Circuit City Stores, Inc. - Company Profile, Information, Business Description, History, Background Information on Circuit City Stores, Inc.

9950 Mayland Drive
Richmond, Virginia 23233-1464

Company Perspectives:

Moving forward with continued innovation and superior customer service: Sam Wurtzel started a tradition in 1949 when he identified a new product--the television--and delivered it door-to-door. We extended the tradition when we developed the Circuit City Superstore, providing low prices and knowledgeable sales assistance. Through CarMax and Divx, we are bringing new consumer benefits to the automotive and home video industries as well. By delivering superior customer service--at Circuit City and in these new businesses--we believe that we can produce outstanding returns for stockholders.

History of Circuit City Stores, Inc.

Circuit City Stores, Inc., is the nation's second largest retailer of consumer electronics, with more than 540 stores located throughout the United States. The company trails only Best Buy in consumer electronics sales. Aside from its signature superstores, Circuit City also operates some smaller stores, including several consumer-electronics-only stores and a chain of approximately 50 mall-based stores called Circuit City Express. Circuit City also runs a chain of car lots called CarMax. CarMax, a public company launched by Circuit City and still 75 percent owned by it, has roughly 30 used car superstores as well as 17 new car franchises. Circuit City is also behind the promotion of a video movie disk format called Divx, and it sells both Divx players and disks at its Circuit City stores. The company, based in Virginia, pioneered the concept of the electronics superstore, providing a broad variety of products in a cavernous setting. In perfecting this formula, the company became the dominant marketer in many of the areas into which it expanded.

Ushering In the Television Era

Circuit City was founded by Samuel S. Wurtzel, an importer-exporter who owned a business in New York. Wurtzel had sold his business and was vacationing in Richmond, Virginia in 1949 when he went to get a haircut and, while chatting with the barber, learned that the first commercial television station in the South would shortly go on the air in Richmond. Learning this, Wurtzel got the idea that it would be a good business proposition to open a store to sell television sets, reasoning that sales in the area would increase because of consumer interest in the new station's local broadcasts.

Wurtzel moved his family to Richmond and opened a store named "Wards," an acronym of its founder's family's names: "W" for Wurtzel, "A" for his son Alan, "R" for his wife Ruth, "D" for his son David, and "S" for his own name, Samuel. In addition, Wurtzel took a partner, Abraham L. Hecht. From its base in retailing televisions, Wurtzel soon branched out his business to include other home appliances. Within ten years, the business had expanded to encompass a chain of four stores, all of which were located in Richmond. Combined sales volume was about $1 million a year.

In 1960 Wards started to expand in another direction, as it began to operate licensed television departments within larger discount mass merchandisers in different areas of the country. The company ran television and other audio equipment sales operations in G.E.M., G.E.S., and G.E.X. stores. In the following year, Wards offered stock to the public for the first time, selling 110,000 shares in the company for $5.375 through a Baltimore stock broker.

In 1962 Wards increased its commitment to customer service by implementing a new service plan that included a free loan of a television set if a customer's television could not be repaired in the home. Two years later, the company opened its fifth television and appliance store, in Richmond's Southside Plaza Shopping Center. This, along with the company's earlier stock offering, signaled a period of quick expansion for the company.

In 1965 Wards made its first moves to grow through acquisition. The company purchased the Richmond Carousel Corporation, a discount department store in Richmond, from the T.G. Stores company. By taking over this company, Wards moved into the sale of automotive supplies, gasoline, household supplies, clothing, and children's toys, as well as appliances. In addition, in September 1965 Wards purchased Murmic, Inc., a Delaware company that operated hardware and housewares sales areas in department stores located in the Southeast.

The following year, Wards opened its sixth Virginia store, this one located in the Walnut Mall Shopping Center in Petersburg. Each of the company's stores featured 5,000 to 8,000 square feet of space in which to display and sell televisions, audio equipment, and other household appliances. With the additional revenue from this facility, company sales reached $23 million. Also in 1966, one of Samuel Wurtzel's sons, Alan, a lawyer, returned to Richmond to take a role in the family business, in preparation for eventually taking over the reins from his father.

Geographic Expansion in the 1970s

In 1968 Wards offered additional stock to the public, selling 1,700 shares on the American Stock Exchange. With the revenue generated by this offering, in May 1969 the company purchased Custom Electronics, Inc., an outfit that sold audio and hi-fi equipment. The company owned four stores in the Washington, D.C. area, as well as a mail order audio supplies operation called Dixie Hi-Fi; it also ran nine stereo departments in department stores located in an area stretching from Mobile, Alabama to Albany, New York. Five months later, Wards continued its rapid expansion in the Mid-Atlantic states by buying the Certified TV and Appliance Company of Virginia Beach, Virginia, which operated three stores in the Tidewater area. The company also opened an additional Carousel store in the Richmond area.

One month later, Wards branched out from its familiar geographical area and its core business of appliance retailing when it purchased The Mart, located in Indianapolis, Indiana. This company had as one of its major components the tire retailing operations of the Rose Tire Company and its affiliates, but it also sold televisions, appliances, and furniture. In its furthest geographical leap, Wards also signed a contract to operate licensed television departments in Zody's Department Stores in Los Angeles.

The company's rapid expansion continued in 1970. Wards bought Woodville Appliances, Inc., which ran five television and appliance stores in Toledo, Ohio. Also in the Midwest, it acquired the operations of the Frank Dry Goods Company, which ran a television, appliance, and furniture store in Fort Wayne, Indiana.

By this time, Wards' rapid growth had brought it to a new era, and this was symbolized in 1970 by the transfer of power from the founders of the company to a younger generation. Samuel Wurtzel, its founder, stepped down as president, although he remained chairman of the board, and Abraham Hecht, his partner, retired. In their stead, Alan Wurtzel was named president of the company.

Among the first moves made by the new president was the opening of two specialty stores in Richmond, called Sight 'N Sound, that sold only audio equipment. These outlets were designed to take advantage of the boom in demand for high-tech stereo equipment.

In 1972 Alan Wurtzel, still president, assumed the responsibilities of chief executive officer of Wards. In an effort to eliminate weaker areas of the company, he closed the Franks of Fort Wayne store that Wards had purchased two years earlier and shut down three stores formerly run by Certified in Virginia. Following this consolidation, the company began to expand in the next year. Five audio stores were opened: three in the east, in Washington, D.C.; Richmond, Virginia; and Charlottesville, Virginia; and two in California. In the following year, Wards began to suffer the adverse effects of its rapid expansion and diversification into areas not related to its core business of television and appliance retailing. In 1974 the company lost $3 million on overall sales of $69 million. In an effort to stem the red ink, Wurtzel withdrew Wards from areas in which it was not turning a profit, such as tire sales. In addition, Wards was losing a large amount of money on its licensed appliance departments in three discount department store chains that were doing very badly. To cut its losses, the company began to move out of its leased audio and television operations in department stores, retaining only its involvement in the California Zody's stores.

Birth of the Superstore in the Mid-1970s

In a shift in direction, Wards also closed two of its original stores in Richmond, opting instead to risk half the company's net worth opening a $2 million electronics superstore. With this move, Wards began to shift its focus from appliances in general to the growing market in consumer electronics. The company called its pioneering venture "The Wards Loading Dock." With 40,000 square feet, the warehouse store displayed and sold a very large selection of video and audio equipment and major appliances. This enormous facility, with its exceptionally broad offerings of more than 2,000 products, enabled Wards to take a strong lead against its competitors. In addition, the superstore's high volume of sales meant that the company could afford to offer lower prices than its smaller competitors, as well as such amenities as home delivery and in-store repairs. In this way, by locating its stores in medium-sized markets otherwise served only by smaller, mom-and-pop operations, Wards was able to exploit growing consumer interest in new electronics products. The successful superstore concept became the innovation upon which Wards built its future growth.

Also during this time, Wards expanded its Dixie Hi-Fi line of discount audio stores, adding nine new properties. In the next year, as its Richmond superstore showed promising returns, Wards began to streamline its operations. The company sold its four Woodville television and appliance stores in Toledo, Ohio, and also shuttered four of its five Mart stores in Indianapolis. In addition, the company shed its two Carousel stores in Richmond.

Two years later, in 1977, anticipating that the boom in stereo sales would eventually slow, Wards began to broaden the offerings of its Dixie Hi-Fi and Custom Hi-Fi discount audio equipment stores, transforming them into full-service electronics specialty markets. With this new concept, Wards changed the name of the stores to "Circuit City," opening six of the new facilities in the Washington, D.C. area. With 6,000 to 7,000 square feet of space, the new stores featured video and audio equipment made by well known brand names, as well as in-store service capabilities and a pick-up area for people to load purchases into their cars.

To shift its operations toward the Circuit City concept, Wards continued to streamline in 1978. The company left the mail order electronics business, which it ran under the name "Dixie," and also closed its four Richmond Sight 'N Sound stores. In the following year, the company continued its progress toward large retail outlets, opening a second Wards Loading Dock in Richmond. The company ended 1979 with $120 million in sales.

In 1981 Wards made its first incursion into a significant and challenging new market when it merged with the Lafayette Radio Electronics Corporation, which ran eight consumer electronics stores in the New York City metropolitan area. The company paid $6.6 million for the bankrupt retailer, earning $36.5 million in tax credits as a result of the acquisition, a benefit that observers predicted would drive up its own earnings. Lafayette's reputation within the highly competitive New York market was that of a small specialty seller that provided obscure, high-priced brand name goods to hi-fi hobbyists. Wards faced an uphill battle in its struggle to broaden the chain's appeal and return it to profitability, especially since other New York electronics retailers routinely discounted items 50 percent or permitted haggling over the price of their products.

At the same time that Wards moved into the New York market, the company began to expand its Loading Dock superstore concept in the geographical areas where it already had a presence. Capitalizing on its other name, the company christened its new outlets Circuit City Superstores. The first four stores under this name opened in Raleigh, Greensboro, Durham, and Winston-Salem, North Carolina. In the following year, Wards simplified the naming of its outlets by changing the names of its Richmond Wards Loading Dock stores to Circuit City Superstores.

By 1982 Wards was operating four retail chains, including Circuit City stores, larger Circuit City Superstores, its Lafayette properties in New York, and its operations in Zody discount stores in California. Altogether, the company ran 100 outlets, twice the number it had owned just seven years earlier. A total of 80 percent of Wards' revenue was derived from sales of consumer electronics, and the company reaped solid profits from its marketing of Sony Betamax videocassette recorders and Pioneer stereo equipment. In Washington, D.C., Wards' Circuit City stores held the largest market share, garnering 11 percent of the sales of consumer electronics. By the end of 1983, Wards' pattern of consistent growth through its marketing decision to emphasize large retail outlets had led to sales of $246 million for the fiscal year.

Boosting Circuit City in the 1980s

As a sign of its shifting identity, Wards changed its corporate name to Circuit City Stores, Inc., in 1984. Also in this year, its stock was listed on the New York Stock Exchange for the first time. Although the leadership of the company changed hands--Alan Wurtzel stepped up to the post of chairman of the board, to be succeeded by Richard Sharp--its basic direction did not. Sharp's background was in computers, not retailing, and he had first come into contact with Circuit City when he installed a computer system to control sales and inventory in some of its stores. Under Sharp, the company continued to consolidate its operations in very large stores, replacing regular Circuit City stores with Circuit City Superstores. This process began in Knoxville, Tennessee; Charleston, South Carolina; and Hampton, Virginia.

These stores, some of which contained nearly an acre of floor space, used their grand scope to bring a theatrical flair to retailing consumer electronics. The stores featured solid walls of television sets, all tuned to the same channel. Customers entered by walking past the service department, a visible symbol that the company serviced what it sold. The stores were laid out like baseball diamonds, and customers were led around the displays by a red tile walkway. Particularly popular items were located at the back of the store, to encourage impulse purchasing on the way. By 1984 Circuit City was operating 113 stores, which made it the leading specialty retailer of brand name consumer electronics. The company's growth continued briskly, fed by innovative new electronics products such as cordless telephones, microwave ovens, and videocassette recorders (VCRs), for which initial demand was high. Its Superstores contributed the largest part of its earnings, while the company's New York operations continued to lose money. To fuel continued growth, Circuit City further expanded its operations. In 1984 the company planned a large expansion around Atlanta and opened 15 new stores in Florida. In locating stores, Circuit City adhered to a policy of clustering them together in the same geographic area, which allowed for economies of scale in advertising and promotion.

In 1986 Circuit City took the final step in consolidating its operations. The company closed down its 15 unprofitable stores in the New York area, run under the Lafayette name, after a five-year, $20 million struggle to crack this tough market. In addition, Circuit City withdrew from its arrangement with the 50-store Zody's discount department store chain in California. This low-rent retailer, which had long been suffering financial troubles, provided an inhospitable home to Circuit City's operations and contributed no earnings to its bottom line. Instead, the company decided to put the resources previously used to run these operations into further Circuit City Superstores, concentrating expansion in the Southeast and in California, where it planned to open its own free-standing stores. In moving into a new area, Circuit City methodically set out to win the lion's share of sales in that market. The company typically opened a large number of very large stores all at once, advertised heavily, and distributed products efficiently.

These efforts bore fruit in February 1987, when Circuit City's annual sales hit the $1 billion mark for the first time, driven in large part by the demand for VCRs, which also pushed up demand for new televisions and other audio equipment. The company faced a challenging future, however, as demand for this core product cooled and competition from other electronics superstores heated up. Despite these adverse circumstances, by 1988 the company owned 105 stores, 32 of which were located in California.

Armed with the nation's largest market share, Circuit City planned to add 20 new outlets. Among these new outlets were several that featured a new format. Called Impulse, these stores were tested by the company in Baltimore, Maryland; Richmond, Virginia; and McLean, Virginia. These stores, designed for malls, sold small electronic products for personal use or to be given as gifts. Three years later, the company announced that its test of this concept had been successful, and that it planned to open 50 more such outlets.

By 1989 Circuit City's profits had tripled in just three years to reach $69.5 million, despite a general recession in the consumer electronics retailing industry. Observers attributed the company's success to strong management and a merchandising formula that had been honed and refined for many years. That formula was adjusted further in 1989 when Circuit City began opening mini-Superstores in markets too small for a full-fledged massive outlet. Claiming that the mini-store offered the same service and selection as a larger outlet, the company opened a test site in Asheville, North Carolina. By the following year, sales overall had hit $2 billion, and earnings were up as well.

Competition and New Ideas for the 1990s

Circuit City surged ahead in the early 1990s, with strong sales growth and steady expansion into new markets. By 1994 it had close to 300 stores and had plans to open almost 200 more. But growing competition, particularly with the similar electronics superstore chain Best Buy, caused the company to fight harder for market share and to search for new ways to make money. In late 1993, Circuit City announced it would cut prices in markets it shared with Best Buy, sparking a grueling price war. The firm differed from Best Buy in offering a high-service, hard-sell sales environment, with sales people working for commission. Best Buy was more of a help-yourself retailer. Circuit City publicly defended its more aggressive style, broadcasting the results of a survey in 1994 that claimed that consumers preferred its level of service. By 1995, half its stores were in markets shared by Best Buy, and 70 percent of its markets were classified by analysts as highly competitive. Despite the competition, Circuit City had sales of about $7 billion by 1995, and sales and earnings were rising by 20 percent annually.

The company went in a new direction in 1993, opening the first of what became a chain of used car lots. Two years later, Circuit City was trumpeting its new chain, CarMax. Circuit City's CEO Sharp moved the company into used cars because he saw that the existing market was lucrative, fragmented, and not well run. Customers hated the haggling and distrusted sales people, as a rule, in the traditional used car lot. CarMax offered a huge, clean lot of cars marked with bar codes so that customers could easily locate the vehicles in which they were interested from a central computer listing. Prices were fixed, so the dreadful bargaining was out. CarMax lots held 500 to 1,000 cars, all no more than five years old, and with less than 70,000 miles on them. Each car went through a 110-point inspection, and CarMax offered a 30-day warranty. The aim was to bring Circuit City's retailing experience into this new industry and make the buying process easier on the customer. Though Circuit City was cautious about releasing sales figures for its first CarMax stores, one analyst estimated that its Richmond, Virginia lot was bringing in about $55 million after being open one year.

Used cars seemed like an odd leap for an electronics retailer, yet it was clear Circuit City needed something to keep it going, as the electronics market became saturated. Best Buy passed up Circuit City in the mid-1990s and won the title of number-one electronics retailer, and competition between the rivals did not let up. In 1998 Circuit City trotted out a new product, a digital movie disk called Divx, hoping to get in on a ground floor technology. Divx was pitched to Circuit City by a Los Angeles legal firm, and Circuit City threw money at it. Divx originally stood for digital video express, but it soon became known just by the acronym. It was a disk digitally encoded with a movie, and consumers could purchase it for between $4 and $5, watch the movie within 48 hours, and then throw it away. Divx players were hooked by phone line to a central computer, which registered when the movie was watched, and billed the customer an additional three dollars if the disk was used after the initial two-day period. It competed directly with another digital movie format called DVD, which were disks offered for rent, like traditional videocassette movies. Both these technologies were struggling for consumers' attention, with each format offering only a few hundred titles as they rolled out in the fall of 1998. The large video rental chains refused to sell Divx disks, fearing they would undermine their business, and only Circuit City and another chain called Good Guys initially sold Divx.

By 1999 Circuit City was enjoying strong sales in its core electronics business, but its used car and Divx ventures were not doing well. CarMax lost $23.5 million in 1998, on sales of $1.5 billion. The chain had grown to more than 30 locations, but Circuit City CEO Sharp halted further expansion in 1999, as sales declined. Competition with a copycat chain, AutoNation, had left CarMax struggling. Some new stores were way too big, and advertising costs were heavy. By 1999 Divx, too, seemed to have lost out to the competition. An estimated 10,000 retailers were selling DVD disks, the reusable digital movies that could either be rented like movies on video or purchased for about $20. Only about 740 of these 10,000 retailers also dealt with Divx, and most of these retailers were actually Circuit City stores. Both Sony's film studios and Warner Brothers declared they would not make their movies available on Divx, and the technology seemed to be getting squeezed out. Circuit City's core business was still robust, and it remained to be seen if the company would find new directions as some of its experiments fizzled.

Principal Subsidiaries: CarMax (75%).

Additional Details

Further Reference

Andrews, Edmund L., "Struggling for Profits in Electronics," New York Times, September 10, 1989.Bautz, Mark, "How a Straight-Arrow Company Makes Out Like a Bandit," Money, October 1995, p. 68.Brinkley, Joel, "DVD Leads Race for TV Disks, But It Is Looking Over Its Shoulder," New York Times, July 6, 1998, pp. D1, D4.Brown, Paul R., "Some People Don't Like To Haggle," Forbes, August 27, 1984.Carpenter, Kimberly, "Circuit City Lays an Egg and Hatches a Strategy," Business Week, April 21, 1986."Circuit City Expansion," Television Digest, April 17, 1995, p. 17."Circuit City Fires Back at Critics," Discount Store News, September 19, 1994, p. 5.Cochran, Thomas N., "Circuit City Stores, Inc.," Barron's, January 2, 1989.Foust, Dean, "Circuit City's Wires Are Sizzling," Business Week, April 27, 1992.King, Sharon R., "Circuit City Is Learning the High Price of New Video Technology," New York Times, April 6, 1999, p. C9.Lavin, Douglas, "Cars Are Sold Like Stereos by Circuit City," Wall Street Journal, June 8, 1994, pp. B1, B6.Merwin, John, "Execution," Forbes, April 18, 1988.Rudnitsky, Howard, "Would You Buy a Used Car from This Man?," Forbes, October 23, 1995, pp. 52--54.Spiegel, Peter, "Car Crash," Forbes, May 17, 1999, pp. 130--32.

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