Why Circuit City Failed

I suppose the first response anyone will have to the question of why Circuit City failed is "they're not Best Buy, and they tried to trade punches with them." While that might be true, their tale is a cautionary one for every existing and wanna-be retailer in this industry.

Don't just let inexperience sell product and hope for the best.

This is increasingly a service industry, much like restaurants and the hotel game. Debating over the cost of the individual ingredients, or having the customer argue with the chef over how to cook the meal takes a backseat to the final product. Discounts only happen if a colossal mistake is made; not due to price competition over what's on the menu. If the environment and end product is worth positive word-of-mouth, that establishment will thrive and be allowed to remain profitable.

Custom retailers already know that without calibration, acoustic design, and any number of other specialized services, going toe-to-toe vs the net or big-box retailers is a good way to get your doors chained shut. Skills and services can never be commoditized, especially in markets where the retailer finds a niche skill set and pushes that service as essential.

Is all this obvious? Well, it should be, but even in the presence of services like Firedog, it was apparent that Circuit City thought they could be a "Best Buy Light" and ride the coattails of that company's success. But about two years ago, Circuit decided it was in their best interest to terminate all of their top earners. Typically, the top earners are also the top producers, and they never wanted to replace them with anyone other than outcasts from their competition. This was witnessed on a smaller scale a few years back with the downscaling of Ultimate Electronics. Once the darling of the industry, certain restructuring and changes to compensation plans forced the professionals to evacuate the organization (or move into management), with the predictable influx of people excised from other chain stores now manning the sales floor. Combine that with a dilution of quality in the product mix, and all but a handful of stores closed.

In the market the CE industry finds itself in, having kids as your sales staff means that among the predictable problems of poor system design, you have the lack of experience needed to push essential services, because they simply are unaware of them, or do not know why they're needed (in an effort to sell video calibrations, Best Buy was caught trying to circumvent this reality by displaying "calibrated" televisions next to ones supposedly out of the box. The reality was (is?), the disparate displays were running high definition and the standard-definition version of the same program side-by-side. All it took was for the youthful individual manning the display to just point at the two images and allow the consumer to make their decision based on what their eyes told them).

What large retailers should do without hesitation is to really decide if the $6.50/hr folks on the floor are what is needed to maintain the level of service that is needed to keep the doors open. In other words, take the direct opposite approach Circuit City took. Alternatively, return to a commission-based sales floor where supplying superior customer service and knowing the offerings is worth it to the personnel (and to the consumer). Problems, poor advice, and shoddy experiences tend to be inversely proportional to the compensation of the staff. Unfortunately, the folks with the experience and relevant education are often sequestered in a manager's office, detached from the customer until the inevitable problem occurs. Horror stories (once discovered) are often quickly reported on any number of websites and discussion boards, and allowing inexperienced individuals to dictate the public's perception of their business will not save them money; indeed it will cost them, possibly catastrophically. Given the inability of Circuit to move old inventory (staffing issue) and lack of pushing proper services to wrap around those products that are moved (staffing issue) we have the answer to their demise wrapped up in a nutshell.