1
00:00:04,160 --> 00:00:07,160
Speaker 1: Get in touch with technology with tech Stuff from how

2
00:00:07,240 --> 00:00:14,920
Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.

3
00:00:14,960 --> 00:00:18,440
Speaker 1: I'm your host, Jonathan Strickland, senior writer at how stuff

4
00:00:18,440 --> 00:00:21,239
Speaker 1: works dot com. And today we're going to continue the

5
00:00:21,280 --> 00:00:24,280
Speaker 1: story we began in our last episode about the electronics

6
00:00:24,320 --> 00:00:28,120
Speaker 1: retail company Circuit City. Now, in our last episode, I

7
00:00:28,160 --> 00:00:32,240
Speaker 1: covered how Samuel Wertzel and Abraham Haste founded the Wards

8
00:00:32,280 --> 00:00:35,360
Speaker 1: Company back in nineteen forty nine, which would grow and

9
00:00:35,440 --> 00:00:39,680
Speaker 1: evolve and eventually become circuit City. I left off in

10
00:00:39,840 --> 00:00:42,639
Speaker 1: nineteen eighty four. That was the year that they officially

11
00:00:42,680 --> 00:00:46,040
Speaker 1: adopted Circuit City as the name of the overall company,

12
00:00:46,280 --> 00:00:50,000
Speaker 1: and Samuel Wertzel had retired and his son, Alan Wortzel

13
00:00:50,280 --> 00:00:54,600
Speaker 1: had become president and CEO of the company. So in night,

14
00:00:55,360 --> 00:00:59,840
Speaker 1: Alan Wortzel really concentrated on implementing a new plan based

15
00:01:00,000 --> 00:01:03,760
Speaker 1: off the success of the Circuit City superstore concept that

16
00:01:03,960 --> 00:01:07,360
Speaker 1: originally was just called the Wards loading Dock. Now, that

17
00:01:07,400 --> 00:01:11,640
Speaker 1: plan involved creating an almost cookie cutter approach to store space,

18
00:01:12,080 --> 00:01:14,440
Speaker 1: and if you've ever been to more than one Circuit

19
00:01:14,520 --> 00:01:17,800
Speaker 1: City during its heyday, you probably noticed the layout was

20
00:01:17,880 --> 00:01:22,840
Speaker 1: remarkably similar um probably almost identical and that was by design.

21
00:01:23,720 --> 00:01:27,600
Speaker 1: Wortzel my experiment with changes at one location, just to

22
00:01:27,640 --> 00:01:30,760
Speaker 1: see how they would do, and then perhaps implement some

23
00:01:30,920 --> 00:01:34,039
Speaker 1: changes across the board, but by and large they remained

24
00:01:34,280 --> 00:01:38,640
Speaker 1: almost identical. Now, the store layout embodied some of the

25
00:01:38,680 --> 00:01:42,880
Speaker 1: same sales philosophies that Samuel had established back when he

26
00:01:42,959 --> 00:01:46,039
Speaker 1: had first started the Wards company. You might remember in

27
00:01:46,040 --> 00:01:49,320
Speaker 1: that last episode I talked about how he used various

28
00:01:49,360 --> 00:01:53,080
Speaker 1: manipulation techniques to increase sales, not in a way to

29
00:01:53,160 --> 00:01:58,280
Speaker 1: be dishonest or to uh, you know, otherwise trick a

30
00:01:58,360 --> 00:02:02,680
Speaker 1: customer into buying something, but rather to entice a customer

31
00:02:02,760 --> 00:02:05,760
Speaker 1: into spending as much money as possible. There's a fine

32
00:02:05,840 --> 00:02:11,359
Speaker 1: line there between an admirable work ethic and kind of

33
00:02:11,360 --> 00:02:15,080
Speaker 1: creepy manipulation. And he walked it carefully, or at least

34
00:02:15,160 --> 00:02:18,320
Speaker 1: appeared to well. Alan wanted to do the same thing,

35
00:02:18,639 --> 00:02:22,160
Speaker 1: and he incorporated that into the store design itself. This

36
00:02:22,200 --> 00:02:24,720
Speaker 1: is gonna sound really familiar to anyone who's been to

37
00:02:24,880 --> 00:02:28,880
Speaker 1: a big box store, because now it is standard practice.

38
00:02:29,600 --> 00:02:31,360
Speaker 1: What they would do is they would put all the

39
00:02:31,400 --> 00:02:34,480
Speaker 1: popular brands, all the big ticket items that people were

40
00:02:34,480 --> 00:02:37,760
Speaker 1: really interested in in the back of the store. That

41
00:02:37,800 --> 00:02:40,040
Speaker 1: meant that customers would have to walk through the rest

42
00:02:40,080 --> 00:02:42,240
Speaker 1: of the store in order to get there, and they

43
00:02:42,280 --> 00:02:45,320
Speaker 1: would see lots of other stuff on the way. So

44
00:02:45,440 --> 00:02:48,280
Speaker 1: this was an effort to try and boost sales of

45
00:02:48,320 --> 00:02:53,400
Speaker 1: slightly less popular items by having people walk through. You

46
00:02:53,440 --> 00:02:57,440
Speaker 1: see the same thing today, like most electronics departments in

47
00:02:57,520 --> 00:03:00,919
Speaker 1: a lot of stores are towards the back or somewhere

48
00:03:01,160 --> 00:03:03,600
Speaker 1: deep in the middle of the store, and it means

49
00:03:03,639 --> 00:03:05,440
Speaker 1: you have to walk through other departments to get there.

50
00:03:06,160 --> 00:03:08,320
Speaker 1: And as you're doing that, you're thinking, all right, I

51
00:03:08,880 --> 00:03:10,839
Speaker 1: do need to buy a new two piece bathing suit

52
00:03:11,840 --> 00:03:15,600
Speaker 1: or something similar. I mean, I think that way too

53
00:03:15,600 --> 00:03:20,200
Speaker 1: frequently anyway. The late seventies and early eighties marked a

54
00:03:20,280 --> 00:03:24,720
Speaker 1: new age in consumer electronics, and Circuit City was benefiting

55
00:03:24,760 --> 00:03:27,640
Speaker 1: from that. When it started off as just a television

56
00:03:27,680 --> 00:03:32,360
Speaker 1: appliance and radio business. Suddenly those store shelves got way

57
00:03:32,400 --> 00:03:36,160
Speaker 1: more crowded with other stuff. New gadgets were joining them.

58
00:03:36,200 --> 00:03:39,560
Speaker 1: You had VCRs and both the vhs and the Beta

59
00:03:39,600 --> 00:03:44,280
Speaker 1: Max formats. You had laser disc players, you had cassette players,

60
00:03:44,720 --> 00:03:47,960
Speaker 1: record players. Later on you would have CD players. You

61
00:03:48,000 --> 00:03:52,120
Speaker 1: had cordless phones, microwave ovens, much much later, like in

62
00:03:52,160 --> 00:03:56,840
Speaker 1: the late nineties, DVD players would join that. So this

63
00:03:57,440 --> 00:04:02,840
Speaker 1: succession of new products ended up giving Circuit City the

64
00:04:03,600 --> 00:04:08,080
Speaker 1: base to succeed. And because the superstores were so large,

65
00:04:08,080 --> 00:04:10,640
Speaker 1: they could carry a wide variety of products all in

66
00:04:10,760 --> 00:04:14,400
Speaker 1: one location, and the storage space, the warehouse space in

67
00:04:14,440 --> 00:04:16,280
Speaker 1: the back of the store was big enough to allow

68
00:04:16,320 --> 00:04:19,440
Speaker 1: the stores to purchase items from vendors in large amounts

69
00:04:19,440 --> 00:04:22,800
Speaker 1: in bulk essentially, and that lowered the cost of purchase,

70
00:04:23,320 --> 00:04:26,919
Speaker 1: and then that meant they could maximize their profit margins

71
00:04:26,960 --> 00:04:29,560
Speaker 1: when they sold it at a higher price to the

72
00:04:29,640 --> 00:04:35,919
Speaker 1: customer when they made that sale. Now, Wurtzel led the

73
00:04:35,960 --> 00:04:40,600
Speaker 1: company into an intense phase of expansion. Circuit City began

74
00:04:40,640 --> 00:04:44,200
Speaker 1: to move into new markets like Atlanta and Florida. The

75
00:04:44,240 --> 00:04:48,039
Speaker 1: company would open numerous stores in a relatively small region,

76
00:04:48,200 --> 00:04:51,680
Speaker 1: so they'd open maybe five or six stores in a

77
00:04:51,720 --> 00:04:55,600
Speaker 1: metropolitan area. This accomplished a few goals, all of which

78
00:04:55,640 --> 00:04:58,920
Speaker 1: were benefiting the company and a few were benefiting the consumer.

79
00:04:59,279 --> 00:05:01,960
Speaker 1: For one, adding lots of stores in the city meant

80
00:05:02,000 --> 00:05:05,039
Speaker 1: customers wouldn't necessarily have to travel so far to get

81
00:05:05,080 --> 00:05:08,000
Speaker 1: to a specific store. You know, if there's just one

82
00:05:08,040 --> 00:05:11,240
Speaker 1: location in the city, you have to travel to that location,

83
00:05:11,320 --> 00:05:14,440
Speaker 1: no matter where you may be. If there are multiple locations,

84
00:05:14,440 --> 00:05:17,520
Speaker 1: you have some choices. That being said, Circuit City had

85
00:05:17,560 --> 00:05:22,120
Speaker 1: made it a practice to purchase cheap land, so they

86
00:05:22,120 --> 00:05:25,159
Speaker 1: were mainly looking at places that weren't necessarily in the

87
00:05:25,200 --> 00:05:29,279
Speaker 1: most populated or convenient spots. That was another reason to

88
00:05:29,560 --> 00:05:34,719
Speaker 1: open several stores. It helped balance that because customers would

89
00:05:34,760 --> 00:05:37,120
Speaker 1: still have to travel a bit. They the stores didn't

90
00:05:37,160 --> 00:05:40,760
Speaker 1: tend to be in areas that were convenient to residential

91
00:05:40,839 --> 00:05:45,400
Speaker 1: areas for example. Now it also meant that they didn't

92
00:05:45,440 --> 00:05:48,800
Speaker 1: have to spend as much money promoting and advertising any

93
00:05:48,839 --> 00:05:52,479
Speaker 1: individual store because they could group stores together in a

94
00:05:52,600 --> 00:05:56,640
Speaker 1: single advertising campaign for whatever city it might be, and

95
00:05:56,800 --> 00:06:00,320
Speaker 1: all the stores would benefit from this, and that ended

96
00:06:00,400 --> 00:06:04,320
Speaker 1: up being a kind of a money saving effort for

97
00:06:04,360 --> 00:06:08,440
Speaker 1: the company and cutting costs. And this was all new

98
00:06:08,880 --> 00:06:11,640
Speaker 1: back then. It's something that we see a lot of today,

99
00:06:11,760 --> 00:06:14,279
Speaker 1: or at least we have seen a lot of today.

100
00:06:14,320 --> 00:06:16,760
Speaker 1: You might argue, we don't see it as much, mainly

101
00:06:16,800 --> 00:06:20,159
Speaker 1: because of the move to online market places. We'll talk

102
00:06:20,200 --> 00:06:22,520
Speaker 1: more about that a little bit later in this episode.

103
00:06:23,640 --> 00:06:28,560
Speaker 1: So they were keeping the company's bottom line healthy by

104
00:06:28,600 --> 00:06:34,080
Speaker 1: managing these costs by consolidating costs and by maximizing the

105
00:06:34,120 --> 00:06:37,479
Speaker 1: amount of exposure they were getting to customers. But some

106
00:06:37,600 --> 00:06:41,400
Speaker 1: sad stuff was happening to around this time in the

107
00:06:41,520 --> 00:06:45,000
Speaker 1: co founders of the Wards Company, the company that became

108
00:06:45,080 --> 00:06:49,080
Speaker 1: Circuit City, Samuel Wurtzel and Abraham Has. Both of them

109
00:06:49,120 --> 00:06:52,640
Speaker 1: passed away that year. They lived long enough to see

110
00:06:52,960 --> 00:06:56,040
Speaker 1: this little humble TV retail shop they had opened way

111
00:06:56,120 --> 00:06:59,920
Speaker 1: back in n grow into a substantial chain of elect

112
00:07:00,080 --> 00:07:04,560
Speaker 1: ronic superstores that were in multiple states across the US,

113
00:07:04,839 --> 00:07:08,360
Speaker 1: But then they both passed away in nineteen eighty five.

114
00:07:08,720 --> 00:07:12,480
Speaker 1: In nineteen eighty six, Alan Wertzel retired as CEO of

115
00:07:12,560 --> 00:07:15,560
Speaker 1: Circuit City. Now he would remain on the board of

116
00:07:15,600 --> 00:07:19,120
Speaker 1: directors until two thousand one, so he was still active

117
00:07:19,200 --> 00:07:22,760
Speaker 1: with the company. He just wasn't acting as CEO anymore.

118
00:07:23,400 --> 00:07:26,480
Speaker 1: At the time of his retirement, the chain included nineties

119
00:07:26,520 --> 00:07:30,760
Speaker 1: stores and sales were hovering around the one billion dollar mark.

120
00:07:31,640 --> 00:07:36,400
Speaker 1: In fact, from nineteen eighty three to ninety seven, Circuit

121
00:07:36,480 --> 00:07:40,040
Speaker 1: City had the best return on investments on the New

122
00:07:40,120 --> 00:07:44,080
Speaker 1: York Stock Exchange, meaning if you invested money in Circuit City.

123
00:07:44,160 --> 00:07:48,000
Speaker 1: In nineteen eighty three, your return was better than any

124
00:07:48,000 --> 00:07:50,160
Speaker 1: other investment you could have made that year, and it

125
00:07:50,240 --> 00:07:53,800
Speaker 1: remained so for the next four years, and even since

126
00:07:53,880 --> 00:07:56,640
Speaker 1: nineteen sixty five. It had been listed on the Fortune

127
00:07:56,680 --> 00:08:00,480
Speaker 1: five hundred list of companies nineteen sixty five on. It

128
00:08:00,600 --> 00:08:04,240
Speaker 1: consistently made that list and would continue to do so

129
00:08:04,480 --> 00:08:09,320
Speaker 1: up until But that gets a little bit ahead of

130
00:08:09,320 --> 00:08:11,520
Speaker 1: where we want to be right now. I'll get into

131
00:08:11,520 --> 00:08:13,800
Speaker 1: more of the troubles that led to the fall from

132
00:08:13,840 --> 00:08:18,920
Speaker 1: Grace in a bit now. Alan Wurtzel's successor was a

133
00:08:18,920 --> 00:08:21,680
Speaker 1: man named Richard Sharp, and in the last episode I

134
00:08:21,760 --> 00:08:24,840
Speaker 1: mentioned that Sharp had been hired on at an executive

135
00:08:24,960 --> 00:08:29,720
Speaker 1: vice president level outside the company, so that was kind

136
00:08:29,760 --> 00:08:32,440
Speaker 1: of counter to some of the company's core values, which

137
00:08:32,440 --> 00:08:36,199
Speaker 1: included promoting from within. Instead of promoting from within, They

138
00:08:36,240 --> 00:08:41,800
Speaker 1: found this very intelligent, capable hardware and software guy and

139
00:08:41,880 --> 00:08:45,600
Speaker 1: brought him on. His performance was impressive. He had designed

140
00:08:45,600 --> 00:08:48,400
Speaker 1: a computer system for Circuit City that made operations much

141
00:08:48,440 --> 00:08:51,079
Speaker 1: more efficient and effective, and when he stepped in as

142
00:08:51,120 --> 00:08:54,120
Speaker 1: president and CEO of Circuit City, the company was on

143
00:08:54,160 --> 00:08:57,280
Speaker 1: the rise. He would end up pushing it farther, going

144
00:08:57,280 --> 00:09:01,280
Speaker 1: into the stratosphere. Though a lot of people have argued

145
00:09:01,360 --> 00:09:04,080
Speaker 1: later on that it might have been his leadership that

146
00:09:04,200 --> 00:09:07,360
Speaker 1: ultimately set the company on the path to self destruction.

147
00:09:08,320 --> 00:09:10,760
Speaker 1: I'll let you guys kind of decide what you think

148
00:09:10,800 --> 00:09:12,600
Speaker 1: once we get to this the end of this episode.

149
00:09:12,760 --> 00:09:16,720
Speaker 1: I'm not entirely sold on the idea that Sharp was

150
00:09:17,080 --> 00:09:19,760
Speaker 1: the beginning of the end. I think he made some

151
00:09:19,840 --> 00:09:23,800
Speaker 1: decisions that were ultimately poor ones, but I don't know

152
00:09:23,840 --> 00:09:27,480
Speaker 1: that they were ones that Circuit City couldn't have rebounded from.

153
00:09:27,520 --> 00:09:30,480
Speaker 1: And uh so we'll get into that a little bit.

154
00:09:30,559 --> 00:09:34,320
Speaker 1: Let's talk about who he was first. So Richard Rick

155
00:09:34,600 --> 00:09:38,440
Speaker 1: Sharp was born on April twelfth, nineteen forty seven, just

156
00:09:38,520 --> 00:09:42,040
Speaker 1: two years before Samuel Wertzel founded the company that would

157
00:09:42,040 --> 00:09:45,559
Speaker 1: become Circuit City. He grew up in the Washington, D c.

158
00:09:45,840 --> 00:09:50,000
Speaker 1: Area and attended George Washington High School and Alexandria, Virginia.

159
00:09:50,760 --> 00:09:53,360
Speaker 1: He first went to college to study electrical engineering at

160
00:09:53,360 --> 00:09:56,560
Speaker 1: the University of Virginia, but discovered that that really wasn't

161
00:09:56,600 --> 00:09:58,680
Speaker 1: his cup of tea. He wasn't so much interested in

162
00:09:58,720 --> 00:10:01,840
Speaker 1: electrical engineering as he was in computer science, so he

163
00:10:01,960 --> 00:10:04,920
Speaker 1: dropped out of college and for a short while he

164
00:10:05,000 --> 00:10:09,840
Speaker 1: pursued some slightly less academic interests like playing poker and

165
00:10:10,280 --> 00:10:14,680
Speaker 1: shooting pool. Um I usually do the opposite, shooting poker,

166
00:10:14,720 --> 00:10:18,200
Speaker 1: however terrible. I don't recommend it. He wasn't idle for

167
00:10:18,280 --> 00:10:21,400
Speaker 1: long and soon he was attending the College of William

168
00:10:21,400 --> 00:10:23,920
Speaker 1: and Mary studying computer science and then went on to

169
00:10:23,960 --> 00:10:27,559
Speaker 1: attend the Harvard Business Schools Management program. When he was

170
00:10:27,600 --> 00:10:30,360
Speaker 1: twenty seven years old, he founded a hardware and software

171
00:10:30,400 --> 00:10:32,920
Speaker 1: business development company, and he was really good at what

172
00:10:33,000 --> 00:10:35,440
Speaker 1: he did. He impressed the folks at Circuit City, which

173
00:10:35,440 --> 00:10:37,720
Speaker 1: is why they hired him on at that executive vice

174
00:10:37,720 --> 00:10:42,280
Speaker 1: president level. He joined in nineteen two, and just four

175
00:10:42,440 --> 00:10:45,960
Speaker 1: years later he became the leader of the company. By

176
00:10:46,040 --> 00:10:49,880
Speaker 1: n he became the chairman of the board. Now, while

177
00:10:49,880 --> 00:10:53,840
Speaker 1: the company was opening new locations in Georgia and Florida,

178
00:10:54,080 --> 00:10:58,760
Speaker 1: it also was working towards eliminating unnecessary drains on profits. Now,

179
00:10:58,760 --> 00:11:01,840
Speaker 1: among those drains were of those Lafayette stores I mentioned

180
00:11:01,840 --> 00:11:05,120
Speaker 1: in the previous podcast. These were the stores located in

181
00:11:05,120 --> 00:11:08,920
Speaker 1: the New York area and originally they had sold stereo equipment.

182
00:11:09,440 --> 00:11:13,800
Speaker 1: When Circuit City, back then the Wards Company, purchased those stores,

183
00:11:14,160 --> 00:11:17,400
Speaker 1: there were only eight by they had fifteen, but they

184
00:11:17,440 --> 00:11:20,360
Speaker 1: weren't performing well. They were unprofitable, so the company shut

185
00:11:20,440 --> 00:11:23,840
Speaker 1: down the stores and they would continue having trouble penetrating

186
00:11:23,880 --> 00:11:26,760
Speaker 1: the New York market because the New York market was

187
00:11:26,760 --> 00:11:29,440
Speaker 1: already saturated with lots of stores that would engage in

188
00:11:29,520 --> 00:11:32,520
Speaker 1: price slashing. That was not really a model that Circuit

189
00:11:32,559 --> 00:11:36,320
Speaker 1: City was suited for. Circuit City was still using commission sales,

190
00:11:36,679 --> 00:11:40,080
Speaker 1: and the commission sales depended upon sales people trying to

191
00:11:40,120 --> 00:11:44,720
Speaker 1: sell products at the highest price they could. Doesn't really

192
00:11:44,760 --> 00:11:48,520
Speaker 1: work for price slashing, So the Circuit City experience was

193
00:11:48,520 --> 00:11:54,559
Speaker 1: supposed to be haggle free, but you could often argued

194
00:11:54,640 --> 00:11:57,240
Speaker 1: down a salesperson from the price that was on the ticket,

195
00:11:57,280 --> 00:12:00,520
Speaker 1: at least in the old Wards Company days, and Circuit

196
00:12:00,520 --> 00:12:02,640
Speaker 1: City just couldn't survive in the market where other business

197
00:12:02,720 --> 00:12:07,600
Speaker 1: owners were regularly cutting prices in order to compete for customers. Also,

198
00:12:07,640 --> 00:12:11,239
Speaker 1: in nineteen six, Circuit City shut down one other relationship

199
00:12:11,320 --> 00:12:14,320
Speaker 1: it had earlier established, that would be the discount store

200
00:12:14,360 --> 00:12:17,000
Speaker 1: in California called Zods. I mentioned them in the last

201
00:12:17,000 --> 00:12:21,200
Speaker 1: episode two uh they At that point, Circuit City had

202
00:12:21,240 --> 00:12:25,120
Speaker 1: been operating four different lines of stores. You had the superstores,

203
00:12:25,200 --> 00:12:28,400
Speaker 1: you had the smaller Circuit City stores, you had Zodis

204
00:12:28,440 --> 00:12:30,720
Speaker 1: and you had the Lafayette stores. By getting rid of

205
00:12:30,720 --> 00:12:34,800
Speaker 1: the Lafayette and Zodis, they were able to consolidate Circuit

206
00:12:34,840 --> 00:12:38,680
Speaker 1: Cities strategy and simplify matters. From a managerial standpoint, The

207
00:12:38,720 --> 00:12:42,120
Speaker 1: money the company reclaimed from operating those businesses could be

208
00:12:42,160 --> 00:12:46,640
Speaker 1: reinvested by opening more superstores in California and the southeastern

209
00:12:46,720 --> 00:12:50,960
Speaker 1: United States in nine seven and eighty eight. The company

210
00:12:51,000 --> 00:12:54,240
Speaker 1: prospered and grew, and it was fueled by this demand

211
00:12:54,400 --> 00:12:57,840
Speaker 1: for consumer electronics like the VCR, which by that time

212
00:12:57,880 --> 00:13:00,640
Speaker 1: was viewed as a standard component in your typical home

213
00:13:00,720 --> 00:13:05,360
Speaker 1: theater system. Sales grew over one billion dollars a year

214
00:13:06,200 --> 00:13:09,280
Speaker 1: and the number of stores increased to one hundred fifty.

215
00:13:10,280 --> 00:13:13,200
Speaker 1: Circuit City had already experimented with mall store fronts in

216
00:13:13,200 --> 00:13:15,240
Speaker 1: the past and decided to try and give it another

217
00:13:15,280 --> 00:13:18,880
Speaker 1: shot with a new idea new brand. This time. The

218
00:13:18,920 --> 00:13:22,920
Speaker 1: company planned to open twenties stores, and they branded them Impulse.

219
00:13:23,440 --> 00:13:24,960
Speaker 1: And I think that's a pretty clever name for a

220
00:13:25,000 --> 00:13:28,920
Speaker 1: store that specialized in selling small electronic devices, particularly the

221
00:13:29,000 --> 00:13:32,160
Speaker 1: kind you might purchase as a gift or a stocking stuffer.

222
00:13:33,160 --> 00:13:36,959
Speaker 1: It's the very definition of an impulse by Now, whether

223
00:13:37,000 --> 00:13:39,960
Speaker 1: the executives at Circuit City intended that meaning to be

224
00:13:40,040 --> 00:13:42,360
Speaker 1: part of the name or not, it definitely was the

225
00:13:42,400 --> 00:13:46,040
Speaker 1: foundation for their sales strategy and it worked and a

226
00:13:46,080 --> 00:13:48,760
Speaker 1: few years later the company made plans to open dozens

227
00:13:48,800 --> 00:13:52,520
Speaker 1: of other stores and malls within their territory. That's good

228
00:13:52,559 --> 00:13:55,280
Speaker 1: to mention that more than a billion dollars in sales

229
00:13:55,400 --> 00:13:59,000
Speaker 1: is not the same thing as a billion dollars in profits.

230
00:14:00,000 --> 00:14:02,240
Speaker 1: Profits are what you get when you deduct your costs

231
00:14:02,320 --> 00:14:06,800
Speaker 1: from your revenue. Now, Circuit Cities profits by nine, we're

232
00:14:06,920 --> 00:14:10,520
Speaker 1: just under seventy million dollars. Not still a heck of

233
00:14:10,600 --> 00:14:12,880
Speaker 1: a lot of money, but it shows how much work

234
00:14:12,960 --> 00:14:15,240
Speaker 1: the company had to do in order to make that

235
00:14:15,320 --> 00:14:19,720
Speaker 1: kind of profit. A billion dollars in sales for seventy

236
00:14:19,800 --> 00:14:23,120
Speaker 1: million dollars in profit. Also, the company managed to do

237
00:14:23,160 --> 00:14:26,600
Speaker 1: this while there was another economic recession and effect. So

238
00:14:27,320 --> 00:14:30,760
Speaker 1: how did it do that? Well? Mainly their success hinged

239
00:14:30,800 --> 00:14:34,480
Speaker 1: on new consumer electronic products coming out. So, as you

240
00:14:34,480 --> 00:14:36,800
Speaker 1: guys are probably aware, I've been going to c e

241
00:14:37,080 --> 00:14:40,840
Speaker 1: S also formally known as the Consumer Electronics Show every

242
00:14:40,920 --> 00:14:44,000
Speaker 1: year in Las Vegas, Nevada Since two thousand eight, Circuit

243
00:14:44,080 --> 00:14:46,520
Speaker 1: City would be a company that would pay very close

244
00:14:46,560 --> 00:14:50,400
Speaker 1: attention to trade shows like c s. The company depended

245
00:14:50,520 --> 00:14:53,600
Speaker 1: upon new compelling products to come out so that they

246
00:14:53,600 --> 00:14:57,240
Speaker 1: could offer them in their retail stores. In fact, stores

247
00:14:57,280 --> 00:15:00,320
Speaker 1: like Circuit City are why those trade shows ex cist.

248
00:15:00,960 --> 00:15:04,400
Speaker 1: Now sometimes we in the tech media I include myself here,

249
00:15:04,480 --> 00:15:07,840
Speaker 1: we forget this as we walk around waiting to be

250
00:15:07,880 --> 00:15:12,160
Speaker 1: blown away by a groundbreaking product or a new category

251
00:15:12,360 --> 00:15:16,600
Speaker 1: defining technology. But the real reason those trade shows exist

252
00:15:16,720 --> 00:15:19,160
Speaker 1: is to let retailers get a look at the products

253
00:15:19,200 --> 00:15:21,960
Speaker 1: that will soon be available for customers so that they

254
00:15:21,960 --> 00:15:24,400
Speaker 1: can create a sales strategy for the near future and

255
00:15:24,400 --> 00:15:27,400
Speaker 1: figure out which products they want to carry in their stores.

256
00:15:27,480 --> 00:15:31,080
Speaker 1: That's the real reason for those trade shows. The press

257
00:15:31,200 --> 00:15:34,520
Speaker 1: is presence is really just icing on the cake. Who

258
00:15:34,520 --> 00:15:37,600
Speaker 1: has the stuff we report on ends up being advertising

259
00:15:37,760 --> 00:15:41,440
Speaker 1: for both the companies making the cool products and the

260
00:15:41,440 --> 00:15:44,400
Speaker 1: ones that are going to end up selling them. Back

261
00:15:44,440 --> 00:15:47,480
Speaker 1: in the eighties and nineties, those retail establishments were primarily

262
00:15:47,560 --> 00:15:51,800
Speaker 1: superstores like Circuit City, So in many ways, circuit cities

263
00:15:51,840 --> 00:15:56,560
Speaker 1: booming years can be attributed to advances in consumer electronics

264
00:15:56,640 --> 00:16:00,160
Speaker 1: from the migration of cassette players to CD players to

265
00:16:00,360 --> 00:16:03,600
Speaker 1: the similar trend of VCRs to DVD players much later.

266
00:16:03,920 --> 00:16:07,520
Speaker 1: Circuit City also got into the personal computer retail business,

267
00:16:07,680 --> 00:16:12,560
Speaker 1: beginning in nineteen eighty nine. Now by the company's sales

268
00:16:12,560 --> 00:16:16,960
Speaker 1: had hit two billion dollars, Circuit City began opening smaller

269
00:16:17,000 --> 00:16:20,040
Speaker 1: stores and markets that seemed to be too small to

270
00:16:20,120 --> 00:16:23,840
Speaker 1: support a full superstore, and a few years later the

271
00:16:23,840 --> 00:16:27,760
Speaker 1: company introduced a new department in superstores that sold music

272
00:16:28,400 --> 00:16:32,520
Speaker 1: like actual albums as opposed to just the the equipment

273
00:16:32,560 --> 00:16:35,200
Speaker 1: that plays music. This was a move that put a

274
00:16:35,200 --> 00:16:39,280
Speaker 1: ton of pressure on smaller independent music stores and music chains.

275
00:16:39,880 --> 00:16:42,680
Speaker 1: I remember a lot of those, both the chains and

276
00:16:42,760 --> 00:16:46,000
Speaker 1: the independent businesses that used to specialize in selling music.

277
00:16:46,200 --> 00:16:48,320
Speaker 1: In my neck of the woods, we had a regional

278
00:16:48,400 --> 00:16:52,720
Speaker 1: chain called Turtles Records and Tapes. I remember fondly going

279
00:16:52,760 --> 00:16:54,880
Speaker 1: into Turtles because that was where not only would you

280
00:16:54,880 --> 00:16:59,120
Speaker 1: buy albums, you could purchase tickets to concerts there. And

281
00:16:59,160 --> 00:17:02,120
Speaker 1: then there were the truly independent mom and pop shops.

282
00:17:02,160 --> 00:17:04,119
Speaker 1: Turtles was still a chain, but there were lots of

283
00:17:04,160 --> 00:17:07,160
Speaker 1: independence stores too, and all of these were pressured by

284
00:17:07,240 --> 00:17:11,119
Speaker 1: the superstore movement into their territory. Now that we've crept

285
00:17:11,240 --> 00:17:14,280
Speaker 1: up into the early nineties, it's a good time to

286
00:17:14,359 --> 00:17:17,040
Speaker 1: talk about some of the competitors that rose up to

287
00:17:17,160 --> 00:17:20,720
Speaker 1: face Circuit City. But first, let's take a quick break

288
00:17:20,880 --> 00:17:31,320
Speaker 1: to thank our sponsor. Okay, you can't really talk about

289
00:17:31,400 --> 00:17:35,800
Speaker 1: Circuit City without mentioning their chief competitor, which I would

290
00:17:35,840 --> 00:17:38,639
Speaker 1: argue was Best Buy. I could do a full episode

291
00:17:38,680 --> 00:17:41,080
Speaker 1: on the best Buy story, but let me give you

292
00:17:41,080 --> 00:17:45,000
Speaker 1: the cliffs Notes version. Do they even still have cliffs Notes?

293
00:17:45,240 --> 00:17:48,159
Speaker 1: Do you guys get that reference? Well, anyway, here's a

294
00:17:48,200 --> 00:17:51,919
Speaker 1: summary to tide us over. Best Buy began as a

295
00:17:52,040 --> 00:17:56,280
Speaker 1: chain of music stores in Minnesota in nineteen sixty six

296
00:17:56,320 --> 00:17:59,639
Speaker 1: that was founded by a man named Richard Schulz and

297
00:17:59,640 --> 00:18:03,320
Speaker 1: a d Really. The store was called Sound of Music.

298
00:18:03,960 --> 00:18:06,280
Speaker 1: I don't know if the Hills are alive in Minnesota,

299
00:18:06,520 --> 00:18:09,399
Speaker 1: but they did have the Sound of Music stores in

300
00:18:10,400 --> 00:18:13,800
Speaker 1: One of those stores was damaged in a tornado. The

301
00:18:13,840 --> 00:18:17,199
Speaker 1: store held a special tornado sale and they called it

302
00:18:17,280 --> 00:18:20,720
Speaker 1: a best Buy sale. Uh. The event was so successful

303
00:18:20,760 --> 00:18:24,000
Speaker 1: the company decided to hold one every year. Um that

304
00:18:24,080 --> 00:18:27,280
Speaker 1: being a special sale, not holding a tornado. The company

305
00:18:27,440 --> 00:18:30,439
Speaker 1: didn't schedule tornadoes. I don't think you would want to.

306
00:18:30,520 --> 00:18:35,800
Speaker 1: Those things are terrible, but the sales went over like gangbusters. Eventually,

307
00:18:35,800 --> 00:18:38,680
Speaker 1: the company changed its name to best Buy, the same

308
00:18:38,760 --> 00:18:41,439
Speaker 1: name as those sales that made it famous, and that

309
00:18:41,480 --> 00:18:43,960
Speaker 1: made more sense than Sound of Music anyway, because by

310
00:18:43,960 --> 00:18:46,200
Speaker 1: that time the stores were also beginning to carry lots

311
00:18:46,240 --> 00:18:49,719
Speaker 1: of unrelated stuff, things that had nothing to do with

312
00:18:49,800 --> 00:18:54,680
Speaker 1: audio or music. Throughout the eighties, best Buy began to grow,

313
00:18:54,920 --> 00:18:57,639
Speaker 1: and by the early nineties it had expanded into a

314
00:18:57,720 --> 00:19:01,919
Speaker 1: national chain. Circuit Cities Will dominated the market at that time,

315
00:19:02,119 --> 00:19:05,320
Speaker 1: and it seemed like no one at the company really

316
00:19:05,480 --> 00:19:09,520
Speaker 1: took best Buy seriously. In fact, Alan Wurtzel said that

317
00:19:09,720 --> 00:19:12,639
Speaker 1: at that time, no one at Circuit City really considered

318
00:19:12,760 --> 00:19:16,000
Speaker 1: any competition as being anything more than just an annoyance.

319
00:19:16,600 --> 00:19:19,320
Speaker 1: Now you could call that hubrists or arrogance, but at

320
00:19:19,320 --> 00:19:22,119
Speaker 1: the time it seemed like Circuit City was firmly on

321
00:19:22,200 --> 00:19:29,040
Speaker 1: the prosperity highway and hindsight is best Buy meanwhile, benefited

322
00:19:29,119 --> 00:19:33,520
Speaker 1: from Circuit City success because Best Buy executives were able

323
00:19:33,560 --> 00:19:37,840
Speaker 1: to learn from the path that was forged by Circuit City.

324
00:19:37,880 --> 00:19:41,159
Speaker 1: They could employ the most successful strategies and avoid the

325
00:19:41,200 --> 00:19:44,800
Speaker 1: pitfalls that Circuit City had identified during its growth phase.

326
00:19:44,800 --> 00:19:47,640
Speaker 1: Because Circuit City was sort of the pioneer, best By

327
00:19:47,760 --> 00:19:50,000
Speaker 1: following behind could say, oh, well, we want to go

328
00:19:50,080 --> 00:19:52,119
Speaker 1: this way, but we won't make the same mistake that

329
00:19:52,200 --> 00:19:55,600
Speaker 1: they did. We can avoid that, save money, and expand faster.

330
00:19:55,760 --> 00:19:57,720
Speaker 1: So it gave best Buy a chance to catch up

331
00:19:57,800 --> 00:20:02,080
Speaker 1: quickly to Circuit City. With companies like best By biting

332
00:20:02,240 --> 00:20:05,280
Speaker 1: at circuit Cities heels, the company became motivated to get

333
00:20:05,320 --> 00:20:10,040
Speaker 1: into the price slashing business in order to stay competitive. Now,

334
00:20:10,080 --> 00:20:13,280
Speaker 1: at this point, Circuit City was still in the lead,

335
00:20:13,600 --> 00:20:16,840
Speaker 1: and Richard Sharp had decided that the company should diversify

336
00:20:16,920 --> 00:20:22,160
Speaker 1: what it offered. What if the company could sell used cars. Well,

337
00:20:22,200 --> 00:20:25,679
Speaker 1: that's a step too far for just a Circuit City brand,

338
00:20:25,720 --> 00:20:29,000
Speaker 1: but it provided the inspiration for Sharp to guide Circuit

339
00:20:29,040 --> 00:20:33,160
Speaker 1: City into launching a new company that was a subsidiary

340
00:20:33,400 --> 00:20:36,160
Speaker 1: and its specialized in selling used cars. And I bet

341
00:20:36,200 --> 00:20:40,119
Speaker 1: you've heard of it, because in September three, the first

342
00:20:40,320 --> 00:20:45,840
Speaker 1: CarMax location opened in Richmond, Virginia. And yes, CarMax originated

343
00:20:46,000 --> 00:20:49,880
Speaker 1: as a Circuit City company. And while Circuit City would

344
00:20:49,880 --> 00:20:53,760
Speaker 1: eventually die in two thousand nine, spoiler alert, car Max

345
00:20:53,880 --> 00:20:56,760
Speaker 1: is still around, but in those early years, CarMax had

346
00:20:56,760 --> 00:20:59,280
Speaker 1: a rough start, and since Circuit City had a stake

347
00:20:59,359 --> 00:21:03,200
Speaker 1: in the company, it also hit Circuit City pretty hard.

348
00:21:04,240 --> 00:21:08,000
Speaker 1: Also launching CarMax wasn't going to stave off those competitors

349
00:21:08,000 --> 00:21:10,520
Speaker 1: like Best Buy. To do that, Circuit City stores began

350
00:21:10,560 --> 00:21:13,119
Speaker 1: to engage in that price slashing, at least in the

351
00:21:13,160 --> 00:21:16,240
Speaker 1: markets where Best Buy stores were trying to get a foothold.

352
00:21:16,720 --> 00:21:19,840
Speaker 1: So if you happen to live in a city that

353
00:21:20,000 --> 00:21:23,399
Speaker 1: had both Best Buy stores and Circuit City stores, you

354
00:21:23,600 --> 00:21:26,080
Speaker 1: benefited from this because you could get a better bargain

355
00:21:26,119 --> 00:21:28,679
Speaker 1: for your product if you shopped at Circuit City. But

356
00:21:28,720 --> 00:21:31,680
Speaker 1: if you lived in a place where only Circuit City existed,

357
00:21:32,040 --> 00:21:34,680
Speaker 1: you didn't see that benefit because there was no need

358
00:21:34,760 --> 00:21:38,000
Speaker 1: for them to slash prices. Best Buy wasn't there to

359
00:21:38,000 --> 00:21:42,000
Speaker 1: to siphon off any of the business. The two companies

360
00:21:42,040 --> 00:21:46,600
Speaker 1: had very different sales strategies. At Best Buy, employees were

361
00:21:46,600 --> 00:21:49,520
Speaker 1: trained to be able to answer basic customer questions and

362
00:21:49,560 --> 00:21:53,199
Speaker 1: assist when necessary, but largely customers had kind of a

363
00:21:53,240 --> 00:21:56,320
Speaker 1: help yourself approach, like walk into a store, see the

364
00:21:56,359 --> 00:21:58,120
Speaker 1: thing they wanted to buy, put it in a cart,

365
00:21:58,200 --> 00:22:00,240
Speaker 1: and go to check out. That's all it would work.

366
00:22:00,240 --> 00:22:02,920
Speaker 1: At best Buy. You might get asked by an employee

367
00:22:02,920 --> 00:22:04,840
Speaker 1: if there's anything he or she could do to help

368
00:22:04,880 --> 00:22:07,280
Speaker 1: you find, but that would be about it until you

369
00:22:07,320 --> 00:22:10,920
Speaker 1: made your purchase. But over at Circuit City, salespeople were

370
00:22:10,960 --> 00:22:14,439
Speaker 1: still working on commission, so the experience was very different.

371
00:22:14,480 --> 00:22:17,840
Speaker 1: You walk into a circuit City, you would see demonstration

372
00:22:17,920 --> 00:22:21,520
Speaker 1: models of various products, but for the most part, you

373
00:22:21,560 --> 00:22:24,800
Speaker 1: couldn't pick anything up. Everything was in boxes in the

374
00:22:24,840 --> 00:22:27,920
Speaker 1: warehouse and you would talk to a salesperson who would

375
00:22:27,960 --> 00:22:30,800
Speaker 1: make a sale established whatever the price was that you're paying.

376
00:22:31,359 --> 00:22:33,680
Speaker 1: Then they would go into the back and get the

377
00:22:33,720 --> 00:22:36,280
Speaker 1: thing that you were interested in buying, bring it out

378
00:22:36,280 --> 00:22:38,679
Speaker 1: to you, and then you would go and purchase it.

379
00:22:38,760 --> 00:22:43,239
Speaker 1: So very different models, and it meant that over at

380
00:22:43,280 --> 00:22:46,119
Speaker 1: Circuit City, a salesperson made more money if they made

381
00:22:46,280 --> 00:22:50,000
Speaker 1: more sales. They had an incentive to sell more to

382
00:22:50,160 --> 00:22:53,320
Speaker 1: more customers, and best Buy that wasn't the case. People

383
00:22:53,359 --> 00:22:56,880
Speaker 1: were on an hourly wage, no commissions, so the customer

384
00:22:56,920 --> 00:22:59,840
Speaker 1: experience at Circuit City was very different from Best Buy.

385
00:23:00,040 --> 00:23:03,520
Speaker 1: If you walk into a circuit City and you encountered

386
00:23:03,520 --> 00:23:06,480
Speaker 1: a salesperson who didn't have a particularly subtle approach. You

387
00:23:06,560 --> 00:23:10,240
Speaker 1: might feel pressured when shopping for electronics, which a lot

388
00:23:10,240 --> 00:23:14,800
Speaker 1: of folks react negatively toward. Circuit City executives felt that

389
00:23:14,840 --> 00:23:16,760
Speaker 1: their approach was actually the best one, which is why

390
00:23:16,760 --> 00:23:19,480
Speaker 1: they stuck with it for so long. It motivated their

391
00:23:19,480 --> 00:23:24,359
Speaker 1: sales force and it drove revenue because salespeople were selling

392
00:23:24,359 --> 00:23:28,080
Speaker 1: those higher margin products, the things that cost more money

393
00:23:28,080 --> 00:23:30,919
Speaker 1: and you would make more profit from because the cost

394
00:23:31,320 --> 00:23:33,840
Speaker 1: to the consumer was much higher than what it cost

395
00:23:33,920 --> 00:23:37,320
Speaker 1: Circuit City to purchase from a vendor. The company at

396
00:23:37,320 --> 00:23:41,040
Speaker 1: that point was valued at more than a billion dollars,

397
00:23:41,080 --> 00:23:44,400
Speaker 1: and they continued to grow and open up news superstores

398
00:23:44,480 --> 00:23:48,800
Speaker 1: in various markets. Meanwhile, best Buy was starting to gain ground,

399
00:23:48,920 --> 00:23:53,040
Speaker 1: and by it was competing with Circuit City and about

400
00:23:53,240 --> 00:23:57,080
Speaker 1: half of the larger company's markets. So half the stores

401
00:23:57,119 --> 00:24:00,159
Speaker 1: that Circuit City owned were competing with best Buy. The

402
00:24:00,200 --> 00:24:02,240
Speaker 1: other half were in markets that best Buy had not

403
00:24:02,320 --> 00:24:05,760
Speaker 1: quite penetrated yet. Best Buy was also taking a different

404
00:24:05,800 --> 00:24:09,040
Speaker 1: strategy when choosing store locations. So you remember I mentioned

405
00:24:09,440 --> 00:24:12,679
Speaker 1: that those Circuit City superstores were located on cheap land,

406
00:24:12,680 --> 00:24:16,239
Speaker 1: which wasn't always convenient to local populations. They could be

407
00:24:16,280 --> 00:24:19,040
Speaker 1: really out of the way. Best Buy tried to avoid

408
00:24:19,080 --> 00:24:23,160
Speaker 1: that same problem and find areas close to population centers

409
00:24:23,240 --> 00:24:27,679
Speaker 1: and pay that higher upfront cost because it was access

410
00:24:27,800 --> 00:24:31,920
Speaker 1: to more customers and people. They did figure that people

411
00:24:31,960 --> 00:24:33,720
Speaker 1: would be more willing to go to a store that's

412
00:24:33,720 --> 00:24:37,040
Speaker 1: closer to their home rather than travel across town to

413
00:24:37,119 --> 00:24:41,440
Speaker 1: go to a competitors superstore. Other stores besides best Buy

414
00:24:41,480 --> 00:24:44,280
Speaker 1: were also pushing up against the giant, which created a

415
00:24:44,359 --> 00:24:48,480
Speaker 1: much more competitive environment for Circuit City. Still, at that point,

416
00:24:48,480 --> 00:24:51,400
Speaker 1: the company was really doing great. It hits seven billion

417
00:24:51,440 --> 00:24:55,399
Speaker 1: dollars in sales in with earnings at a twenty percent

418
00:24:55,520 --> 00:24:59,080
Speaker 1: growth rate. It seemed like the company was unstoppable. It

419
00:24:59,160 --> 00:25:04,680
Speaker 1: was too big to fail. Accept it totally wasn't Bump

420
00:25:04,720 --> 00:25:08,520
Speaker 1: Bump Bomb really is the turning point year. That's the

421
00:25:08,600 --> 00:25:11,800
Speaker 1: year where we see Circuit City doing incredibly well, and

422
00:25:11,880 --> 00:25:15,760
Speaker 1: afterward we start to see it falter in best Buy

423
00:25:15,840 --> 00:25:20,720
Speaker 1: sales officially outperformed Circuit City sales. Now Circuit City was

424
00:25:20,760 --> 00:25:23,280
Speaker 1: still doing well, just not as well as the company

425
00:25:23,400 --> 00:25:26,240
Speaker 1: had been doing in previous years. This would become a

426
00:25:26,240 --> 00:25:29,160
Speaker 1: familiar story over the next few years. The company continued

427
00:25:29,200 --> 00:25:32,800
Speaker 1: to see earnings grow, but they were growing by smaller

428
00:25:32,840 --> 00:25:35,560
Speaker 1: amounts with occasional rallies over the next few years. So

429
00:25:35,600 --> 00:25:38,879
Speaker 1: you might say in one year they'd see twenty percent growth,

430
00:25:39,720 --> 00:25:42,879
Speaker 1: the next year they might see fifteen percent growth, the

431
00:25:42,920 --> 00:25:45,679
Speaker 1: next year might be seven percent growth, and they're like

432
00:25:45,720 --> 00:25:48,240
Speaker 1: I said, there were a couple of rallies. But seeing

433
00:25:48,440 --> 00:25:52,480
Speaker 1: the growth slow like that is terrifying to companies, particularly

434
00:25:52,560 --> 00:25:58,399
Speaker 1: publicly traded companies, because shareholders expect a return on their investment. Now,

435
00:25:58,680 --> 00:26:01,400
Speaker 1: that continued to go until about two thousand two, when

436
00:26:01,400 --> 00:26:03,840
Speaker 1: the company had what folks in the industry referred to

437
00:26:04,000 --> 00:26:08,879
Speaker 1: as negative growth, which means the company lost money. It

438
00:26:08,960 --> 00:26:11,359
Speaker 1: didn't grow at all. It actually shrank a bit. It

439
00:26:11,440 --> 00:26:14,679
Speaker 1: was only a tiny amount. It was point seven percent

440
00:26:14,800 --> 00:26:18,840
Speaker 1: negative growth, but that is a terrible sign. Best Buy, meanwhile,

441
00:26:19,160 --> 00:26:22,760
Speaker 1: had experienced a pretty wild growth rate over that same

442
00:26:22,800 --> 00:26:26,600
Speaker 1: period of time, but it was always in the positive space.

443
00:26:26,960 --> 00:26:29,720
Speaker 1: So some years it was growing a lot, some years

444
00:26:29,760 --> 00:26:33,200
Speaker 1: it wasn't growing as much, but it was always positive.

445
00:26:33,880 --> 00:26:35,399
Speaker 1: And part of the reason that it's kind of a

446
00:26:35,480 --> 00:26:39,240
Speaker 1: zigzag wild ride for best Buy was that the company

447
00:26:39,320 --> 00:26:42,360
Speaker 1: was ramping up the number of stores it opened, where

448
00:26:42,359 --> 00:26:47,240
Speaker 1: a circuit city was already pretty well entrenched. Meanwhile, another

449
00:26:47,280 --> 00:26:50,399
Speaker 1: store was starting to pinch at Circuit Cities performance, and

450
00:26:50,440 --> 00:26:53,400
Speaker 1: this time it was Walmart. In the mid two thousand's,

451
00:26:53,520 --> 00:26:57,360
Speaker 1: Walmart redesigned its stores and product lines to include more electronics,

452
00:26:57,359 --> 00:27:01,600
Speaker 1: including high end brands like Sony. Now that put Walmart

453
00:27:01,600 --> 00:27:05,240
Speaker 1: in competition with Circuit City. Walmart was able to do

454
00:27:05,280 --> 00:27:08,399
Speaker 1: some serious damage by offering something that I think we

455
00:27:08,520 --> 00:27:11,639
Speaker 1: all have had experience in. Uh it is the bane

456
00:27:11,760 --> 00:27:13,679
Speaker 1: of my existence when I go into a brick and

457
00:27:13,680 --> 00:27:17,680
Speaker 1: mortar store, and that is the up cell with extended warranties.

458
00:27:18,400 --> 00:27:22,439
Speaker 1: Extended warranties are profit machines. It is a way for

459
00:27:22,480 --> 00:27:26,919
Speaker 1: a company to make crazy amounts of money for relatively

460
00:27:26,960 --> 00:27:31,840
Speaker 1: little investment. And Walmart was really putting the hurt on

461
00:27:31,960 --> 00:27:35,840
Speaker 1: Circuit City and Best Buy by offering these extended warranties

462
00:27:35,880 --> 00:27:37,919
Speaker 1: at a much lower cost than you would find at

463
00:27:37,960 --> 00:27:41,000
Speaker 1: the other stores. And like I said, they were almost

464
00:27:41,000 --> 00:27:46,240
Speaker 1: pure profit for stores. In fact, extended warranties accounted for

465
00:27:46,359 --> 00:27:50,000
Speaker 1: all of the operating profit for Circuit City in two

466
00:27:50,080 --> 00:27:52,760
Speaker 1: thousand five, and a third of the profit for Best

467
00:27:52,800 --> 00:27:56,440
Speaker 1: Buy that same year. So Walmart's moved to undercut warranty

468
00:27:56,480 --> 00:27:58,960
Speaker 1: prices was a shot right across the bow at the

469
00:27:59,000 --> 00:28:02,640
Speaker 1: electronics super doors, and it was an effective one. According

470
00:28:02,680 --> 00:28:07,000
Speaker 1: to a retailing analyst named Todd Kurt, a tiny drop

471
00:28:07,440 --> 00:28:11,080
Speaker 1: in warranty revenue would result in a massive drop in

472
00:28:11,200 --> 00:28:14,200
Speaker 1: operating profit for Circuit City. And when I say massive,

473
00:28:14,240 --> 00:28:17,840
Speaker 1: I'm talking about if you drop one percentage point decrease

474
00:28:18,720 --> 00:28:22,040
Speaker 1: in extended warranty revenue, it would end up having a

475
00:28:22,119 --> 00:28:27,920
Speaker 1: twenty nine decrease in operating profit. Han Circuit City saw

476
00:28:27,960 --> 00:28:34,200
Speaker 1: a five decrease in warranty revenue that year. Huge impact.

477
00:28:35,040 --> 00:28:37,920
Speaker 1: And when you see that your business is so heavily

478
00:28:37,960 --> 00:28:41,600
Speaker 1: dependent upon a single point like that, you start getting

479
00:28:41,640 --> 00:28:45,520
Speaker 1: awfully nervous. So Richard Sharp started looking into ways that

480
00:28:45,560 --> 00:28:47,920
Speaker 1: he could possibly turn this around, and he thought that

481
00:28:48,000 --> 00:28:52,280
Speaker 1: maybe diversifying Circuit Cities products was a potential answer. He

482
00:28:52,360 --> 00:28:54,440
Speaker 1: did this in a couple of different ways. He did

483
00:28:54,600 --> 00:28:57,000
Speaker 1: some home security stuff that didn't work out. But the

484
00:28:57,120 --> 00:29:00,160
Speaker 1: real big one that people like to point to as

485
00:29:00,200 --> 00:29:05,160
Speaker 1: being a huge misfire happened in that's when the company

486
00:29:05,280 --> 00:29:09,080
Speaker 1: would end up carrying a new product called Divis d

487
00:29:09,320 --> 00:29:12,480
Speaker 1: i v X, which is a type of digital movie

488
00:29:12,520 --> 00:29:15,600
Speaker 1: disc and it was sort of like a disposable DVD,

489
00:29:16,080 --> 00:29:20,000
Speaker 1: although those were two different standards at that time. The

490
00:29:20,200 --> 00:29:22,840
Speaker 1: disc could store encoded digital video, but you had to

491
00:29:22,920 --> 00:29:26,320
Speaker 1: watch the disc within forty eight hours of purchase or

492
00:29:26,360 --> 00:29:29,360
Speaker 1: you lost your chance. So this was kind of a

493
00:29:29,400 --> 00:29:32,800
Speaker 1: move to get into the video rental business. Circuit. City

494
00:29:32,880 --> 00:29:35,920
Speaker 1: is kind of moving into blockbuster territory with this, but

495
00:29:36,200 --> 00:29:38,120
Speaker 1: there was no risk of someone running off with a

496
00:29:38,120 --> 00:29:41,120
Speaker 1: copy of a film. You would just produce the Divics disc,

497
00:29:41,680 --> 00:29:44,320
Speaker 1: sell it to a consumer, and then they would have

498
00:29:44,320 --> 00:29:47,240
Speaker 1: two days to watch it. Dvick's players had a phone

499
00:29:47,280 --> 00:29:50,920
Speaker 1: connection that had to be active for the video to play.

500
00:29:50,920 --> 00:29:53,520
Speaker 1: So anyone who's used to computer games that have an

501
00:29:53,560 --> 00:29:57,880
Speaker 1: online component requirement, even if it's just a single player game,

502
00:29:58,240 --> 00:30:01,200
Speaker 1: you know what I'm talking about. This is digital rights management, right.

503
00:30:01,680 --> 00:30:05,120
Speaker 1: It's the attempt to make sure that the use of

504
00:30:05,160 --> 00:30:09,640
Speaker 1: the product falls within certain parameters. In this case, you

505
00:30:09,640 --> 00:30:12,719
Speaker 1: have forty eight hours to watch your movie. A central

506
00:30:12,720 --> 00:30:17,600
Speaker 1: computer system kept track of everything, even unplayed movies, which

507
00:30:18,160 --> 00:30:21,960
Speaker 1: drives me crazy. Is amazing that this ever was considered

508
00:30:22,000 --> 00:30:25,240
Speaker 1: a good idea. Let's say that you wanted to rent

509
00:30:25,280 --> 00:30:28,360
Speaker 1: a movie, so you hit your local circuit city and

510
00:30:28,440 --> 00:30:31,640
Speaker 1: buy a Divix disc and bye bye bye. I mean,

511
00:30:31,680 --> 00:30:34,280
Speaker 1: you're really just renting the chance to watch a movie

512
00:30:34,320 --> 00:30:36,960
Speaker 1: for forty eight hours. So let's pick a specific film.

513
00:30:36,960 --> 00:30:40,239
Speaker 1: I'm gonna pick your favorite film, which we all know

514
00:30:40,360 --> 00:30:43,480
Speaker 1: is Big Trouble in Little China, classic movie starring Kurt Russell,

515
00:30:43,560 --> 00:30:47,760
Speaker 1: directed by John Carpenter. You have great taste, fantastic favorite film.

516
00:30:47,920 --> 00:30:50,240
Speaker 1: Good on you. You pay a few bucks, maybe four

517
00:30:50,320 --> 00:30:53,440
Speaker 1: or five dollars, and because this is a rental, you

518
00:30:53,520 --> 00:30:55,240
Speaker 1: don't have to pay more than that. You know you're

519
00:30:55,280 --> 00:30:59,000
Speaker 1: not buying the movie. You take the disc homeb but

520
00:30:59,800 --> 00:31:02,560
Speaker 1: you're a busy person. It turns out you don't have

521
00:31:02,680 --> 00:31:07,400
Speaker 1: time to enjoy that film within those first forty eight hours. Well,

522
00:31:07,400 --> 00:31:10,719
Speaker 1: that central computing system knows this. It's tracking it because

523
00:31:11,080 --> 00:31:15,880
Speaker 1: your Divics system hasn't called in to say, hey, this

524
00:31:15,960 --> 00:31:19,600
Speaker 1: guy's watching Big Trouble Little China, or this lady is

525
00:31:19,600 --> 00:31:22,760
Speaker 1: watching Big Trouble and Little China, or this family isn't

526
00:31:22,800 --> 00:31:24,840
Speaker 1: watching Big Trouble in Little China. And forty eight hours

527
00:31:24,840 --> 00:31:28,080
Speaker 1: have passed, and since you didn't have the decency to

528
00:31:28,160 --> 00:31:31,360
Speaker 1: watch it when you were supposed to, your build another

529
00:31:31,440 --> 00:31:36,000
Speaker 1: three dollars. Isn't that crazy? You were charged for not

530
00:31:36,520 --> 00:31:40,960
Speaker 1: watching the movie you rented. You you go, you rent

531
00:31:40,960 --> 00:31:44,400
Speaker 1: a movie, You're not supposed to return the disk. You

532
00:31:44,520 --> 00:31:47,880
Speaker 1: throw it away after you use it, forty eight hours passes,

533
00:31:47,920 --> 00:31:50,960
Speaker 1: you get dinged for not watching the movie. It's like

534
00:31:51,000 --> 00:31:55,360
Speaker 1: a late fee for a movie you don't have to return. Yeah,

535
00:31:55,480 --> 00:31:58,520
Speaker 1: I can't imagine why that standard lost out to DVD,

536
00:32:00,120 --> 00:32:02,480
Speaker 1: so I'm sure you're familiar with the DVD format. I'll

537
00:32:02,480 --> 00:32:06,920
Speaker 1: probably do a full episode more about DVDs and encoding

538
00:32:06,920 --> 00:32:09,400
Speaker 1: and also if you say the word DVD fast enough,

539
00:32:09,440 --> 00:32:12,760
Speaker 1: you sound like you're Twiggy from Buck Rogers. But it

540
00:32:12,800 --> 00:32:15,640
Speaker 1: was early days for both of those standards back in

541
00:32:16,880 --> 00:32:20,360
Speaker 1: and Circuit City had gone all in on the DVICS bet,

542
00:32:20,800 --> 00:32:24,640
Speaker 1: but other retailers weren't so excited about that technology, which

543
00:32:24,720 --> 00:32:28,040
Speaker 1: meant that Circuit City had to work extra hard to

544
00:32:28,480 --> 00:32:32,320
Speaker 1: educate customers and convince them that the Divics format was

545
00:32:32,360 --> 00:32:34,200
Speaker 1: the way to go, and that was a tough job.

546
00:32:34,800 --> 00:32:38,360
Speaker 1: They tried to convince studios to create exclusives, stuff that

547
00:32:38,400 --> 00:32:41,640
Speaker 1: would only come out on Divics and not on DVD,

548
00:32:41,680 --> 00:32:47,840
Speaker 1: but with very little success, and in nine sharp knew

549
00:32:47,880 --> 00:32:50,000
Speaker 1: that this was a bad idea, and he pulled the

550
00:32:50,000 --> 00:32:52,760
Speaker 1: plug on the whole project. Now, the price tag for

551
00:32:52,840 --> 00:32:57,520
Speaker 1: that mistake was about two hundred thirty three million dollars

552
00:32:57,600 --> 00:33:03,320
Speaker 1: for the development and promotion of dvids, not good news.

553
00:33:04,360 --> 00:33:09,360
Speaker 1: In two thousand Sharp transitioned from president and CEO to chairman. Now,

554
00:33:09,400 --> 00:33:12,320
Speaker 1: like I said earlier, Sharp's tenure included high highs and

555
00:33:12,440 --> 00:33:15,800
Speaker 1: low lows for Circuit City, and some things like the

556
00:33:15,880 --> 00:33:18,520
Speaker 1: Rabbid expansion in the late eighties and early nineties had

557
00:33:18,560 --> 00:33:22,120
Speaker 1: really paid off, but others like the Divics debacle and

558
00:33:22,200 --> 00:33:26,440
Speaker 1: a similar misstep with the home security sales and installation

559
00:33:26,560 --> 00:33:31,200
Speaker 1: were big misses. At that point, Alan McCullough, who had

560
00:33:31,200 --> 00:33:34,560
Speaker 1: previously been the president and CEO of Circuit City, became

561
00:33:34,600 --> 00:33:38,560
Speaker 1: the new president and CEO. Two years later, mccullo would

562
00:33:38,560 --> 00:33:41,920
Speaker 1: take over the title of chairman from Sharp, and from

563
00:33:41,920 --> 00:33:43,920
Speaker 1: two thousand two to two thousand five he would be

564
00:33:43,960 --> 00:33:46,360
Speaker 1: the head guy in charge. I got a lot more

565
00:33:46,400 --> 00:33:49,160
Speaker 1: to say about that, but let's take another quick break

566
00:33:49,440 --> 00:33:58,160
Speaker 1: to thank our sponsor. All Right, we're heading towards the

567
00:33:58,240 --> 00:34:01,240
Speaker 1: slide into bankruptcy here, but first let's talk a bit

568
00:34:01,240 --> 00:34:05,360
Speaker 1: about McCullough. He had worked with Circuit City since nineteen seven,

569
00:34:05,520 --> 00:34:08,000
Speaker 1: so he had been there for a while. He was

570
00:34:08,080 --> 00:34:12,880
Speaker 1: invested in the company, at least professionally invested, if not

571
00:34:13,040 --> 00:34:17,560
Speaker 1: financially invested, and his tenure began with a big change

572
00:34:17,600 --> 00:34:21,680
Speaker 1: in Circuit City strategy. His tenure as the president, that is,

573
00:34:21,840 --> 00:34:27,480
Speaker 1: president CEO, the company said it would no longer sell appliances.

574
00:34:27,800 --> 00:34:30,799
Speaker 1: It would focus only on consumer electronics and get out

575
00:34:30,840 --> 00:34:34,840
Speaker 1: of the appliance game. The appliance market, like consumer electronics,

576
00:34:34,840 --> 00:34:38,120
Speaker 1: had become much more competitive over the past few years.

577
00:34:38,200 --> 00:34:41,040
Speaker 1: It was largely due to big stores like Home Depot

578
00:34:41,080 --> 00:34:45,680
Speaker 1: and Lows offering major appliances. Getting out of the business

579
00:34:45,800 --> 00:34:48,120
Speaker 1: was thought of as a way to cut costs and

580
00:34:48,160 --> 00:34:51,800
Speaker 1: to focus on consumer electronics more exclusively so that it

581
00:34:51,840 --> 00:34:55,359
Speaker 1: could be more effective. Appliances also take up a lot

582
00:34:55,360 --> 00:34:57,680
Speaker 1: of space when you're trying to sell them, so by

583
00:34:57,719 --> 00:35:00,440
Speaker 1: getting out of that business, the company wouldn't need to

584
00:35:00,520 --> 00:35:03,399
Speaker 1: maintain as much warehouse space, and it would also cut

585
00:35:03,440 --> 00:35:07,239
Speaker 1: down on delivery costs. So the whole idea was we

586
00:35:07,280 --> 00:35:09,680
Speaker 1: can save a lot of money this way. But getting

587
00:35:09,680 --> 00:35:12,719
Speaker 1: out of the appliance game also meant that suddenly some

588
00:35:12,840 --> 00:35:15,680
Speaker 1: jobs weren't needed, like a whole lot of them, like

589
00:35:15,760 --> 00:35:20,800
Speaker 1: a thousand jobs. Circuit City close six distribution centers as well,

590
00:35:21,360 --> 00:35:23,600
Speaker 1: and the decision was made so quickly that it ended

591
00:35:23,680 --> 00:35:28,520
Speaker 1: up causing huge problems for Circuit City because the vendors

592
00:35:28,840 --> 00:35:31,680
Speaker 1: that Circuit City worked with, the companies that made the

593
00:35:31,719 --> 00:35:35,800
Speaker 1: products that Circuit City sold in their stores, weren't informed

594
00:35:35,840 --> 00:35:38,799
Speaker 1: of the decision in advance, so it damaged a lot

595
00:35:38,840 --> 00:35:42,040
Speaker 1: of business relationships. And it also meant that anyone in

596
00:35:42,080 --> 00:35:45,120
Speaker 1: the market for appliances wasn't going to go to Circuit City,

597
00:35:45,239 --> 00:35:48,520
Speaker 1: so that resulted in less customer traffic in stores, and

598
00:35:48,520 --> 00:35:52,480
Speaker 1: that ended up hurting. And while the the business was

599
00:35:52,520 --> 00:35:56,880
Speaker 1: operating at a loss for the appliances section it the

600
00:35:56,960 --> 00:36:00,560
Speaker 1: sales still went to help cover fixed costs, and now

601
00:36:00,719 --> 00:36:02,920
Speaker 1: you didn't have those anymore, so that money had to

602
00:36:02,920 --> 00:36:06,480
Speaker 1: be taken from other places. McCullough would also officially spin

603
00:36:06,600 --> 00:36:10,919
Speaker 1: off CarMax into its own company. CarMax at that point

604
00:36:10,960 --> 00:36:14,000
Speaker 1: was facing competition in the used car market space, and

605
00:36:14,080 --> 00:36:16,800
Speaker 1: it had been a drain on Circuit Cities financials. It

606
00:36:16,920 --> 00:36:19,640
Speaker 1: had a rough several you know, rough early times for

607
00:36:19,680 --> 00:36:24,560
Speaker 1: CarMax Circuit City tried to remodel stores in an effort

608
00:36:24,600 --> 00:36:27,560
Speaker 1: to make them more attractive to customers. The company had

609
00:36:27,680 --> 00:36:30,640
Speaker 1: long been focused on the practice of scooping up that

610
00:36:30,719 --> 00:36:35,880
Speaker 1: cheap property for its superstores, but again it meant that

611
00:36:35,920 --> 00:36:39,279
Speaker 1: most of those stores weren't convenient to customers, and Best Buy,

612
00:36:39,480 --> 00:36:41,399
Speaker 1: like I had mentioned, had gone a totally different way,

613
00:36:41,480 --> 00:36:44,520
Speaker 1: spending that upfront cost to get those premium locations. Now,

614
00:36:44,719 --> 00:36:49,280
Speaker 1: Circuit City couldn't just relocate stores, so their next choice

615
00:36:49,320 --> 00:36:53,760
Speaker 1: was to remodel and redesign store spaces to entice customers inside.

616
00:36:54,440 --> 00:36:56,799
Speaker 1: So the idea would be that now customers could come

617
00:36:56,800 --> 00:36:59,319
Speaker 1: in and purchase a lot of the products just by

618
00:36:59,440 --> 00:37:01,399
Speaker 1: picking up a box and taking it to check out.

619
00:37:01,440 --> 00:37:04,960
Speaker 1: They wouldn't have to talk to a salesperson. But they

620
00:37:04,960 --> 00:37:08,239
Speaker 1: were still running the sales on commission at this point,

621
00:37:08,320 --> 00:37:10,640
Speaker 1: so a lot of products didn't fall into that category.

622
00:37:10,680 --> 00:37:12,440
Speaker 1: If you wanted one, you still had to talk to

623
00:37:12,480 --> 00:37:14,840
Speaker 1: a salesperson. They still had to send someone to the

624
00:37:14,840 --> 00:37:16,640
Speaker 1: back to get the product to come out to you.

625
00:37:16,880 --> 00:37:19,200
Speaker 1: Only a few of the products were kind of a

626
00:37:19,239 --> 00:37:24,160
Speaker 1: help yourself approach, so it was sort of a half measure. Uh,

627
00:37:24,200 --> 00:37:27,000
Speaker 1: and you might imagine that it wasn't terribly effective, and

628
00:37:27,080 --> 00:37:32,200
Speaker 1: you'd be right now. The remodeling strategy was scaled back

629
00:37:32,239 --> 00:37:35,239
Speaker 1: from their original plans almost from the beginning in two

630
00:37:35,280 --> 00:37:40,680
Speaker 1: thousand one. They initially said we're going to remodel stores,

631
00:37:41,239 --> 00:37:45,279
Speaker 1: but they only really remodeled about twenty or so, and

632
00:37:45,320 --> 00:37:47,480
Speaker 1: the reason for that was to save money on the

633
00:37:47,520 --> 00:37:50,920
Speaker 1: costs that remodeling would incur. It was about a million

634
00:37:50,960 --> 00:37:55,000
Speaker 1: dollars per store to remodel them. So they thought, well, well,

635
00:37:55,160 --> 00:37:58,960
Speaker 1: we'll spread out the costs of remodeling by doing blocks

636
00:37:58,960 --> 00:38:02,919
Speaker 1: of stores each year. But the problem was doing this

637
00:38:02,960 --> 00:38:06,680
Speaker 1: meant that the stores were falling further behind their competitors.

638
00:38:06,680 --> 00:38:09,719
Speaker 1: It was putting them in a more dangerous position. In

639
00:38:09,760 --> 00:38:13,440
Speaker 1: two thousand three, responding to changes in the market that

640
00:38:13,480 --> 00:38:18,239
Speaker 1: had happened years earlier, Circuit City finally ended its commissioned

641
00:38:18,360 --> 00:38:22,160
Speaker 1: sales program. Instead, all employees would get a fixed hourly

642
00:38:22,239 --> 00:38:24,759
Speaker 1: pay rate based upon their pay grade. It also meant

643
00:38:24,800 --> 00:38:29,560
Speaker 1: cutting nearly four thousand jobs all in sales. Four thousand

644
00:38:29,600 --> 00:38:36,400
Speaker 1: people having their jobs cut because this decision no longer

645
00:38:36,440 --> 00:38:40,280
Speaker 1: did Circuit City need salespeople who specialized in commencing customers

646
00:38:40,280 --> 00:38:42,680
Speaker 1: to buy the highest step up on a product they

647
00:38:42,680 --> 00:38:47,000
Speaker 1: could manage. Instead, hourly wage employees would provide general assistance,

648
00:38:47,160 --> 00:38:49,719
Speaker 1: similar to the way business was done in shops like

649
00:38:49,840 --> 00:38:53,200
Speaker 1: Best Buy. Now. If Circuit City had made this change

650
00:38:53,239 --> 00:38:55,600
Speaker 1: back in the nineties, it might have worked, though it

651
00:38:55,719 --> 00:38:58,319
Speaker 1: still would have obviously been painful for the people who

652
00:38:58,320 --> 00:39:01,600
Speaker 1: were in sales, But by this point, when the company

653
00:39:01,640 --> 00:39:04,360
Speaker 1: was already in dire straits, when it was struggling, it

654
00:39:04,440 --> 00:39:07,840
Speaker 1: meant seeing a decrease in those higher margin sales and

655
00:39:07,920 --> 00:39:11,680
Speaker 1: further negative impact on revenue, which wasn't something they could

656
00:39:11,719 --> 00:39:14,719
Speaker 1: easily bounce back from at this point. In June two

657
00:39:14,760 --> 00:39:17,120
Speaker 1: thousand three, the Circuit City board of directors had a

658
00:39:17,120 --> 00:39:19,680
Speaker 1: big decision to make. Another company was coming to the

659
00:39:19,719 --> 00:39:22,120
Speaker 1: table with an offer, and that other company was comp

660
00:39:22,200 --> 00:39:26,080
Speaker 1: Usa Incorporated. The offer was at one point five billion

661
00:39:26,120 --> 00:39:29,799
Speaker 1: dollar acquisition deal, but the board of directors decided not

662
00:39:29,920 --> 00:39:33,239
Speaker 1: to pursue the offer and rejected it. By two thousand four,

663
00:39:33,680 --> 00:39:37,720
Speaker 1: things were looking pretty grim. In a single day, Circuit

664
00:39:37,760 --> 00:39:41,279
Speaker 1: City announced three thousand, four hundred job cuts, and not

665
00:39:41,400 --> 00:39:46,120
Speaker 1: just any jobs. They cut sales associates, people who had

666
00:39:46,200 --> 00:39:49,440
Speaker 1: the most knowledge and experience and tenure with the company.

667
00:39:49,440 --> 00:39:54,399
Speaker 1: They were also, no coincidence, the highest compensated in that

668
00:39:54,480 --> 00:39:59,840
Speaker 1: department in these sales associate roles. Now their replacements lacked

669
00:40:00,080 --> 00:40:03,759
Speaker 1: that knowledge and experience that they needed in order to

670
00:40:03,800 --> 00:40:07,800
Speaker 1: succeed in their new roles. The Wortzels would have found

671
00:40:08,040 --> 00:40:11,120
Speaker 1: this entire move unacceptable. You might remember in my last

672
00:40:11,160 --> 00:40:15,160
Speaker 1: episode I talked about how Samuel Wurtzel had always stressed

673
00:40:15,200 --> 00:40:19,120
Speaker 1: the importance of training and setting employees up for success.

674
00:40:19,880 --> 00:40:24,480
Speaker 1: Now this move put unqualified people into positions without proper preparation,

675
00:40:24,600 --> 00:40:26,960
Speaker 1: through no fault of their own, and it was a

676
00:40:27,040 --> 00:40:31,400
Speaker 1: huge mistake. At the same time, Circuit City executives were

677
00:40:31,440 --> 00:40:36,000
Speaker 1: awarding themselves big retention bonuses in order to keep various

678
00:40:36,000 --> 00:40:39,520
Speaker 1: executives from jumping ship. So this had a devastating effect

679
00:40:39,560 --> 00:40:44,400
Speaker 1: on employee morale. You've got the most knowledgeable employees booted,

680
00:40:44,880 --> 00:40:48,440
Speaker 1: you've got people unqualified put into new positions, and you've

681
00:40:48,480 --> 00:40:53,080
Speaker 1: got the executives at the top rewarding themselves seemingly in

682
00:40:53,160 --> 00:40:59,120
Speaker 1: spite of all the employees. So this was sending a

683
00:40:59,239 --> 00:41:02,400
Speaker 1: really bad message not just two employees, but also to

684
00:41:02,560 --> 00:41:06,799
Speaker 1: vendors and also customers, and losing those experienced employees and

685
00:41:06,840 --> 00:41:09,840
Speaker 1: demoralizing the rest of the workforce trickled down into that

686
00:41:09,920 --> 00:41:14,799
Speaker 1: customer experience. It became increasingly unpleasant to shop at Circuit City.

687
00:41:14,960 --> 00:41:18,880
Speaker 1: Stores were poorly organized in staff and uh, and customer

688
00:41:18,960 --> 00:41:22,879
Speaker 1: dissatisfaction was was through the roof. Now, in two thousand five,

689
00:41:23,080 --> 00:41:26,640
Speaker 1: a man named Philip J. Schoonover became the president of

690
00:41:26,680 --> 00:41:30,120
Speaker 1: the company. He would then later become the chairman and

691
00:41:30,200 --> 00:41:32,719
Speaker 1: CEO in two thousand six, and he would stay in

692
00:41:32,719 --> 00:41:36,479
Speaker 1: that role until forced to leave in two thousand eight.

693
00:41:37,480 --> 00:41:41,920
Speaker 1: That probably tells you that things did not go well. Now,

694
00:41:41,960 --> 00:41:45,080
Speaker 1: if Sharp had made decisions that put the company in

695
00:41:45,200 --> 00:41:49,040
Speaker 1: danger and McCullough had exacerbated matters, you could say Scoonover

696
00:41:49,200 --> 00:41:53,840
Speaker 1: is the person everyone associates with the death of Circuit City.

697
00:41:54,080 --> 00:41:56,960
Speaker 1: It may not entirely be Schoonover's fault. He was in

698
00:41:57,000 --> 00:42:00,719
Speaker 1: a terribly difficult position when he came on board. But

699
00:42:01,000 --> 00:42:05,920
Speaker 1: Alan Wertzel said scoon Over completely ignored company values, the

700
00:42:05,960 --> 00:42:11,040
Speaker 1: ones that Samuel Wertzel Alan's father had instilled in the company. Namely,

701
00:42:11,480 --> 00:42:16,080
Speaker 1: he said that Scoonover stopped caring about fair deals and

702
00:42:16,120 --> 00:42:19,560
Speaker 1: honesty when dealing with employees and vendors. Alike, which is

703
00:42:19,600 --> 00:42:23,759
Speaker 1: pretty brutal. In two thousand six, Circuit City decided to

704
00:42:23,800 --> 00:42:26,920
Speaker 1: copy Best Buy, which is kind of interesting considering how

705
00:42:26,920 --> 00:42:30,560
Speaker 1: many times Best Buy was essentially copying Circuit City but

706
00:42:30,680 --> 00:42:35,200
Speaker 1: doing it better. Best Buy had launched an electronics service

707
00:42:35,440 --> 00:42:39,320
Speaker 1: called geek Squad back in two thousand two. Geek Squad

708
00:42:39,360 --> 00:42:44,680
Speaker 1: provides specialized customer service for things like equipment installation, adjustment repairs,

709
00:42:44,800 --> 00:42:47,680
Speaker 1: that kind of thing for a fee, and those fees

710
00:42:47,719 --> 00:42:50,719
Speaker 1: add up kind of like those extended warranties had been

711
00:42:50,760 --> 00:42:53,600
Speaker 1: a huge source of revenue for Best Buy in Circuit

712
00:42:53,640 --> 00:42:57,000
Speaker 1: City Alike. Well, this was four years later, but Circuit

713
00:42:57,040 --> 00:42:59,759
Speaker 1: City says, all right, two thousand six, we're gonna launch

714
00:42:59,760 --> 00:43:02,880
Speaker 1: our own service, which is going to be a specialized

715
00:43:02,960 --> 00:43:08,200
Speaker 1: electronics service, and we're calling it fire Dog. Fire Dog, however,

716
00:43:08,680 --> 00:43:11,760
Speaker 1: required a big investment. The company spent millions of dollars

717
00:43:11,760 --> 00:43:15,720
Speaker 1: in the hiring, training, and resource allocation for fire Dog teams.

718
00:43:16,200 --> 00:43:19,000
Speaker 1: And then it wasn't a very well coordinated effort. Some

719
00:43:19,120 --> 00:43:22,160
Speaker 1: stores were lagging way behind other stores, and there was

720
00:43:22,200 --> 00:43:25,759
Speaker 1: a lot of confusion and not clear messaging, and that

721
00:43:25,920 --> 00:43:29,239
Speaker 1: ended up adding to the expense. Customers were confused by

722
00:43:29,280 --> 00:43:32,600
Speaker 1: the service, which wasn't promoted very well and many rejected it.

723
00:43:33,000 --> 00:43:36,280
Speaker 1: So while Geek Squad succeeded over at best Buy, fire

724
00:43:36,360 --> 00:43:41,000
Speaker 1: Dog floundered at Circuit City. Also in two thousand six,

725
00:43:41,080 --> 00:43:43,560
Speaker 1: the company made a real bold move on Black Friday,

726
00:43:43,840 --> 00:43:47,360
Speaker 1: the day after Thanksgiving here in the United States, Circuit

727
00:43:47,440 --> 00:43:51,440
Speaker 1: City offered an amazing deal. At the time. It offered

728
00:43:51,480 --> 00:43:55,319
Speaker 1: a forty two inch panasonic plasma television for less than

729
00:43:55,360 --> 00:43:58,919
Speaker 1: a thousand dollars, which was way below the normal price

730
00:43:58,960 --> 00:44:01,759
Speaker 1: you would find at most play at that time, but

731
00:44:01,840 --> 00:44:05,120
Speaker 1: it actually created a domino effect that caused damage. Circuit

732
00:44:05,160 --> 00:44:08,360
Speaker 1: City began to slash prices to such levels that the

733
00:44:08,400 --> 00:44:12,080
Speaker 1: profit margins were almost completely eliminated, meaning the company was

734
00:44:12,120 --> 00:44:15,840
Speaker 1: selling products very close to what it cost the company

735
00:44:15,880 --> 00:44:18,160
Speaker 1: to get them in the first place, all in an

736
00:44:18,200 --> 00:44:21,120
Speaker 1: effort to regain customers. And it's a game you cannot

737
00:44:21,120 --> 00:44:24,040
Speaker 1: play forever because those profits are never going to be enough,

738
00:44:24,560 --> 00:44:28,879
Speaker 1: especially for a publicly traded company. Two thousand eight would

739
00:44:28,880 --> 00:44:32,000
Speaker 1: see the end of Schoonover's tenure. Like I said, he

740
00:44:32,080 --> 00:44:34,759
Speaker 1: was forced out of his role and an investor named

741
00:44:34,800 --> 00:44:37,759
Speaker 1: Mark Waddles took over the job, which by then was

742
00:44:38,120 --> 00:44:41,680
Speaker 1: not great. Sales for Circuit City were down by eleven

743
00:44:41,680 --> 00:44:44,000
Speaker 1: percent and the company had suffered more than a hundred

744
00:44:44,080 --> 00:44:48,680
Speaker 1: fifty million dollars in losses. Things were ugly. In April

745
00:44:48,680 --> 00:44:52,360
Speaker 1: two tho eight, another suitor came calling Circuit City, and

746
00:44:52,400 --> 00:44:55,680
Speaker 1: this time it was Blockbuster, which is yet another company

747
00:44:55,719 --> 00:44:58,040
Speaker 1: I could do an episode on and talk about how

748
00:44:58,560 --> 00:45:01,280
Speaker 1: it failed to be nimble, sort of like Circuit City

749
00:45:01,520 --> 00:45:06,000
Speaker 1: and ultimately a doomed Blockbuster. But this is Circuit City story.

750
00:45:06,400 --> 00:45:09,480
Speaker 1: So Blockbuster comes up to Circuit City and says, hey,

751
00:45:09,800 --> 00:45:12,280
Speaker 1: buy a for a billion dollars. So this is half

752
00:45:12,320 --> 00:45:16,239
Speaker 1: a billion dollars less than the previous offer had been

753
00:45:16,360 --> 00:45:21,359
Speaker 1: just a few years ago from comp Usa. But by

754
00:45:21,440 --> 00:45:26,120
Speaker 1: July one, two thousand eight, Blockbuster had second thoughts. They

755
00:45:26,120 --> 00:45:29,040
Speaker 1: had actually looked into the potential deal further and concluded

756
00:45:29,040 --> 00:45:34,160
Speaker 1: that acquiring Circuit City would be a bad business decision. Yikes.

757
00:45:34,200 --> 00:45:37,640
Speaker 1: So Circuit City stocks plummeted as a result. If someone

758
00:45:37,719 --> 00:45:39,319
Speaker 1: comes up and says, hey, do you want to go

759
00:45:39,360 --> 00:45:41,120
Speaker 1: to the problem that you know what? Never mind, I

760
00:45:41,160 --> 00:45:44,320
Speaker 1: can do better, It's probably not gonna help your self esteem.

761
00:45:44,440 --> 00:45:47,680
Speaker 1: The same is true with with investor confidence in Circuit

762
00:45:47,680 --> 00:45:51,399
Speaker 1: City after this event, and yeah that that story comes

763
00:45:51,400 --> 00:45:54,919
Speaker 1: from Jonathan's past, thank you not to pursue it further.

764
00:45:55,520 --> 00:45:59,040
Speaker 1: By November two thousand eight, the company was bailing water

765
00:45:59,160 --> 00:46:02,360
Speaker 1: Circuit City and now it would close one fifty five

766
00:46:02,480 --> 00:46:06,239
Speaker 1: stores and layoff more than fifteen percent of its workforce

767
00:46:06,320 --> 00:46:08,520
Speaker 1: by the end of the year, and just a little

768
00:46:08,560 --> 00:46:11,760
Speaker 1: bit later, seven hundred corporate employees, the people who worked

769
00:46:11,760 --> 00:46:16,120
Speaker 1: at Circuit Cities corporate headquarters were let go. All the

770
00:46:16,160 --> 00:46:18,960
Speaker 1: other corporate employees were moved into the same building to

771
00:46:19,000 --> 00:46:21,040
Speaker 1: cut costs so they didn't have to have as much

772
00:46:21,080 --> 00:46:25,120
Speaker 1: office space, and on November ten, the company filed for

773
00:46:25,239 --> 00:46:29,040
Speaker 1: bankruptcy for Chapter eleven and started searching for a White

774
00:46:29,160 --> 00:46:32,040
Speaker 1: Night to rescue them. The whole idea was that, you know,

775
00:46:32,040 --> 00:46:34,640
Speaker 1: by filing for bankruptcy, you get a little breathing room.

776
00:46:35,000 --> 00:46:38,680
Speaker 1: The goal is to try and get out of bankruptcy

777
00:46:38,680 --> 00:46:41,400
Speaker 1: and go back to business. But at this point it

778
00:46:41,480 --> 00:46:43,880
Speaker 1: was too late. No one was willing to jump forward

779
00:46:43,920 --> 00:46:46,120
Speaker 1: and try to write a sinking ship, not for a

780
00:46:46,160 --> 00:46:49,200
Speaker 1: company that had lost five billion dollars in stock market

781
00:46:49,280 --> 00:46:52,239
Speaker 1: value in just twenty four months. There were still hopes

782
00:46:52,280 --> 00:46:55,279
Speaker 1: that a company could re emerge from this bankruptcy. It

783
00:46:55,320 --> 00:46:57,760
Speaker 1: just wasn't meant to be. There was a brief moment

784
00:46:57,800 --> 00:47:00,080
Speaker 1: of hope when it appeared that a retail busines this

785
00:47:00,200 --> 00:47:02,800
Speaker 1: men from Mexico, might swoop in at the last second,

786
00:47:03,719 --> 00:47:06,480
Speaker 1: but after purchasing a little less than thirty percent of

787
00:47:06,480 --> 00:47:09,719
Speaker 1: the company, that just stopped. A lot of questions were

788
00:47:09,760 --> 00:47:11,880
Speaker 1: raised about why someone would come in and buy up

789
00:47:11,880 --> 00:47:14,440
Speaker 1: a third of a company that was doomed to failure

790
00:47:14,520 --> 00:47:19,040
Speaker 1: and not try to do more. So the company at

791
00:47:19,080 --> 00:47:22,240
Speaker 1: this time was still trying to do business like stores

792
00:47:22,280 --> 00:47:25,799
Speaker 1: were still open and still trying to sell merchandise, but

793
00:47:26,000 --> 00:47:30,040
Speaker 1: those bankruptcy proceedings had really hurt them beyond just that

794
00:47:30,280 --> 00:47:33,799
Speaker 1: backstage stuff. I mean, customer confidence had withered away and

795
00:47:33,800 --> 00:47:36,200
Speaker 1: the company lacked the resources to try anything new to

796
00:47:36,239 --> 00:47:40,319
Speaker 1: bring customers back in. So in January two nine, they

797
00:47:40,320 --> 00:47:43,160
Speaker 1: couldn't keep things going any longer, and the company was

798
00:47:43,320 --> 00:47:46,359
Speaker 1: forced to liquidate all its assets, and over the next

799
00:47:46,400 --> 00:47:50,400
Speaker 1: few months, the company would close stores, layoff workers, liquidate

800
00:47:50,480 --> 00:47:54,200
Speaker 1: things until the final store closed on March eight, two

801
00:47:54,239 --> 00:47:58,480
Speaker 1: thousand nine. But that's not quite the end of the story.

802
00:47:58,760 --> 00:48:03,520
Speaker 1: On April two thousand nine, a company called Systemax Incorporated,

803
00:48:03,560 --> 00:48:07,440
Speaker 1: purchased the intellectual property of Circuit City, which include the

804
00:48:07,880 --> 00:48:12,320
Speaker 1: company's name and their customer database. So for several years,

805
00:48:12,400 --> 00:48:16,360
Speaker 1: circuit City existed but essentially existed in name only, and

806
00:48:16,400 --> 00:48:19,560
Speaker 1: Systematx used it here and there until two thousand twelve

807
00:48:20,040 --> 00:48:22,640
Speaker 1: when they figured this name doesn't really have any value

808
00:48:22,640 --> 00:48:26,560
Speaker 1: anymore and they just stopped using it. But you might

809
00:48:26,560 --> 00:48:29,680
Speaker 1: think this is when the company died off, and you'd

810
00:48:29,680 --> 00:48:34,280
Speaker 1: still be wrong, because it's zombie time. It's like closing time,

811
00:48:35,120 --> 00:48:40,399
Speaker 1: only with more brain devouring. Now. One thing Circuit City

812
00:48:40,440 --> 00:48:44,440
Speaker 1: had continued to do in this time, despite no longer

813
00:48:44,480 --> 00:48:49,480
Speaker 1: being a viable entity, was made charitable donations, which is weird, right.

814
00:48:49,520 --> 00:48:52,520
Speaker 1: You might wonder, how can a company that doesn't exist

815
00:48:52,719 --> 00:48:56,239
Speaker 1: fund charities? Well, it's because the company had established a

816
00:48:56,360 --> 00:49:00,520
Speaker 1: fund and deposited money into the fund spec typically for

817
00:49:00,520 --> 00:49:04,480
Speaker 1: the purpose of making regular charitable donations, and there's still

818
00:49:04,520 --> 00:49:08,560
Speaker 1: money in it, so the fund still pays out year

819
00:49:08,600 --> 00:49:11,239
Speaker 1: over year. Last time I checked, there's a little bit

820
00:49:11,239 --> 00:49:13,560
Speaker 1: more than a million dollars in that fund. So it

821
00:49:13,560 --> 00:49:17,080
Speaker 1: won't go forever. It will eventually drain, but for the

822
00:49:17,080 --> 00:49:21,880
Speaker 1: time being, there's still money from Circuit City funding charities,

823
00:49:22,200 --> 00:49:26,319
Speaker 1: and now there are new owners of the Circuit City

824
00:49:26,360 --> 00:49:32,480
Speaker 1: intellectual property. So from sixteen that name remained unused, but

825
00:49:32,520 --> 00:49:34,600
Speaker 1: then a new group came in and purchased the i

826
00:49:34,719 --> 00:49:38,040
Speaker 1: P from Systemax. The new CEO is a guy named

827
00:49:38,160 --> 00:49:41,400
Speaker 1: Ronnie Schmohl, who said that plans are in place to

828
00:49:41,520 --> 00:49:45,440
Speaker 1: open kiosks and stores. Originally they had aimed at kind

829
00:49:45,440 --> 00:49:49,000
Speaker 1: of the summer often but that didn't actually happen, and

830
00:49:49,040 --> 00:49:51,279
Speaker 1: according to the new owners, the reason for that is

831
00:49:51,320 --> 00:49:53,360
Speaker 1: they want to make sure that they do it correctly.

832
00:49:54,239 --> 00:49:56,200
Speaker 1: So we're still waiting as of the recording of this

833
00:49:56,280 --> 00:49:59,719
Speaker 1: podcast to see that happen. But if the owners are

834
00:49:59,760 --> 00:50:02,319
Speaker 1: six us, well, we may see a return of the

835
00:50:02,360 --> 00:50:06,800
Speaker 1: Circuit City brand under new ownership. It'll be a new entity,

836
00:50:07,360 --> 00:50:11,000
Speaker 1: uh kind of not that different from the way Atari

837
00:50:11,080 --> 00:50:14,759
Speaker 1: came back. But we have a very different market place

838
00:50:14,800 --> 00:50:17,319
Speaker 1: today than we did even back in two thousand nine.

839
00:50:17,480 --> 00:50:20,560
Speaker 1: Online purchases are on the rise, Brick and mortar stores

840
00:50:20,600 --> 00:50:24,440
Speaker 1: are having trouble getting consumers to actually visit physical stores,

841
00:50:24,960 --> 00:50:27,439
Speaker 1: so it may end up that Circuit City will become

842
00:50:27,480 --> 00:50:31,080
Speaker 1: an online only enterprise, although that's not necessarily the plan.

843
00:50:32,120 --> 00:50:34,960
Speaker 1: If it works at all, but like I said, the

844
00:50:34,960 --> 00:50:38,200
Speaker 1: plan is to open real, actual stores, so perhaps in

845
00:50:38,200 --> 00:50:42,520
Speaker 1: the future I'll need to record apart three to this story, Kevin,

846
00:50:42,560 --> 00:50:44,719
Speaker 1: I hope you enjoyed that. It's your request after all,

847
00:50:45,280 --> 00:50:48,000
Speaker 1: and then now it's time for me to sign off.

848
00:50:48,040 --> 00:50:51,560
Speaker 1: And guys, if you have any questions or suggestions about

849
00:50:51,640 --> 00:50:55,080
Speaker 1: this or any other episode you have something that you

850
00:50:55,120 --> 00:50:58,080
Speaker 1: want me to talk about or revisit, please let me know.

851
00:50:58,320 --> 00:51:01,240
Speaker 1: Ditto if you want me to her view someone specific

852
00:51:01,560 --> 00:51:04,440
Speaker 1: or get a special guest host, you can contact me

853
00:51:04,920 --> 00:51:08,279
Speaker 1: at tech stuff at how stuff works dot com or

854
00:51:08,520 --> 00:51:12,280
Speaker 1: drop me a line on Twitter or Facebook. I'm text

855
00:51:12,280 --> 00:51:15,960
Speaker 1: stuff hs W there and I'll talk to you again

856
00:51:16,719 --> 00:51:24,800
Speaker 1: really soon for more on this and thousands of other topics.

857
00:51:25,040 --> 00:51:36,160
Speaker 1: Is it how stuff works dot com