As a Circuit City veteran, I can tell you that the shock at Best Buy was the fact that their revenue was completely flat in the year after the Circuit City liquidation. They didn't get a dime of additional sales after expecting billions to flow in. All those sales went to other companies like Target, Walmart, and Costco. It is correct that this scared them to their core as they had hired thousands of former CC managers and employees expecting a surge of sales that never came.wnetmacman wrote: ↑October 31st, 2016, 7:07 pm I can give you two words that sum up Best Buy's lack of activity:
Circuit City
Their collapse scared Best Buy to its core, and while they have made *some* changes, it really doesn't amount to much. Best Buy is now an Electronics Convenience Store and Showroom. Folks don't go there to buy. They go to look, and to purchase immediate needs.
Comparing to Micro Center and Fry's is really unfair. These two only appear in certain large metro areas, and not in every metro like Best Buy. They also tend to lean more into Computers, while Fry's does have a large selection of other items. They aren't direct competitors in all areas, and that was the difference. Best Buy and Circuit City were direct competition, and essentially, Best Buy won the battle.
Circuit City was a sad story of extreme mismanagement - they thought they could spend themselves back into first place in the electronics industry despite the fact that at the time this decision to rebuild the company was made Best Buy was up to a $60B company and they were only $12B. This would make about as much sense as Kmart today announcing their new goal is to put Walmart out of business - it ain't going to happen. They could not accept being a second place player when they should have studied successful 2nd place companies like Lowe's and Target to understand how they found a successful niche allowing them to survive the competitive onslaught. Then they started to run out of money from expanding too quickly Pre-2000 and thought they could cut expenses (payroll) to offset the fact that a quarter of the stores lost money when the rest of the chain was doing great. They eliminated commissions and appliances, and laid off the highest paid employees. The company was terrified that if they ever closed a few stores - the brand would be tarnished and the customer would not feel confident about shopping there - and most importantly they wouldn't trust that extended warranties would hold up despite being insured. Warranties are still the profit center of the electronics retail business, even Apple pushes AppleCare hard in their stores. Eventually the dead weight of carrying the 150 or so unprofitable stores was too much and started to cause impacts in earnings - those spooked the banks and the company credit lines were frozen - forcing them into Chapter 11. They thought that they could wipe out the leases and debts from the bad stores in the process but there wasn't enough confidence in the banking industry to give enough new credit for emergence from refinancing. That forced the company into an auction and of course the winners were the various liquidation companies. The saddest part of the whole affair is that the ENTIRE BANKRUPTCY ESTATE WAS PAID OFF IN JUST THE FIRST FEW WEEKS of the liquidation. Most retail liquidations result in creditors getting pennies on the dollar, but not CC. The bankruptcy ended up turning a massive profit which resulted in large bonuses for most of the managers upon termination and a large nonprofit foundation was established in Virginia with the remaining funds. In other words, if the banks had just given them a new credit line and refinanced debt they were very much a viable company that would still be here today minus the group of bad stores.
Circuit City was doing "omnichannel" better than anyone else in retail more than a decade before the phrase was invented. At the time of their closing they were selling over $2 Billion a year online for pickup in store. They had real time inventory and an ancient looking proprietary system that could manage every single aspect of the store operation allowing you in theory to be in Los Angeles and purchase a computer out of a store in New York for your kid - and the store in New York had a pickup ticket for that computer before the receipt even printed in LA. You could buy however you wanted, stores, online or by phone. They were actually far ahead of their time in many aspects.
I do not know of any company that consistently brought in $12 Billion a year that has gone out of business in the retail industry - Circuit City has been the largest.
What is even crazier is the fact that Best Buy is working currently on a new prototype format that, if successful, will be used for complete remodels starting in 2022. Google it and you'll find pictures. If you can find pictures - it is literally Circuit City's early 2000's format in blue. The format they used before they went to a Best Buy warehouse format imitation with a ugly gold yellow tower. In the Best Buy remodel they wall off a third of the store for a warehouse with pickup doors up front for easy pickup of online orders. You will pay on the sales floor and pick up at the front counter. They install several parking spaces out front by the pickup door. Large item boxes move to the warehouse which reduces shrink and improves the appearance of the sales floor as you can more easily compare TVs when they're closer together versus spread out to accommodate stacks of boxes below. The high shrink items are in the warehouse secured like computers, laptops etc. This worked exceptionally well for Circuit City as they prided themselves on having the lowest shrink in the retail industry - a store that was even close to half a single percent shrink rate was considered a ultra high shrink location and if not remedied quickly the Management team would quickly be dismissed. (I was usually the one who had to go clean these up after). In the new Best Buy format they even repainted the ceiling dark gray/black like Circuit City. It is literally their rebirth with a different name on the front.