Circuit City - What Went Wrong

Circuit City, one of the strongest retailers of consumer electronics for decades, filed for Chapter 7 bankruptcy in 2009. What happened to one of the few model companies listed in Collins' landmark book Good to Great?

From what I have read on the subject, the ultimate failure came because of the breakdown in two distinct areas. First, it seems like all store employees were unhappy, and second, there didn't seem to be a clear marketing position for Circuit City.

To further analyze these problems with respect to the downfall of Circuit City, I will apply the 7-S model. The first S that broke down for Circuit City was Staffing. During Circuit City's "Golden Years", store employees were highly-trained and commissioned salespeople, which lent itself well to the store setup. As competition increased and economic conditions decreased, the stores converted from the commission pay format to a single hourly pay structure, and at the same time laid off 3,900 salespeople. The decision to cut their most expensive sales force, while saving the company about $130M, also left them with unskilled, disloyal employees in stores that required a great sales staff. The resulting in-store experience was not a particularly engaging or satisfying one for customers, leading to decreased sales.

The second S that broke down was Strategy. Marketing experts at the time of the decline were not sure what kind of position Circuit City was trying to achieve. In the face of stark competition, what set Circuit City apart from the rest? Wal-Mart dominated the low-price segment, Best Buy achieved excellence in customer service, employee satisfaction, and selection, and Amazon.com stressed convenience and product selection as well. Circuit City seemed to just try to fall back on their brand name for their competitive advantage. Which, obviously, didn't work.

Of course, I don't know exactly what the executives were thinking during this time. I'm sure they thought they were making the best decisions they could. The general state of the economy didn't help their outlook either, but, their competitors have all at least stayed afloat. One of my friends often says a phrase that now comes to mind: "don't break it if it ain't broke." That may not be the most applicable proverb here, but at some point, Circuit City boomed. Their value proposition was unique, and they dominated. Once they changed their staffing and strategy positions, they faltered and eventually crumbled.