The Failure of Circuit City Stores - Research Paper Example

? The Failure of Circuit Stores Introduction The study is about analyzing a particular article and revealing the information collected from it. In the context of this study, initially, several articles will be chosen which emphasize different issues of Circuit City Stores. The articles will be chosen from business journals or from some databases. Among the chosen journal, one with the most valuable information that reflects organization’s core business values and corporate culture will be selected to conduct the study. Through this report, the outlook of the author of some article will be presented and critical discussion about the same topic will be carried out. Finally the learning outcomes from the study and article will be illustrated. The company chosen to conduct the study is Circuit city Stores Inc. Before getting into any critical discussion about the area of study, a brief over view of the chosen company will be presented in the next section. Circuit City Stores: A Brief Overview Circuit city Stores Inc. was an US based retailer which was founded in the year 1949. The company used to sell branded products in the category of entertainment software, consumer electronics, personal computers, and also large appliances. It was headquartered at Richmond, Virginia, USA. However in the year 2009 the company was closed due to bankruptcy and failure to grab any customer (Wallace, Gifford & Dougias, 2004). During the time of its liquidation, the company was the second biggest consumer electronics retailer just after Best Buy. Throughout its lifespan the company had 567 Circuit City superstores nationwide. Initially 155 stores were closed during the time when it filed bankruptcy in 2008. Finally in the year 2009, lack of consumer demand and economic downturn has forced Circuit City Stores to completely shut down its operation (McCrorey, 2012). The company placed the headquarters for sale in the year 2010 and ultimately it was purchased by a New York-based Lexington Property Trust at a staggering $17 million. After its liquidation Systemax is the present owner of Circuit City Store. Systemax acquired the brand name, e-commerce business and trademark at a public sale or an auction which was held at the Circuit City Stores. Systemax now uses the brand name of Circuit City as in order to sell consumer electronic online (Circuitcity, 2012). It has now become an online store and operates as circuitcity.com. The new online store sells various electronic products such as computer parts and accessories, camera, surveillance devices, audio, GPS devices, cell phones, software, toys and video games, and home & office essentials among others. Presently the company competes with Target Corporation, Walmart, Boater’s world and Best Buy among others (Plunkett, 2006). Selected Articles The articles which have been shortlisted for the purpose of the study are presented below in a tabular form. Name of the Article Author(s) The rise and fall of Circuit City Amy Hart, Erika Matulich, Kimberly Rubinsak, Kasey Sheffer Nikol Vann and Myriam Vidalon. Circuit City Gearing Up For Holidays Alan Wolf Circuit City to Close 69 Stores Erik Gruenwedel Circuit City Curbs Expansion, may Close Stores ALAN WOLF Why Circuit City Busted, While Best Buy Boomed Anita Hamilton Circuit City: A Brief History in Time Alan Wolf Closed Circuit Erik Gruenwedel Liquidation Of Circuit Enters Its Final Phase Alan Wolf All the articles provide some amount of information regarding Circuit City Store and how it gradually went down or rather was forced to put down the lid. According to the requirements, one article has to be chosen for the purpose of this study. Therefore, from the aforementioned journal articles, the one which has been chosen to perform the study is the rise and fall of Circuit City by Amy Hart, Erika Matulich, Kimberly Rubinsak, Kasey Sheffer Nikol Vann and Myriam Vidalon. The primary reason for choosing this article is the clarity of the article. This article clearly describes how the company went bankrupt in 2009 and what the causes behind this occurrence were. In addition this article also clearly portrays the mistakes committed by the company. Through this article, the authors have clearly rendered the value and core competencies of the company. Hence this can be cited as one of the core reasons for selecting this article over others. Discussion According to the authors of the article the failure of Circuit City was not as a result of the downturn in the economy only; its principal failure was poor management over the last few years. Hence from this aspect the importance of management in an organization is clearly identified. Management of an organization is one of the most vital tasks and the quality of management determines the success rate of an organization in the marketplace. Similarly, some of the authors have also pointed out the fact that proper management is important for the purpose of making the whole organization to work towards a common goal. In addition, proper management could have helped the company to meet the challenges related to organizational change, helps in achieving organization goals, best possible utilization of the resources, offers stability and innovation to the company, handle any kind of issues pertaining to the business, assists in the development of personality of the employees, generates a sense of harmony throughout the organization and also help in managing the customers effectively. These are the areas where Circuit City Store had made mistakes and is suffering the consequences. Apart from that this article is written clearly and gives us the impression about how the company was once at the peak of the industry and how with the passage of time, it move towards extinction. Another reason for the fall of company is the failure to adapt to the changing market environment. The report has clearly illustrated how Best Buy, the major competitor of Circuit City survived in the market. The factor behind the prosperity of Best Buy and bankruptcy of Circuit City Store is the diverse approach of the companies towards the changing business environment. According to the article, the company paved its way in the market of consumer electronics through its philosophy of five S’s. The five S’s as mentioned are service, savings, selection, speed and satisfaction. Therefore these factors clearly reflect the value of the company. The company through their quality of service and wide range of product would like to satisfy the customers. Moreover they were also focused in providing products at a low cost. Despite of that the company made some poor decisions that got them to the verge of extinction. Circuit City Store filed its Chapter 11 bankruptcy in the year 2008 and eventually closed in the year 2009 (Gruenwedel, 2008). According to the article, there are some factors which are of utmost importance in running a business smoothly. During the period of early 1980s the company achieved huge success depending upon the quality of strategic decisions. The five S’s as mentioned above were the key elements towards the success of Circuit City. The company used to offer high quality and wide range of products, which allowed the customers to browse and choose the best among the available ones. Apart from that the company also used to offer innovative and appealing consumer schemes, which are sometime referred to as one of the key drivers of Circuit City Store. For example, the company in the early 1980s offered consumers that if they find a better deal than what they are offering, the company will pay 110 % bonus to the consumer who claims and proves it. Furthermore, the company also used to offer 30 day money back guarantee. Such approaches had helped the company to portray its image as a low cost provider and in turn helped them to position as a company which offers value for money. By offering this consumer schemes the company was successful in driving more customers towards it and also satisfy the existing and new customers to a large extent (Hart, Matulich, Rubinsak, Sheffer, Vann & Vidalon, 2012, p. 2-6). In this same time period the company also offered customers in-store servicing facility of the electronics items. With superior service offerings, the company also succeeded to achieve customers who became loyal and even some turned out as word of mouth promoter for the company. The company also used to cater to customer needs with the help of POS (Point-of-sale) system, which facilitated rapid increase in the transaction speed. Customer satisfaction survey was also another part which the company employed to keep a track of the customer satisfaction and based on the reports from that survey, the company used to modify its strategies and schemes. However in due course of time, the management of the company took series of poor decisions, which affected the company badly. The poor and unjustified decisions have gradually led the company towards extinction. One such example is the decision taken by Alan McCollough in the year 2000, where the CEO made a decision to eradicate some major appliance from the market, and for that, the company had to close down six distribution centers and elimination of around one thousand jobs. On researching, the authors of the article found that the rationale behind the implementation of this strategy is the increased competition with the industry of appliances and also to reduce delivery cost and maintenance of the existing warehouses. This portion reflects how a poor decision from the management of a company can affect both employees as well as the employer. One of the interesting facts is that, the appliances accounted around 14 % of the total sales of the company and used to consume 20 % of the selling space of the company. So on what basis the decision to withdraw from the appliances segment is still unjustified. However in order to make up the sales volume, which it lost, the company started to sell entertainment and imaging products (Gruenwedel, 2007). Similarly, in the year 2000, the company announced its project of renovating the stores and opening new stores. Again a mistake committed by the company, in this context it was related with the improper selection of location. The biggest competitor of Circuit City, Best Buy has always chosen prime location for their outlets, but in order to reduce cost, Circuit City chosen, according to the author “B” and “C” category location which were inconvenient and inopportune for the consumers. In addition, the company only remodeled around 20-25 shops, but the proposal was to remodel 140 stores, again for the purpose of reducing cost. From this view, it can be clearly stated that the management failed to identify the areas where they require investing and where they should cut cost. Hence it can be regarded as an assessment failure from the part of the company. The article presented the impression of how commissioned sales force can act as a competitive advantage. Circuit City store during its life time use to function with commissioned sales force and this was considered to be the core competency of the company. Despite having such advantages the company failed to maintain sales volume and profitability. This has fostered the company to cut off 3900 commissioned sales staffs and recruit hourly paid employees in their place. However the motive behind this decision as portrayed by the management of the company is to simplify the store operation, reduce cost and offer superior service. Yet, the company failed to deliver according to its initial proposal, which impacted the company’s operation. The appointment of the new CEO and President Philip Schoonover, replacing McCollough, also did not solve the problems of the company; rather pushed the company towards collapse. The new CEO after few days of joining fired 34,000 employees in order to reduce cost (Gruenwedel, 2009). According to the CEO, the company was aiming to hire less experienced employee at a lower wage. This is the reason why we found most of the job cuts were on the highly compensated staffs. In this context also the company failed to utilize its manpower properly. The company failed to identify the importance of experience in an organization, rather focused only on cost reduction. In the same year the company closed 155 stores and simultaneously lay off 700 corporate employees (Raine, 2008). After all such poor management decisions the company finally decided to close its doors and file bankruptcy. Finally, on January 16, 2009, the company announced the plan to liquidate. The CEO of the company, in this respect highlighted that ‘liquidation was the only possible path for the company’ (Judiciary house, 2009). Learning Outcome The study has helped us to learn several aspects of business. The study regarding the bankruptcy of Circuit City Store has helped us to know how management is indispensible and can be responsible for firm’s growth as well as extinction. Through this study, we have been also able to learn the prime causes which led Circuit City Store towards the closing stages. The factors identified are poor management of the company and failure to assess the market condition. In addition, the company was unable to get itself adapted with the changing business environment. However the competitors in the same business environment properly assessed the market and accordingly modified the strategy, which has tremendously helped them to survive in the market place. Circuit City Store only focused on reducing the cost, but they have hardly ever thought of modernizing the business operation or take initiatives to satisfy customers. They failed to identify that only cutting cost does not serves the actual purpose, rather portrays a negative image of the company in the minds of the consumers. This study has also helped us to identify how strategies are the backbone of a firm. A good strategy can foster growth and a poor strategy may affect the organization. Initially, the strategy of Circuit City Store was based upon all the business aspects such as customer satisfaction, cost, profit etc. However as soon as the company shifted its focus towards cost reduction, the downfall started. The five S’s strategy was one of the most successful strategies of the company which also reflected company’s culture, values and competencies. Therefore from this aspect the study has helped us to learn how a company should portray culture through its operation. Similarly, positioning the company suitably in the minds of consumers is also crucial. It drives sales and ensures repeat purchase. Even reference sales also take place with such activities. Therefore from an overall view point the causes for the failure of the organization as identified after analyzing the study are highlighted below: - Poor management of the organization Improper selection of strategy. Failure to adapt in the changing business environment. The study has therefore allowed us to identify and believe that a business should make a pilot study before the implementation of any major strategically changes. A company which succeeds to identify risk and formulates a strategy that satisfies both organization and customers will achieve success in the market. References Circuitcity. (2012). About Circuit City. Retrieved from http://www.circuitcity.com/sectors/aboutus/index.asp. Gruenwedel, E. (2007). Circuit City to close 69 stores. Home Media Magazine, 29 (6), 1-36. Retrieved from EBSCOhost. Gruenwedel, E. (2008). Circuit City in Ch. 11: Prepares for bleak Q4. Home Media Magazine, 30 (45), 1-32. Retrieved from EBSCOhost. Gruenwedel, E. (2009). Circuit City liquidation sales approach $500M. Home Media Magazine, 31 (5), 28. Retrieved from EBSCOhost. Hart, A., Matulich, E., Rubinsak, K., Sheffer, K., Vann, N., & Vidalon, M. (2012). The rise and fall of Circuit City. Journal of Business Cases and Applications, 6 (October), 1-7. Judiciary house. (2009). Circuit city unplugged: why did chapter 11 fail to save 34,000 jobs? Retrieved from http://judiciary.house.gov/hearings/printers/111th/111-6_47924.PDF. McCrorey, D. (2012). The old world of business versus the new world of business in four major industries. Global Business and Organizational Excellence, 31 (6), 80-97. Plunkett, J. W. (2006). Plunkett's Wireless, Wi-Fi, RFID and Cellular Industry Almanac 2007. Texas: Plunkett Research, Ltd. Raine, G. (2008). Circuit City closing 155 U.S. stores. San Francisco Chronicle, (10/1/2007 to present), 1. Retrieved from EBSCOhost. Wallace, R., Gifford, J. N., & Dougias, V. (2004). The national job bank. Massachussetts: F+W Media, Inc. Read More