Speaker 1: Get in tech with technology with tech Stuff from how
Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland, and today we're going to
Speaker 1: begin to talk about a company that played a part
Speaker 1: in getting consumer technology to the consumer, Circuit City. So
Speaker 1: Circuit City is best known for being a big box
Speaker 1: electronics retail store that had some pretty dramatic ups and downs.
Speaker 1: And there's a lot to this story. So this is
Speaker 1: gonna be a two parter. But before I get into
Speaker 1: the details, let's talk about why I'm covering this story
Speaker 1: at all. It's because of a little listener mail. This
Speaker 1: listener mail comes from Kevin, who says, I really enjoy
Speaker 1: your shows that trace the history of tech companies. I
Speaker 1: just finished catching up on the Sony episodes. Actually I
Speaker 1: was hoping you'd consider doing a similar treatment of Circuit
Speaker 1: City sometime. I feel like that was a big part
Speaker 1: of tech in the eighties in nineties, and it's where
Speaker 1: I got my first computer and my first stereo. I
Speaker 1: always thought the store was really cool as a kid,
Speaker 1: darkly lit, red dion, those glass rooms for checking out
Speaker 1: sound systems. Anyway, thanks for listening and keep up the
Speaker 1: great work. With the podcast. Well, thanks for those kind words, Kevin.
Speaker 1: The Circuit City story is interesting because the chain originated
Speaker 1: the concept of the electronics box store. And I don't
Speaker 1: mean it was a store that sold electronic boxes, although
Speaker 1: I guess technically it did, but that's not what I mean.
Speaker 1: I mean it was a box store like Best Buy
Speaker 1: is today. In fact, best buying Circuit City heaven interesting
Speaker 1: relationship or did at any rate. Circuit City was kind
Speaker 1: of best Buy before there was a Best Buy now.
Speaker 1: The company was incredibly successful for many years. In fact,
Speaker 1: it was one of only a dozen or so companies
Speaker 1: to outperform the Fortune five hundred by at least three
Speaker 1: times for fifteen years. I mean by a factor of right,
Speaker 1: by multiplying by three for fifteen years. But eventually those
Speaker 1: good times ended and the company kind of imploded and
Speaker 1: went bankrupt in two thousand nine. And today it's a
Speaker 1: very different story from its heyday. Before I get into
Speaker 1: the story at all, I want to recommend a book
Speaker 1: to anyone who wants to learn more about this company
Speaker 1: and what happened to it and the management practices that
Speaker 1: were involved at all stages. It was written by Alan Wurtzel.
Speaker 1: It's actually the son of one of the co founders
Speaker 1: of Circuit City. He wrote a book titled Good Too
Speaker 1: Great To Gone, The sixty year Rise and Fall of
Speaker 1: Circuit City, and you can read a lot more about
Speaker 1: the company in that book. If this podcast wets your
Speaker 1: whistle at Wortzel, by the way, admits that he's not
Speaker 1: exactly an unbiased reporter, but also he holds himself accountable
Speaker 1: to examine the mistakes that he he credits to himself,
Speaker 1: also to his father and others in the company, and
Speaker 1: the book is an easy and interesting read on the
Speaker 1: subject of business practice is So, we're gonna talk a
Speaker 1: lot about business practices and how it relates to the
Speaker 1: operation of an electronics store, and not so much about
Speaker 1: the tech side of things, because Circuit City was a
Speaker 1: retail establishment. They didn't create electronics, they sold them, but
Speaker 1: they did play a very big role in the tech
Speaker 1: world for many years. So now on with the show,
Speaker 1: and our story begins in Sea Bright, New Jersey, on
Speaker 1: March second, nineteen o seven. That's when Samuel S. Wertzel
Speaker 1: was born. His mother, Flora, was originally from Russia. She
Speaker 1: moved to the United States in her early twenties and
Speaker 1: she ended up opening up a grocery store. Um. She
Speaker 1: actually did that after she divorced Samuel's father. It was
Speaker 1: an arranged marriage and it did not work out, which
Speaker 1: meant that Flora ended up raising Samuel and his siblings
Speaker 1: by herself. That was four kids in total. Samuel had
Speaker 1: two sisters and a brother. So she had very high
Speaker 1: hopes for her children and demanded that they study hard
Speaker 1: in school. And she managed to get some help from
Speaker 1: her parents to open up the grocery store and was
Speaker 1: able to eke out a living that way. Now, Samuel
Speaker 1: went to night school to study accounting after a fairly
Speaker 1: tumultuous high school phase in which he was, according to
Speaker 1: his son quote often a discipline problem end quote. Now
Speaker 1: Alan attributes this primarily to the fact that Samuel didn't
Speaker 1: have a father figure for his childhood. Uh and so
Speaker 1: he ended up acting out quite a bit, and once
Speaker 1: he started to mature, he began to really apply himself.
Speaker 1: He was charismatic and he turned out to have an
Speaker 1: aptitude for business. He and his older brother first opened
Speaker 1: up a wholesale butter and egg business, you know the
Speaker 1: way every tech retail esta establishment gets its start by
Speaker 1: selling butter and eggs um. His estranged father actually worked
Speaker 1: in that business too, and they ended up having a
Speaker 1: working relationship, although not a familial one, and that ended
Speaker 1: up not working out either. He then went on to
Speaker 1: work for a company called June Dairy, but this was
Speaker 1: also during the time of the Great Depression UH, and
Speaker 1: he was not able to hold onto that job for long.
Speaker 1: He was actually laid off, so he then moved on
Speaker 1: and from nineteen thirty eight through nineteen forty seven he
Speaker 1: worked for a company called Packing Products UH. And that
Speaker 1: was a company that was actually created by his father
Speaker 1: in law. And a family vacation in nineteen forty nine
Speaker 1: would change his destiny, and that is the beginning of
Speaker 1: Circuit City. Now I'm going to jump into that in
Speaker 1: a second, but first I want to give you a
Speaker 1: little more information about his family because they played a
Speaker 1: very important role in the evolution of Circuit City. First
Speaker 1: of all, Samuel married a woman named Ruth Mann in
Speaker 1: nineteen thirty two. He had met her in nineteen thirty
Speaker 1: one and a year later they got married. Now, Ruth
Speaker 1: came from an upper class background, very different from Samuel.
Speaker 1: She was also a college educated woman, which was not
Speaker 1: necessarily common at that time in the United States. Her father,
Speaker 1: Leon was in the clothing manufacturing business and was really successful,
Speaker 1: and later he became an entrepreneur who funded the efforts
Speaker 1: of various inventors and engineers. One of those inventors had
Speaker 1: created a packaging material for eggs so that they could
Speaker 1: be shipped without the risk of breakage, or at least
Speaker 1: reducing that risk. There was actually a different invention that
Speaker 1: was already patented in the United States, or that one
Speaker 1: a patent in the United States, and so Leon ended
Speaker 1: up convincing the inventor to give up the patent rights
Speaker 1: in the US and concentrate on a market in Europe.
Speaker 1: And so that's when he created this company packing Products. Uh.
Speaker 1: Leon and Samuel got along great. Leon instilled in Samuel
Speaker 1: two qualities he thought were important in business and beyond,
Speaker 1: which were humor and humility. From Alan's perspective, reflecting back
Speaker 1: on the stories of his father and his grandfather, it
Speaker 1: sounds as though Samuel saw in Leon a father figure
Speaker 1: he had lacked in childhood, and Leon in turn treated
Speaker 1: Samuel as his own son. Because Leon didn't have any sons,
Speaker 1: He had a daughter named Ruth. Samuel and Ruth however,
Speaker 1: did have sons, two of them, Alan and David. Alan
Speaker 1: Wurzel would go on with Samuel to create the Circuit
Speaker 1: City Empire. But even empires have humble beginnings, which brings
Speaker 1: us back to that family vacation I mentioned. So Samuel
Speaker 1: and Ruth were going on a golfing vacation with their
Speaker 1: family in order to clear their heads and plan for
Speaker 1: the future. This was a and things had suddenly kind
Speaker 1: of turned south for the couple financially. The Packing Products
Speaker 1: company had transitioned into a broker company. Now, a broker
Speaker 1: company doesn't hold its own inventory. Typically, what a broker
Speaker 1: company does is they get in the business of matching
Speaker 1: buyers with sellers. The idea was that the company would
Speaker 1: find someone wanting to purchase a particular commodity, then they
Speaker 1: would find a seller who was going to sell that commodity,
Speaker 1: and they would match the two together, making some money
Speaker 1: in the middle of this. And it may even be
Speaker 1: that the company buys the commodity from one entity, sells
Speaker 1: it at a mark up to another entity, and that's
Speaker 1: how you make your profit. But someone at the Packing
Speaker 1: Products Company made a really bad decision. They ended up
Speaker 1: buying a large amount of steel without first securing a customer. So,
Speaker 1: in other words, no one had said that they wanted
Speaker 1: to buy steal. But apparently this person at Parker Products
Speaker 1: felt that the steel being sold was at a price
Speaker 1: that was too good to give up, so they went
Speaker 1: in and purchased this large amount. But then the steel
Speaker 1: market collapsed in the United States and as a result,
Speaker 1: the company was and shambles. Leon by that point had
Speaker 1: retired and he wasn't really in a financial position to
Speaker 1: help bail out the business or to start a new one.
Speaker 1: So Samuel, Ruth and their kids went on this trip
Speaker 1: in nine or to get a new perspective and figure out, well,
Speaker 1: what are we gonna do now? They weren't destitute or
Speaker 1: anything like that, but they didn't They couldn't go any
Speaker 1: further with the company that had been working for They
Speaker 1: had to start over. At this point, Samuel's forty two
Speaker 1: years old, So they were in Richmond, Virginia in nineteen
Speaker 1: forty nine when Samuel got into a conversation with a
Speaker 1: local barber. The cutter of hairs told Sammy that the
Speaker 1: very first Southern television station had just started broadcasting the
Speaker 1: previous year in April, not quite a full year before
Speaker 1: this actual encounter happened, and already the number of television
Speaker 1: stations was on the rise, as as were the number
Speaker 1: of homes that were getting TV sets, but they hadn't
Speaker 1: quite reached the tipping point. It was still one of
Speaker 1: those things that was obviously on the upswing, but wasn't
Speaker 1: anywhere those to the to the peak. So Wortzel saw
Speaker 1: this as an opportunity to create a new market, and
Speaker 1: he uh said, well, you know, if you've got a
Speaker 1: television broadcast station down here, then clearly you've got to
Speaker 1: have televisions to broadcast two. So later in nineteen forty nine,
Speaker 1: Samuel Wurtzel relocated his family to Richmond, Virginia and opened
Speaker 1: up a store called the Wards Company on West Broad Street.
Speaker 1: He took the thirteen thousand dollars he made from the
Speaker 1: sale of his home, which was the equivalent of more
Speaker 1: than a hundred and twenty thousand dollars today, and rented
Speaker 1: a storefront in Richmond that was several blocks from the
Speaker 1: big department stores, so he wasn't right next to the
Speaker 1: places that were already selling televisions under various brands. Now,
Speaker 1: the Wards store only sold television's at that time, they
Speaker 1: didn't sell anything else. That was all he did was
Speaker 1: sell TVs. And you might wonder, well, why did they
Speaker 1: he call it Wards? Well, first of all, it's W, A, R, D, S,
Speaker 1: no apostrophe. The reason for that is Wards is actually
Speaker 1: an acronym. It stands for the initials of Samuel's family.
Speaker 1: The W stands for Wertzel, the last name. A stands
Speaker 1: for Alan, our stands for Ruth, D stands for David,
Speaker 1: which was Samuel's other son, and S stands for Samuel.
Speaker 1: And he said, I don't want an apostrophe in there
Speaker 1: because I don't want it to come between me and
Speaker 1: my family, which I think is cute. Wertzel didn't go
Speaker 1: in on this venture on his own for very long.
Speaker 1: Shortly after he established this place, he took on a
Speaker 1: business partner who became the co founder of the Wards Company,
Speaker 1: and that partner's name was Abraham Haste who invested thirteen
Speaker 1: thousand dollars of his own money into the new company. Now,
Speaker 1: Haiti's chief responsibility was to manage buying and vendor relations,
Speaker 1: so he was looking at the supply side. Sam was
Speaker 1: concentrating on the sales side, so he was looking towards
Speaker 1: the customer, whereas Haste is looking towards the supplier, and
Speaker 1: both men shared a common set of values. Although they
Speaker 1: were very different people, they both felt very strongly about
Speaker 1: certain principles when it came to working with other people,
Speaker 1: whether they are vendors or employees or customers. They believe
Speaker 1: that what goes around comes around, and that keeping interactions
Speaker 1: friendly and helpful gets better results than a more you know,
Speaker 1: uh negative or pressure approach. Samuel and Abraham created the
Speaker 1: company at pretty much the perfect time. So at this
Speaker 1: time it was post World War two UH, and America
Speaker 1: was very different from the America that was that was
Speaker 1: around during the depression years. During the war, American industry
Speaker 1: was almost entirely devoted to military support efforts, either directly
Speaker 1: or indirectly, and business was booming in more ways than one.
Speaker 1: But the important fact for this story is that after
Speaker 1: the war was over, those military production efforts were able
Speaker 1: to shift into a civilian role, so things that had
Speaker 1: been dedicated to producing tanks could end up being used
Speaker 1: to produce other stuff. And also at the same time,
Speaker 1: you had soldiers returning home after serving overseas and then
Speaker 1: they started families. The United States had a baby boom
Speaker 1: going on. US population would increase by more than thirty
Speaker 1: percent over the next couple of decades. So consider all
Speaker 1: the conditions that are present. You had a lot of
Speaker 1: young families, you had a booming commercial sector, you had
Speaker 1: a lot of people with disposable income, and over on
Speaker 1: the technology side, you had the development of reliable televisions.
Speaker 1: They had gone through the first few iterations, and these
Speaker 1: were sets that were expensive, but with the right plan,
Speaker 1: were within the reach of the middle class. Just a
Speaker 1: few years earlier, they were almost exclusively owned by wealthy people.
Speaker 1: They were the only ones who could afford it. But
Speaker 1: using uh in intelligence sales techniques, salespeople could make a
Speaker 1: television more affordable to a much broader variety of people.
Speaker 1: You also had a growth in the number of television
Speaker 1: stations around the country, which meant you had a lot
Speaker 1: more programming for folks, which created a more more of
Speaker 1: a demand for TVs. And it was an absolute perfect
Speaker 1: storm for a company getting into the television retail business.
Speaker 1: Along with appliances like a washer, a dryer, and a refrigerator,
Speaker 1: the television became part of the standard model American home.
Speaker 1: Now in nineteen fifty less than ten percent of homes
Speaker 1: in the United States had a television set, but just
Speaker 1: ten years later that number was eighty five. That's an
Speaker 1: enormous amount of growth. So it ended up being a
Speaker 1: great business to get into if you could be competitive. Now,
Speaker 1: that kind of sets me up for my next section.
Speaker 1: But before I get into that, let's take a quick
Speaker 1: break to thank our sponsor. All right, we're back, and
Speaker 1: now I want to talk about the actual business decisions
Speaker 1: that Samuel and Abraham had. Now, first of all, they
Speaker 1: had no idea how to make television's. That wasn't their
Speaker 1: business model. They would buy televisions from a manufacturer. In fact,
Speaker 1: they had one specific one in those early days. They
Speaker 1: knew a manufacturer in Long Island, New York called Olympic TVs.
Speaker 1: So they would buy their televisions from Olympic TVs and
Speaker 1: then sell them in their store in Richmond. Their first
Speaker 1: inventory was just twelve TV sets in the entire store.
Speaker 1: That's it. At this time in US history, there were
Speaker 1: only a few types of stores that you could find.
Speaker 1: In general, there were big department stores like Sears, Roebuck,
Speaker 1: and Montgomery Ward. Now those mainly carried store brand items,
Speaker 1: and maybe some major brands as well, but those were
Speaker 1: the only ones that they would carry. Right, anything that
Speaker 1: was not a major brand or a store brand you
Speaker 1: really couldn't find in those department stores. Then you had
Speaker 1: some variety store chains, kind of like Woolworth's was still
Speaker 1: big at that time, but they were on the decline.
Speaker 1: It was clear that Woolworths was not long for this
Speaker 1: world in that particular incarnation. Then you had the small
Speaker 1: business owners, the independent owners, the mom and pop stores,
Speaker 1: and they might have one or two shops at most,
Speaker 1: and they would cater to customers in the cities and towns. Now,
Speaker 1: the Wards Company was one of those, really, and they
Speaker 1: faced a lot of competition even in Richmond, both from
Speaker 1: department stores that sold larger brand name sets and other
Speaker 1: independent shops. So to set Wards apart from these other places,
Speaker 1: Samuel began to offer home demonstrations of televisions. And here's
Speaker 1: how it worked. It was pretty smart. Customers could arrange
Speaker 1: to have a TV set delivered and set up in
Speaker 1: their homes. So Samuel hired a driver who could also
Speaker 1: carry heavy things, because back in those days TVs were hefty.
Speaker 1: The screens were small, but the cabinets were enormous. This
Speaker 1: was vacuum tube technology, so vacuum tubes take up a
Speaker 1: lot of space and these were big, bulky, heavy sets.
Speaker 1: So he hired a strapping guy who picked up the
Speaker 1: television set, put it in a truck, and would drive
Speaker 1: it out to a potential customers home, deliver it, set
Speaker 1: it up, and the family would get to test the
Speaker 1: set out for a full day, and the following day summer,
Speaker 1: someone from the company from wards would come by either
Speaker 1: to claim the television, pack it back up, take it
Speaker 1: back to the store, or start a sale, and usually
Speaker 1: this would involve a cash installment, and then they would
Speaker 1: have an installment plan that would last between eighteen and
Speaker 1: twenty four months to space out payments for the television set,
Speaker 1: which is not a bad idea for a world that
Speaker 1: had not yet invented edit cards. This gave customers the
Speaker 1: opportunity to purchase a television set even if they thought
Speaker 1: that it was outside of their budget, because they could
Speaker 1: break up that expense over several months instead of having
Speaker 1: to do a big upfront purchase. Samuel also became an
Speaker 1: expert at sales strategies, many of which involved a good
Speaker 1: deal of social manipulation. That's a nice way of putting it.
Speaker 1: In fact, if you read up on the strategies, you
Speaker 1: might feel a bit uncomfortable as a consumer. But these
Speaker 1: were ideas that worked in sales. So here's an example.
Speaker 1: You could teach sales people to act as though a
Speaker 1: potential customer had already made a decision to buy a
Speaker 1: product without actually having done that. So someone comes into
Speaker 1: your store. There you're showing them, say, a new television set,
Speaker 1: and you pretend like the customer has already decided they
Speaker 1: are absolutely going to buy the television set, and you
Speaker 1: just start asking questions that kind of hint at that
Speaker 1: this actually adds extra pressure on the consumer to walk
Speaker 1: away buying a television set. So you wouldn't say something
Speaker 1: like would you like to purchase this, because that's giving
Speaker 1: the consumer and out. Instead, you might say, do you
Speaker 1: like this one better? In the dark wood cabinet or
Speaker 1: the lightwood cabinet. See, you've already made the assumption that
Speaker 1: they're going to buy one or the other. You take
Speaker 1: away the option of saying, oh, I'm not I'm not
Speaker 1: buying anything. It adds that extra level of pressure. Or
Speaker 1: you might begin by showing a customer a base model
Speaker 1: that has very few features, and honestly, you don't really
Speaker 1: want to sell the base model because you're selling it
Speaker 1: at a very low price and the margin is very low.
Speaker 1: In other words, the profit you make from the sale
Speaker 1: is negligible, and really you could not sustain a business
Speaker 1: selling those style television sets. The purpose of showing the
Speaker 1: basic model is to then move the customer over to
Speaker 1: higher end models that have more features and us cause
Speaker 1: ust more and have a better sales margin, so you
Speaker 1: make a bigger profit from the sale. Uh. Some people
Speaker 1: call this the bait and switch. Samuel preferred to think
Speaker 1: of it as a step up approach. He felt that
Speaker 1: customer service was really important, so it wasn't like it
Speaker 1: was an outright attempt to be a snake oil salesman.
Speaker 1: He was interested in employing the most effective techniques to
Speaker 1: move products. But he also felt that honesty was important
Speaker 1: and that the message he and his employees gave to
Speaker 1: vendors and customers and others should always be the truth,
Speaker 1: because keeping track of lies is a hassle. If you
Speaker 1: tell different lies to different people, maintaining all of that
Speaker 1: is a huge headache. So just be truthful up front
Speaker 1: was his policy. Reconciling the sales approach with the company's
Speaker 1: values requires a little bit of mental gymnastics and perhaps
Speaker 1: some generous allowances, I'll say, but one of those sales
Speaker 1: practices was that the price tag of the televisions in
Speaker 1: the Wards Company store and later other appliances that they
Speaker 1: started to sell after a couple more years, wasn't actually
Speaker 1: a fixed price. Every product had a listed price that
Speaker 1: was the starting point, and then every product had a
Speaker 1: bottom line lowest acceptable price a salesperson would be allowed
Speaker 1: to sell that item for. So your goal as a
Speaker 1: salesperson is to sell it as close to that ticket
Speaker 1: price as you possibly could. But customers can haggle, they
Speaker 1: can bargain, and the salesperson would get a commission based
Speaker 1: upon how high above that lowest acceptable price they were
Speaker 1: able to make a sale. So it was better to
Speaker 1: make a sale than not make a sale. If you
Speaker 1: absolutely had to go to the lowest price in order
Speaker 1: to move a product, then it was better to do
Speaker 1: that than not. But you would get a bigger reward
Speaker 1: if you could sell the product at the higher price,
Speaker 1: the closer to the list price as opposed to the
Speaker 1: secret lowest acceptable price. So if you happen to nab
Speaker 1: a customer that's not terribly aggressive, you can make a
Speaker 1: big commission off a hefty sale. It's another UH idea
Speaker 1: that a lot of modern shoppers find particularly shady. It
Speaker 1: also falls into the category that a lot of people
Speaker 1: will associate with buying a car, and in fact, Circuit
Speaker 1: City has a connection to car sales as well. I'll
Speaker 1: get into that probably in Part two, not so much
Speaker 1: in Part one. Now paired with this was a customer
Speaker 1: service policy that went above and beyond the pale. So
Speaker 1: every salesperson was expected to follow up with a customer
Speaker 1: to make certain that the delivery, installation, and operation of
Speaker 1: their brand new television's met expectations, and if they didn't,
Speaker 1: the company would work to make things right and even
Speaker 1: send along a conciliatory present or two to smooth things over.
Speaker 1: So Samuel felt that great customer service would help word
Speaker 1: of mouth, but perhaps are importantly, it would help the
Speaker 1: company avoid bad word of mouth, which tends to travel
Speaker 1: faster and farther than good word of mouth. People love
Speaker 1: to complain, and that's something that's still true today. If
Speaker 1: you read over the comments or reviews on things online,
Speaker 1: you'll see that people who are dissatisfied uh often will
Speaker 1: go to much greater lengths to express that dissatisfaction than
Speaker 1: folks who are happy, and may even seem that uh
Speaker 1: that the happy folks are are far outnumbered by the
Speaker 1: dissatisfied folks, even if the overall rating is high. It's
Speaker 1: because people who are happy might be willing to give
Speaker 1: like a five star review on something, but not actually
Speaker 1: write anything, just say of five stars, whereas people who
Speaker 1: are unhappy want to tell you about it. Anyone who's
Speaker 1: got a podcast out there knows what I'm talking about,
Speaker 1: and it can be really demoralizing. But Samuel's point was
Speaker 1: that he didn't want bad word of mouth spreading. His
Speaker 1: business was all one in a tight community, so he
Speaker 1: wanted to make sure he maintained a good relationship with
Speaker 1: his customers. He also saw the value in hiring and
Speaker 1: developing good employees. He relied heavily on using personality tests
Speaker 1: when evaluating candidates, particularly for sales or management positions. He
Speaker 1: also considered the potential impact any higher would have on
Speaker 1: other employees. He didn't wanted demoralize anyone by hiring someone
Speaker 1: from outside the company to lord over other people, and
Speaker 1: he wasn't in a rush to fill empty positions just
Speaker 1: to have them filled. He wanted to make sure he
Speaker 1: got the right people for the right job. He also
Speaker 1: believed in promoting from within the company, which helped to
Speaker 1: build employee loyal team. He was also known for being
Speaker 1: pretty lenient with folks who weren't living up to what
Speaker 1: they're they were accountable for. So let's say a manager, Uh,
Speaker 1: it turns out the manager who has been promoted above
Speaker 1: their ability to perform. One of the things that Samuel
Speaker 1: would do is instead of firing someone out right eight,
Speaker 1: he would say, listen, it was a mistake, obviously to
Speaker 1: promote you to this position. You were not ready for it.
Speaker 1: That's no fault of yours. It is a fault of
Speaker 1: ours for making that decision prematurely. How about we move
Speaker 1: you down to an assistant manager position that you can
Speaker 1: then work at and gain more experience, and then later
Speaker 1: on maybe revisit this idea of you being a manager,
Speaker 1: which allowed people to hold onto their jobs and to
Speaker 1: get into a position they were more comfortable with and
Speaker 1: more suited for, as opposed to just saying Nope, you
Speaker 1: couldn't cut it. You're out. He also instituted a policy
Speaker 1: in which the vice president of Personnel was to sit
Speaker 1: down regularly with employees a couple of times a year
Speaker 1: to talk about how the company could improve existing jobs,
Speaker 1: especially the low level employees, like the entry level positions,
Speaker 1: and then he would work to actually implement those suggested changes,
Speaker 1: at least when the changes made sense. And he also
Speaker 1: was a big believer in providing training opportunities for people
Speaker 1: and began to hold annual store manager meetings in exotic places.
Speaker 1: Those meetings would have like a really concentrated period of
Speaker 1: training and and and deep discussions, and then the following
Speaker 1: weekend everyone would just stay at whatever exotic locale the
Speaker 1: meeting was taking place at, and their families would join them,
Speaker 1: and then they would just kind of have a little
Speaker 1: weekend vacation and say Hawaii or Puerto Rico or something,
Speaker 1: which is kind of cool. The company also had no
Speaker 1: vacation policy for management positions, meaning they didn't have a
Speaker 1: policy in place, not that managers couldn't take vacation, in fact,
Speaker 1: they were encouraged to do it. In fact, sometimes they
Speaker 1: were told very sternly, hey, you got you need to
Speaker 1: take some time off. Managers were expected to get the
Speaker 1: job done, period. That's it. As long as that happened.
Speaker 1: They could take as much or as little vacation as
Speaker 1: they liked, but they had to get the job done.
Speaker 1: They also didn't have regularly set hours, but Samuel discovered
Speaker 1: that this approach actually seemed to encourage managers to work
Speaker 1: longer hours than they otherwise might have done on a
Speaker 1: set schedule, on like a nine to five each week.
Speaker 1: So it was a strategy that I've seen used in
Speaker 1: the tech industry quite a few times. A lot of
Speaker 1: companies would have these sort of open hour rules, and
Speaker 1: people would end up spending more hours at their job
Speaker 1: than they would if they were required to show up
Speaker 1: at say, nine am and clock out at five pm.
Speaker 1: And I don't know what that's like, Dylan, Do you
Speaker 1: know what that's like? Dylan is shaking his head, but
Speaker 1: also snort laughing. So take that as you will. As
Speaker 1: the company began to find financial success, Samuel and Abraham
Speaker 1: began to stock it with other TV brands, not just
Speaker 1: those Olympic TVs. They also categorized the various television vision
Speaker 1: sets in steps, like I was saying earlier, with each
Speaker 1: step representing a price range and a set of features.
Speaker 1: So the goal was always to get customers to land
Speaker 1: on the highest step they would want to go, and
Speaker 1: that would represent the models that pose the best profit
Speaker 1: margins for the company. So if you could sell them
Speaker 1: on the most luxurious TV set to make the most profit,
Speaker 1: but each step had to have features that justified that
Speaker 1: that increase in step. You couldn't just have a model
Speaker 1: that had a certain brand name to it and it's
Speaker 1: automatically a step up over other models. It had to
Speaker 1: have demonstrable features that showed that value. In other words,
Speaker 1: the customer had to actually get something for that higher
Speaker 1: price point. So this goes back to that customer satisfaction
Speaker 1: uh concept. It's not just that the company wants to
Speaker 1: make money, they want to do so in a way
Speaker 1: that is at least remotely ethical especial certainly ethical by
Speaker 1: nineteen fifties standards. So by the mid nineteen fifties, Wards
Speaker 1: had opened three more stores and enrichments. They had four
Speaker 1: store fronts at that point. The company also began to
Speaker 1: carry more items than just television's, like refrigerators and other appliances,
Speaker 1: and the appliance boom in the nineteen fifties was kind
Speaker 1: of similar to the TV boom. These were all products
Speaker 1: that promised to increase convenience and save time for households.
Speaker 1: They were also selling this concept of comfort and prosperity,
Speaker 1: so it's it's not just selling products but an idea,
Speaker 1: like a representation of a goal that every American was
Speaker 1: envisioning as this is where I want to be. And
Speaker 1: as the company saw more success, the owners branched out
Speaker 1: further and attempted to open stores in other places. They
Speaker 1: opened one in Roanoke, Virginia, and one in Greensboro, North
Speaker 1: North Carolina, but they didn't Those stores didn't work out.
Speaker 1: Those efforts probably were a little too ambitious, a little
Speaker 1: too early, and both of those stores closed within twelve
Speaker 1: months of having opened. The big problem here was that
Speaker 1: Samuel and Abraham found they couldn't manage those remote locations
Speaker 1: personally the way they could the Richmond offices. Like they
Speaker 1: could put managers in charge of those stores, but they
Speaker 1: couldn't oversee the day to day operations, and if there
Speaker 1: were problems, they couldn't respond to them in a timely
Speaker 1: enough fashion for the store to remain profitable. So it
Speaker 1: was an expensive lesson. But Samuel learned that he needed
Speaker 1: to develop someone to oversee each remote store at a
Speaker 1: managerial level and find a way for managers to send
Speaker 1: meaningful data back for him in order for him to
Speaker 1: make some high level decisions. A few years after opening
Speaker 1: the company, Samuel and Abraham brought a third person onto
Speaker 1: the team, the management level team like this sort of
Speaker 1: senior management. Uh. This guy was named Martin Rosenswig, and
Speaker 1: Rosenswig had an accounting background in New York. Samuel and
Speaker 1: Abraham actually gave him a stake in the business even
Speaker 1: though he had not posted an investment into it. So,
Speaker 1: in other words, Ross as they called him, got a
Speaker 1: percentage of ownership of this company, although he was not
Speaker 1: one of the investors into in the company, and the
Speaker 1: three of them ran the Awards Company until the mid
Speaker 1: nineties sixties. Now I got some more to talk about
Speaker 1: out some of the advances that Samuel instituted in the
Speaker 1: Wards Company that that set it apart from other stores
Speaker 1: at that time. But before I get into that, let's
Speaker 1: take another quick break to thank our sponsor and we're back. So,
Speaker 1: in an effort to keep track of inventory, which all
Speaker 1: had to be done by hand back in those days,
Speaker 1: there were no automated systems. Samuel actually purchased an IBM
Speaker 1: punch card equipment system. He saw the value in this
Speaker 1: burgeoning technological field for using it in order to do
Speaker 1: supply chain management, inventory management, keep track of sales, profit margins,
Speaker 1: and to to have a really good look at how
Speaker 1: each store was doing so that if there were any
Speaker 1: early warning signs, they could sweep in and fix things
Speaker 1: before they became too problematic. By nineteen sixty six he
Speaker 1: had a data processing department to keep track of all
Speaker 1: of this. He also adopted the IBM three sixty computer
Speaker 1: system in the mid sixties to help manage the growing
Speaker 1: chain of stores. UH Samuel used the data to see
Speaker 1: which stores were doing well, which ones weren't, and, like
Speaker 1: I said, jump in if things aren't going well. As
Speaker 1: for Alan Wurtzel, Samuel's son, he would play an important
Speaker 1: role in the rise of Circuit City. First, he went
Speaker 1: on to study economics at Oberlin College and later at
Speaker 1: the London School of Economics and then Yale University. He
Speaker 1: passed the Connecticut Bar in nineteen fifty nine and became
Speaker 1: a law clerk of the U. S. Court of Appeals
Speaker 1: in Washington, d C. In nineteen sixty, so he was
Speaker 1: studying at that point, not yet part of the company. Meanwhile,
Speaker 1: business was going really well for the Wards Company, so
Speaker 1: well that Samuel took the company public, as in it
Speaker 1: became a publicly traded stock in nineteen sixty one. Now,
Speaker 1: out in actuality, that was a move of necessity. There
Speaker 1: was a lot of opportunity for expansion, but that costs money,
Speaker 1: and the company lacked the capital to do that expansion
Speaker 1: on its own. But by going public, Samuel could raise
Speaker 1: capital needed to expand further and make bigger profits. So
Speaker 1: to that end, the Wards Company got into the discount industry. Now,
Speaker 1: this was a time where we started seeing big stores
Speaker 1: show up that were either open membership or closed membership
Speaker 1: discount stores uh such as g e M International or
Speaker 1: Gym International if you prefer. It's sort of like what
Speaker 1: Sam's Club is today. Wards was dipping their toe in
Speaker 1: this pool by opening up departments in already existing stores,
Speaker 1: So they weren't opening up their own discount store with
Speaker 1: open or closed membership. Instead, they would partner with an
Speaker 1: existing store and they would manage a specific department within
Speaker 1: that store. It was almost like a precursor to the
Speaker 1: shopping all, except instead of a store space within the mall,
Speaker 1: it was a department space within a larger, almost like
Speaker 1: warehouse style building. So imagine walking into one of those
Speaker 1: big warehouse stores like Sam's Club and one whole department
Speaker 1: is managed by an entirely separate company like Wards. That's
Speaker 1: essentially what was going on. So Wards would lease space
Speaker 1: from a bigger store and get access to that stores
Speaker 1: customer base in return. The company sold one ten thousand
Speaker 1: shares in December of that year, and that amounted to
Speaker 1: about forty point four percent ownership of the company, and
Speaker 1: collectively those shares represented about five dred thirty six thousand,
Speaker 1: two hundred fifty dollars, which meant the overall companies valuation
Speaker 1: was at one point eight million dollars. Uh small for
Speaker 1: tech companies these days, for for any company considered a
Speaker 1: major company these days, but but big, big news to Samuel.
Speaker 1: I mean, this was like he was on dream Street.
Speaker 1: At this point, about fifty percent of the company's ownership
Speaker 1: still belonged to the Hastis and the Wurtzels. They owned
Speaker 1: about half the company together. The other ten percent ownership
Speaker 1: was all slightly less than ten percent because the stocks
Speaker 1: represented forty point four those belonged to other early investors.
Speaker 1: So five years later, nineteen sixty six, Alan Wurtzel ends
Speaker 1: his private law practice and goes to join the family business.
Speaker 1: His initial role over at Wards Company was to be
Speaker 1: the official legal counsel for Wards. Now. At that time,
Speaker 1: the company consisted of four stores in Richmond and twenty
Speaker 1: seven licensed departments and other parts of the country. In
Speaker 1: those big discount stores I was talking about, sales were
Speaker 1: about twenty two point eight million, with earnings of around
Speaker 1: six hundred sixteen thousand dollars. And father and son began
Speaker 1: to expand the company by buying up smaller companies that
Speaker 1: sold appliances. That not only expanded the company these regional
Speaker 1: reach by getting into areas that they didn't have an
Speaker 1: existing store. That also boosted the variety of products the
Speaker 1: company began to offer to customers, so again more than
Speaker 1: just TVs at this point. In ninety eight, the Wards
Speaker 1: Company joined the American Stock Exchange. The following year, Wards
Speaker 1: makes a concentrated effort to buy up local chains and
Speaker 1: discount stores, converting them over to Wards stores or launching
Speaker 1: them under a new name. So one of those chains
Speaker 1: was a chain called Custom Hi Fi, and that gave
Speaker 1: Wards a foothold in the hi fi audio business. Those
Speaker 1: stores were mainly in the Washington, d c. Area, but
Speaker 1: they represented one of the ways the company was beginning
Speaker 1: to diversify, and they chose to keep the brands separate
Speaker 1: from the overall a Wards Company. They named the stores
Speaker 1: Dixie Hi Fi, So if you ever heard that name,
Speaker 1: that's where it comes from. It. It was originally Custom
Speaker 1: High Fi and then acquired by Wards Company. And in
Speaker 1: nineteen seventy Samuel Wurtzel transitioned into the position of chairman
Speaker 1: and named his son Alan as the president of the company.
Speaker 1: Abraham Haste at that time retired and in nineteen seventy
Speaker 1: three Allen Wertzel took over as CEO of the Wards Company. Now,
Speaker 1: that was a rough time for Awards Company, not because
Speaker 1: of Allen's leadership, but rather because of just economic conditions
Speaker 1: in general. Around that time, the company was on shaky ground.
Speaker 1: Sales were at around sixty million dollars. That's definitely a
Speaker 1: lot of money. But the company had also expanded pretty
Speaker 1: quickly in a short time. So there was this this
Speaker 1: fact of you know, what, how does sales match up
Speaker 1: against the expansion. Also, there was an economic recession in
Speaker 1: the United States, which was making an enormous impact on
Speaker 1: the company's revenues. Uh several stores had turned unprofitable, and
Speaker 1: Allen Wortzel really had his work cut out for him.
Speaker 1: So in nineteen seventy four he decided to make the
Speaker 1: take a pretty big risk. The company tried something new.
Speaker 1: They opened up a forty thousand square foot retail showroom.
Speaker 1: They called it the Wards Loading Dock, so this was
Speaker 1: an enormous showroom dedicated to audio and visual equipment. Now.
Speaker 1: The size meant that the company could sell a much
Speaker 1: larger volume of products, which meant that they could buy
Speaker 1: them at a lower cost and sell them for a
Speaker 1: lower price than a lot of their competitors could. The
Speaker 1: Loading Dock also had a much wider variety of products
Speaker 1: from various brands than most other stores, so that was
Speaker 1: a customer value and they were able to branch far
Speaker 1: beyond the basic TV and appliance business that had to
Speaker 1: find the company in years past. The store also offered
Speaker 1: services that you would have found in the old Wards
Speaker 1: Company store back in nineteen forty nine, like home delivery
Speaker 1: and installation. They also had an in store repairs department there.
Speaker 1: This would become the model for their superstore, but at
Speaker 1: the time it was a pure experiment. That same year,
Speaker 1: in nineteen seventy four, the company began to close down
Speaker 1: those licensed shops and discount stores an the country. Most
Speaker 1: of them had long since stopped being profitable, and this
Speaker 1: marked a switch in strategy in which the Ward's company
Speaker 1: would no longer rent space, but have their own space
Speaker 1: their own stores and expand that way instead of renting
Speaker 1: out a place in someone else's store, and that would
Speaker 1: lead the towards the company's future in retail. It was
Speaker 1: the birth of the superstore. So by nine the company
Speaker 1: was beginning to open new concept stores that they were
Speaker 1: calling Circuit City showrooms in the DC area. These were
Speaker 1: smaller than the loading Dock showroom, but about twice the
Speaker 1: size of the old Rewards stores, and they were pure
Speaker 1: electronics stores. Uh They included not just a showroom, but
Speaker 1: also service departments similar to what the loading dock had,
Speaker 1: but on a smaller scale, and they made sure to
Speaker 1: staff them with knowledgeable employees who could answer lots of
Speaker 1: questions about the products that were on sale. The experience
Speaker 1: for the customer is one that I think a lot
Speaker 1: of you are familiar with, at least on some level.
Speaker 1: You'd walk into a showroom, the show is filled with
Speaker 1: lots of shiny products from different manufacturers. You can see
Speaker 1: him side by side and take a look and even
Speaker 1: test out certain features, depending upon what it is you're
Speaker 1: looking at. So, for example, televisions, you can see the
Speaker 1: different picture quality and you might point at a single product.
Speaker 1: Let's say it's an enormous twenty four inch television and
Speaker 1: you say, I want that, So then you buy it,
Speaker 1: and you're not buying the one that you're looking at.
Speaker 1: That's a display model. Instead, the salesperson calls for a
Speaker 1: boxed version of the same product to come from the
Speaker 1: back room storage space, and an employee brings the box
Speaker 1: out and maybe even carries it out to your car
Speaker 1: and loads it up for you. That was a brand
Speaker 1: new sales model in the late seventies. It's not like
Speaker 1: that was around. Circuit City was one of the pioneers
Speaker 1: of doing it in this way, and it worked. By
Speaker 1: nine sales were at a hundred and twenty million, wise
Speaker 1: as much as just a few years earlier. By wards,
Speaker 1: company had thirty six Circuit City style stores and boys.
Speaker 1: That hard to say in the Southeast, man. I'm glad
Speaker 1: I didn't say in the Southeast. Right after all those others.
Speaker 1: At this time, the shopping mall phenomenon was just getting started,
Speaker 1: so Wards Company began to jump in on that as well.
Speaker 1: It's actually not that different from the discount store approach.
Speaker 1: They started to end up getting storefronts and malls. Some
Speaker 1: of those storefronts they called Circuit City. The company also
Speaker 1: acquired a New York retailer called Lafayette Radio Electronics Corporation,
Speaker 1: which had eight electronics stores in the New York City
Speaker 1: metro area. The ticket price to purchase that bankrupt company
Speaker 1: was six point six million dollars, which sounds like a lot,
Speaker 1: but it was actually a shrewd deal because Wards earned
Speaker 1: a thirty six point five million dollars in tax credits.
Speaker 1: So it all worked out for Rewards with that particular
Speaker 1: acquisition and gave them access to a New York market,
Speaker 1: something that they had not had at that point. Now,
Speaker 1: at this stage, Wards Company was operating four different store
Speaker 1: chains simultaneously. There were the Circuit City stores, which were
Speaker 1: the relatively smaller retail electronics outlets. Think of something like
Speaker 1: a radio shack in the mall. Then there were the
Speaker 1: Circuit City superstores which were modeled after the loading dock,
Speaker 1: and we're really the big box style store. Then you
Speaker 1: had the Lafayette stores in New York, and they also
Speaker 1: had a discount discount store brand out in California called Zodi.
Speaker 1: The company made the vast majority of its revenue from
Speaker 1: electronics sales, not necessarily appliances, but electronics consumer electronics. This
Speaker 1: was a new era where beyond televisions and radios, you
Speaker 1: started seeing other types of electronics uh emerge. And some
Speaker 1: of that was even coming off a particular product I
Speaker 1: talked about not too long ago, Sony's Beta Max video
Speaker 1: cassette recorders. They were also earning big sales with other
Speaker 1: big brand names. Pioneer Audio Systems is a great example.
Speaker 1: That was another one of their brands that they would
Speaker 1: offer in these stores. In the company hired a computer
Speaker 1: hardware and software business owner by the name of Richard Sharp.
Speaker 1: He was brought on as an executive vice president, which
Speaker 1: might seem like a pretty big leap from the whole
Speaker 1: promote from within strategy. He came in at an executive level,
Speaker 1: but Sharp's leadership was a very important role part of
Speaker 1: circuit cities fate. It's actually a little controversial. Some people
Speaker 1: point him as saying that he's the reason Circuit City
Speaker 1: flourished in the eighties and nineties and and just exploded
Speaker 1: in profitability. But others say that he actually laid the
Speaker 1: groundwork for the company's eventual eventual collapse. And we'll talk
Speaker 1: more about him and his decisions in the next episode.
Speaker 1: In sales hit two hundred forty six million dollars, so
Speaker 1: the company had read bounded big time from that shaky
Speaker 1: ground it was on in the early seventies. Now, before
Speaker 1: I sign off for today, I have to finally get
Speaker 1: to nineteen eighty four, not the George Orwell book. This
Speaker 1: is the year that the Wards Company finally transformed officially
Speaker 1: into Circuit City. They changed the name of the company
Speaker 1: from Wards Company to Circuit City. In the company joined
Speaker 1: the New York Stock Exchange and listed under the code
Speaker 1: c C okay, So that's the birth of Circuit City.
Speaker 1: In the next installment, i'll talk about how the company
Speaker 1: shot up the stock exchange, outperforming most other companies, and
Speaker 1: then we'll look at how and why the company faltered
Speaker 1: and eventually collapsed. As well as get a glimpse into
Speaker 1: what's going on with the name Circuit City today. If
Speaker 1: you guys have any questions, suggestions for episode topics, or
Speaker 1: requests for guest hosts or interview subjects in the world
Speaker 1: of tech, drop me a line. My bel address is
Speaker 1: tech stuff at how stuff works dot com, or you
Speaker 1: can contact me on Facebook or Twitter. The handle you
Speaker 1: will need to use in order to do that, I mean,
Speaker 1: like to go to don't use this handle, it's mine anyway,
Speaker 1: It's tech Stuff hs W and I'll talk to you
Speaker 1: again really soon for more on this and thousands of
Speaker 1: other topics. Is it how stuff works dot com.