales etc...

CaW said:

I was vehemently against DIVX so much that I got myself into arguements with a few sales drones who were drinking the Kool Aid.

Since DIVX, I only purchased two items at CC because they carried better audio products than Best Buy.

I find myself in Best Buy many times, but rarely at CC. In the last year CC opened a new store that was very close to a successful BB/Magnolia in my area. I am surprised they are not closing that one either. The BB is always busy where the CC rarely has more than a couple of customers at a time.

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