Speaker 1: Welcome to tech Stuff, a production from iHeartRadio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland.
Speaker 1: I'm an executive producer with iHeartRadio and how the tech
Speaker 1: are you? It is time for a tech Stuff classic episode,
Speaker 1: and we're bringing you another two parters. So this week
Speaker 1: we have the first part of the Circuit City story.
Speaker 1: For those of you in the United States, you may
Speaker 1: have fond memories, or at least memories of Circuit City
Speaker 1: if you are of a certain age, and if not,
Speaker 1: you're about to dive into a now obsolete world about
Speaker 1: a retail establishment that existed once upon a time. This
Speaker 1: episode originally published February first, twenty seventeen. Hope you enjoy
Speaker 1: this Listener mail comes from Kevin, who says, I really
Speaker 1: enjoy your shows that trace the history of tech companies.
Speaker 1: I just finished catching up on the Sony episodes. Actually,
Speaker 1: I was hoping you'd consider doing a similar treatment of
Speaker 1: Circuit City sometime. I feel like that was a big
Speaker 1: part of tech in the eighties and nineties, and it's
Speaker 1: where I got my first computer and my first stereo.
Speaker 1: I always thought the store was really cool as a kid.
Speaker 1: Darkly lit red neon those glassrooms for checking out sound systems. Anyway,
Speaker 1: thanks for listening, and keep up the great work with
Speaker 1: the podcast. Well thanks for those kind words, Kevin. The
Speaker 1: Circuit City story is interesting because the chain originated the
Speaker 1: concept of the electronics box store. And I don't mean
Speaker 1: it was a store that sold electronic boxes, although I
Speaker 1: 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 Buy in Circuit City have
Speaker 1: an interesting relationship, or did at any rate. Circuit City
Speaker 1: was kind of best Buy before there was a best
Speaker 1: Buy now. The company was incredibly successful for many years.
Speaker 1: In fact, it was one of only a dozen or
Speaker 1: so companies to outperform the Fortune five hundred by at
Speaker 1: least three times for fifteen years. I mean by a
Speaker 1: factor of three, right, by multiplying by three for fifteen years.
Speaker 1: But eventually those good times ended and the company kind
Speaker 1: of imploded. It went bankrupt in two thousand and nine,
Speaker 1: and today it's a very different story from its heyday.
Speaker 1: Before I get into the story at all, I want
Speaker 1: to recommend a book to anyone who wants to learn
Speaker 1: more about this company and what happened to it and
Speaker 1: the management practices that were involved at all stages. It
Speaker 1: was written by Alan Wurtzel. It's actually the son of
Speaker 1: one of the co founders of Circuit City. He wrote
Speaker 1: a book titled Good to Great to Gone, The sixty
Speaker 1: Year Rise and Fall of Circuit City, and you can
Speaker 1: read a lot more about the company in that book.
Speaker 1: If this podcast wets your whistle at Wurtzel, by the way,
Speaker 1: admits that he's not exactly an UnBias reporter, but also
Speaker 1: he holds himself accountable to examine the mistakes that he
Speaker 1: credits to himself, also to his father and others in
Speaker 1: the company, and the book is an easy and interesting
Speaker 1: read on the subject of business practices. So we're going
Speaker 1: to talk a lot about business practices and how it
Speaker 1: relates to the operation of an electronics store, and not
Speaker 1: so much about the tech side of things, because Circuit
Speaker 1: City was a retail establishment. They didn't create electronics, they
Speaker 1: sold them, but they did play a very big role
Speaker 1: in the tech world for many years. So now on
Speaker 1: with the show, and our story begins in Seabright, New Jersey,
Speaker 1: on March second, nineteen oh seven. That's when Samuel S
Speaker 1: Wertzel was born. His mother, Flora, was originally from Russia.
Speaker 1: She moved to the United States in her early twenties
Speaker 1: and she ended up opening up a grocery store. She
Speaker 1: actually did that after she divorced Samuel's father. It was
Speaker 1: a changed 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. In quote now
Speaker 1: Alan attributes this primarily to the fact that Samuel didn't
Speaker 1: have a father figure for his childhood, and so he
Speaker 1: ended up acting out quite a bit, and once he
Speaker 1: started to mature, he began to really apply himself. He
Speaker 1: was charismatic and he turned out to have an aptitude
Speaker 1: for business. He and his older brother first opened up
Speaker 1: a wholesale butter and egg business, you know, the way
Speaker 1: every tech retail est establishment gets its start by selling
Speaker 1: butter and eggs. His estranged father actually worked in that
Speaker 1: business too, and they ended up having a working relationship,
Speaker 1: although not a familial one, and that ended up not
Speaker 1: working out either. He then went on to work for
Speaker 1: a company called June Dairy, but this was also during
Speaker 1: the time of the Great Depression and he was not
Speaker 1: able to hold onto that job for long. He was
Speaker 1: actually laid off, so he then moved on and from
Speaker 1: nineteen thirty eight through nineteen forty seven he worked for
Speaker 1: a company called Packing Products, and that was a company
Speaker 1: that was actually created by his father in law, and
Speaker 1: a family vacation in nineteen forty nine would change his destiny,
Speaker 1: and that is the beginning of Circuit City. Now I'm
Speaker 1: going to jump into that in a second, but first
Speaker 1: I want to give you a little more information about
Speaker 1: his family because they played a very important role in
Speaker 1: the evolution of Circuit City. First of all, Samuel married
Speaker 1: a woman named Ruth Mann in nineteen thirty two. He
Speaker 1: had met her in nineteen thirty one and a year
Speaker 1: later they got married. Now, Ruth came from an upper
Speaker 1: class background, very different from Samuel. She was also a
Speaker 1: college educated woman, which was not necessarily common at that
Speaker 1: time in the United States. Her father, Leon was in
Speaker 1: the clothing manufacturing business and was really successful, and later
Speaker 1: he became an entrepreneur who funded the efforts of various
Speaker 1: inventors and engineers. One of those inventors had created a
Speaker 1: packaging material for eggs so that they could be shipped
Speaker 1: without the risk of breakage, or at least reducing that risk.
Speaker 1: There was actually a different invention that was already patented
Speaker 1: in the United States, or that won a patent in
Speaker 1: the United States, and so Leon ended up convincing the
Speaker 1: inventor to give up the patent rights in the US
Speaker 1: and andrate on a market in Europe. And so that's
Speaker 1: when he created this company packing Products. Leon and Samuel
Speaker 1: got along great. Leon instilled in Samuel two qualities he
Speaker 1: thought were important in business and beyond, which were humor
Speaker 1: and humility. From Alan's perspective, reflecting back on the stories
Speaker 1: of his father and his grandfather, it sounds as though
Speaker 1: Samuel saw in Leon a father figure he had lacked
Speaker 1: in childhood, and Leon in turn treated Samuel as his
Speaker 1: own son, because Leon didn't have any sons, he had
Speaker 1: a daughter named Ruth. Samuel and Ruth, however, did have sons,
Speaker 1: two of them, Alan and David. Alan Wurtzel would go
Speaker 1: on with Samuel to create the Circuit City Empire. But
Speaker 1: even empires have humble beginnings, which brings us back to
Speaker 1: that family vacation I mentioned. So, Samuel and Ruth were
Speaker 1: going on a golfing vacation with their family in order
Speaker 1: to clear their heads and plan for the future. This
Speaker 1: was in nineteen forty nine 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 markup to another entity, and that's how
Speaker 1: you make your profit. But someone at the packing products
Speaker 1: company made a really bad decision. They ended up buying
Speaker 1: 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 steel, 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 in 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 nineteen forty nine or to get a new perspective
Speaker 1: and figure out, well, what are we going to do now.
Speaker 1: They weren't destitute or anything like that, but they didn't
Speaker 1: They couldn't go any further with the company that had
Speaker 1: been working for They had to start over. At this point,
Speaker 1: Samuel's forty two years old. So they were in Richmond,
Speaker 1: Virginia in nineteen forty nine when Samuel got into a
Speaker 1: conversation with a local barber. The cutter of Hares told
Speaker 1: Sammy that the very first Southern television station had just
Speaker 1: started broadcasting the previous year in April, not quite a
Speaker 1: full year before this actual encounter happened, and already the
Speaker 1: number of television stations was on the ride, as as
Speaker 1: were the number of homes that were getting TV sets,
Speaker 1: but they hadn't quite reached the tipping point. It was
Speaker 1: still one of those things that was obviously on the upswing,
Speaker 1: but wasn't anywhere close to the peak. So Wurtzel saw
Speaker 1: this as an opportunity to create a new market, and
Speaker 1: he said, well, you know, if you've got a television
Speaker 1: broadcast station down here, then clearly you got to have
Speaker 1: televisions to broadcast too. 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 one 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 Ward Store only sold televisions 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 Waards,
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 Wurtzel, the last name A stands
Speaker 1: for Allen, R 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. Wurtzell 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: Haste'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 toward
Speaker 1: the customer, whereas Haste is looking toward 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 negative
Speaker 1: or pressure approach. Samuel and Abraham created the company at
Speaker 1: pretty much the perfect time. So at this time it
Speaker 1: was post World War two and America was very different
Speaker 1: from the America that was around during the depression years.
Speaker 1: During the war, American industry was almost entirely devoted to
Speaker 1: military support efforts, either directly or indirectly, and business was
Speaker 1: booming in more ways than one. But the important fact
Speaker 1: for this story is that after the war was over,
Speaker 1: those military production efforts were able to shift into a
Speaker 1: civilian role, so things that had been dedicated to producing
Speaker 1: tanks could end up being used to produce other stuff.
Speaker 1: And also at the same time you had soldiers returning
Speaker 1: home after serving overseas, and then they started families. The
Speaker 1: United States had a baby boom going on. US population
Speaker 1: would increase by more than thirty percent over the next
Speaker 1: couple of decades. So consider all the conditions that are present.
Speaker 1: You had a lot of young families, you had a
Speaker 1: booming commercial sector, you had a lot of people with
Speaker 1: disposable income, and over on the technology side, you had
Speaker 1: the development of reliable televisions. They had gone through the
Speaker 1: first few iterations and these were sets that were expensive,
Speaker 1: but with the right plan, were within the reach of
Speaker 1: the middle class. Just a few years earlier, they were
Speaker 1: almost exclusively owned by wealthy people. They were the only
Speaker 1: ones who could afford it. But using intelligent sales techniques,
Speaker 1: salespeople could make a television more affordable to a much
Speaker 1: broader variety of people. You also had a growth in
Speaker 1: the number of television stations around the country, which meant
Speaker 1: you had a lot more programming for folks, which created
Speaker 1: a more of a demand for TVs. And it was
Speaker 1: an absolute perfect storm for a company getting into the
Speaker 1: television retail business. Along with appliances like a washer, a dryer,
Speaker 1: and a refrigerator, the television became part of the standard
Speaker 1: model American home. Now, in nineteen fifty, less than ten
Speaker 1: percent of homes in the United States had a television set,
Speaker 1: but just ten years later that number was eighty five percent.
Speaker 1: That's an enormous amount of growth. So it ended up
Speaker 1: being a great business to get into if you could
Speaker 1: be competitive. Now, that kind of sets me up for
Speaker 1: my next section. But before I get into that, let's
Speaker 1: take a quick break to thank our sponsor. All right,
Speaker 1: we're back, and now I want to talk about the
Speaker 1: actual business decisions that Samuel and Abraham had. Now, first
Speaker 1: of all, they had no idea how to make televisions.
Speaker 1: That wasn't their business model. They would buy televisions from
Speaker 1: a manufacturer. In fact, they had one specific one in
Speaker 1: those early days. They knew a manufacturer in Long Island,
Speaker 1: New York called Olympic TVs. So they would buy their
Speaker 1: televisions from Olympic TVs and then sell them in their
Speaker 1: store in Richmond. Their first inventory was just twelve TV
Speaker 1: sets in the entire store. That's it. At this time
Speaker 1: in US history, there were only a few types of
Speaker 1: stores that you could find. In general, there were big
Speaker 1: department stores like Sears, Roebuck and Montgomery Ward. Now those
Speaker 1: mainly carried store brand items and maybe some major brands
Speaker 1: as well, but those were the only ones that they
Speaker 1: would carry. Right, anything that was not a major brand
Speaker 1: or a store brand you really couldn't find in those
Speaker 1: department stores. Then you had some variety store chains, kind
Speaker 1: of like Woolworth's was still big at that time, but
Speaker 1: they were on the decline. It was clear that Woolworth's
Speaker 1: was not long for this world in that particular incarnation.
Speaker 1: Then you had the small business owners, the independent owners,
Speaker 1: the mom and pop stores, and they might have one
Speaker 1: or two shops at most, and they would cater to
Speaker 1: customers in the cities and towns. Now the Wards Company
Speaker 1: was one of those, really, and they faced a lot
Speaker 1: of competition even in Richmond, both from department stores that
Speaker 1: sold larger brand name sets and other independent shops. So
Speaker 1: to set Wards apart from these other places, Samuel began
Speaker 1: to offer home demonstrations of televisions. And here's how it worked.
Speaker 1: It was pretty smart. Customers could arrange to have a
Speaker 1: TV set delivered and set up in their homes. So
Speaker 1: Samuel hired a driver who could also carry heavy things.
Speaker 1: Because back in those days, TVs were hefty. The screens
Speaker 1: were small, but the cabinets were enormous. This was vacuum
Speaker 1: tube technology, so vacuum tubes take up a lot of
Speaker 1: space and these were big, bulky, heavy sets. So he
Speaker 1: hired a strapping guy who picked up the television set,
Speaker 1: put it in a truck, and would drive it out
Speaker 1: to a potential customer's home, deliver it, set it up,
Speaker 1: and the family would get to test the set out
Speaker 1: for a full day, and the following day someone from
Speaker 1: the company from wards would come by either to claim
Speaker 1: the television, pack it back up, take it back to
Speaker 1: the store, or start a sale, and usually this would
Speaker 1: involve a cat installment, and then they would have an
Speaker 1: installment plan that would last between eighteen and twenty four
Speaker 1: months to space out payments for the television set, which
Speaker 1: is not a bad idea for a world that had
Speaker 1: not yet invented credit cards. This gave customers the opportunity
Speaker 1: to purchase a television set even if they thought that
Speaker 1: it was outside of their budget, because they could break
Speaker 1: up that expense over several months instead of having to
Speaker 1: do a big upfront purchase. Samuel also became an expert
Speaker 1: at sales strategies, many of which involved a good deal
Speaker 1: 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 salespeople to act as though a potential
Speaker 1: customer had already made a decision to buy a product
Speaker 1: without actually having done that. So someone comes into your store,
Speaker 1: your show them, say a new television set, and you
Speaker 1: pretend like the customer has already decided they are absolutely
Speaker 1: going to buy the television set, and you just start
Speaker 1: asking questions that kind of hint at that this actually
Speaker 1: adds extra pressure on the consumer to walk away buying
Speaker 1: a television set. So you wouldn't say something like would
Speaker 1: you like to purchase this, because that's giving the consumer
Speaker 1: an out. Instead, you might say, do you like this
Speaker 1: one better? In the dark wood cabinet or the lightwood cabinet. See,
Speaker 1: you've already made the assumption that they're going to buy
Speaker 1: one or the other. You take away the option of saying, oh,
Speaker 1: I'm I'm not buying anything. It adds that extra level
Speaker 1: of pressure. Or you might begin by showing a customer
Speaker 1: a base model that has very few features, and honestly,
Speaker 1: you don't really want to sell the base model because
Speaker 1: you're selling it at a very low price and the
Speaker 1: margin is very low. In other words, the profit you
Speaker 1: make from the sale is negligible, and really you could
Speaker 1: not sustain a business selling those style television sets. The
Speaker 1: purpose of showing the basic model is to then move
Speaker 1: the customer over to higher end models that have more
Speaker 1: features and thus cost more and have a better sales margin,
Speaker 1: so you make a bigger profit from the sale. Some
Speaker 1: people call this the bait and switch. Samuel preferred to
Speaker 1: think of it as a step up approach. He felt
Speaker 1: that customer service was really important, so it wasn't like
Speaker 1: it 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 upfront was
Speaker 1: his policy. Reconciling the sale approach with the company's values
Speaker 1: requires a little bit of mental gymnastics and perhaps some
Speaker 1: generous allowances, I'll say, but one of those sales practices
Speaker 1: was that the price tag of the televisions in the
Speaker 1: Wards Company store and later other appliances that they started
Speaker 1: to sell after a couple more years, wasn't actually a
Speaker 1: fixed price. Every product had a listed price that was
Speaker 1: the starting point, and then every product had a bottom
Speaker 1: line lowest acceptable price a salesperson would be allowed to
Speaker 1: sell that item for. So your goal as a salesperson
Speaker 1: is to sell it as close to that ticket price
Speaker 1: as you possibly could. But customers could haggle, they can bargain,
Speaker 1: and the salesperson would get a commission based upon how
Speaker 1: high above that lowest acceptable price they were able to
Speaker 1: make a sale. So it was better to make a
Speaker 1: sale than not make it sale. If you absolutely had
Speaker 1: to go to the lowest price in order to move
Speaker 1: a product, then it was better to do that than not.
Speaker 1: But you would get a bigger reward if you could
Speaker 1: sell the product at the higher price, the closer to
Speaker 1: the list price, as opposed to the secret lowest acceptable price.
Speaker 1: So if you happen to nab a customer that's not
Speaker 1: terribly aggressive, you can make a big commission off a
Speaker 1: hefty sale. It's another idea that a lot of modern
Speaker 1: shoppers find particularly shady. It also falls into the category
Speaker 1: that a lot of people will associate with buying a car,
Speaker 1: and in fact, Circuit City has a connection to car
Speaker 1: sales as well. I'll get into that probably in Part two,
Speaker 1: not so much in Part one. Now, paired with this
Speaker 1: was a customer service policy that went above and beyond
Speaker 1: the pale. So every salesperson was expected to follow up
Speaker 1: with a customer to make certain that the delivery, installation,
Speaker 1: and operation of their brand new television's met expectations, and
Speaker 1: if they didn't, the company would work to make things
Speaker 1: right and even send along a conciliatory present or two
Speaker 1: to smooth things over. So Samuel felt that great customer
Speaker 1: service would help word of mouth, but perhaps more importantly,
Speaker 1: it would help the company avoid bad word of mouth,
Speaker 1: which tends to travel faster and farther than good word
Speaker 1: of mouth. People love to complain, and that's something that's
Speaker 1: still true today. If you read over the comments or
Speaker 1: reviews on things online. You'll see that people who are
Speaker 1: dissatisfied often will go to much greater lengths to express
Speaker 1: that dissatisfaction than folks who are happy, and may even
Speaker 1: seem that the happy folks are far outnumbered by the
Speaker 1: dissatisfied folks, even if the overall rating is heights, because
Speaker 1: people who are happy might be willing to give like
Speaker 1: a five star review on something, but not actually write anything,
Speaker 1: just say of five stars, whereas people who are unhappy.
Speaker 1: He want to tell you about it. Anyone who's got
Speaker 1: a podcast out there knows what I'm talking about, and
Speaker 1: it could be really demoralizing. But Samuel's point was that
Speaker 1: he didn't want bad word of mouth spreading. His business
Speaker 1: was a small 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 hire would have on
Speaker 1: other employees. He didn't want to demoralize anyone by hiring
Speaker 1: someone from outside the company to lord over other people,
Speaker 1: and he wasn't in a rush to fill empty positions
Speaker 1: just to have them filled. He wanted to make sure
Speaker 1: he got the right people for the right job. He
Speaker 1: also believed in promoting from within the company, which helped
Speaker 1: to build employee loyalty. Who's also known for being pretty
Speaker 1: lenient with folks who weren't living up to what they
Speaker 1: were accountable for. So let's say a manager. It turns
Speaker 1: out the manager who has been promoted above their ability
Speaker 1: to perform. One of the things that Samuel would do
Speaker 1: is instead of firing someone out right, he would say, listen,
Speaker 1: it was a mistake, obviously to promote you to this position.
Speaker 1: You were not ready for it. That's no fault of yours.
Speaker 1: It is a fault of ours for making that decision prematurely.
Speaker 1: How about we move you down to an assistant manager
Speaker 1: position that you can then work at and gain more experience,
Speaker 1: and then later on maybe revisit this idea of you
Speaker 1: being a manager, which allowed people to hold on to
Speaker 1: their jobs and to get into a position they were
Speaker 1: more comfortable with and more suited for, as opposed to
Speaker 1: just saying nope, you couldn't cut it. You're out. He
Speaker 1: also instituted a policy in which the vice president of
Speaker 1: Personnel was to sit down regularly with employees a couple
Speaker 1: of times a year to talk about how the company
Speaker 1: could improve existing jobs, especially the low level employees, like
Speaker 1: the entry level position, and then he would work to
Speaker 1: actually implement those suggested changes, at least when the changes
Speaker 1: made sense. And he also was a big believer in
Speaker 1: providing training opportunities for people and began to hold annual
Speaker 1: store manager meetings in exotic places. Those meetings would have
Speaker 1: like a really concentrated period of training and deep discussions,
Speaker 1: and then the following weekend everyone would just stay at
Speaker 1: whatever exotic locale the meeting was taking place at, and
Speaker 1: their families would join them, and then they would just
Speaker 1: kind of have a little weekend vacation and say Hawaii
Speaker 1: or Puerto Rico or something, which is kind of cool.
Speaker 1: The company also had no vacation policy for management positions,
Speaker 1: meaning they didn't have a policy in place, not that
Speaker 1: managers couldn't take vacation, in fact, they were encouraged to
Speaker 1: do it. In fact, sometimes they were told very sternly, hey,
Speaker 1: you need to take some time off. Managers were expected
Speaker 1: to get the job done, period. That's it. As long
Speaker 1: as that happened, they could take as much or as
Speaker 1: little vacation as they liked, but they had to get
Speaker 1: the job done. They also didn't have regularly set hours,
Speaker 1: but Samuel discovered that this approach actually seemed to encourage
Speaker 1: managers to work longer hours than they otherwise might have
Speaker 1: done on a set schedule, on like a nine to
Speaker 1: five each week. So it was a strategy that I've
Speaker 1: seen used in the tech industry quite a few times.
Speaker 1: A lot of companies would have these sort of open
Speaker 1: hour rules, and people would end up spending more hours
Speaker 1: at their job than they would if they were required
Speaker 1: to show up at say, nine am and clock out
Speaker 1: at five pm. And I don't know what that's like, Dylan,
Speaker 1: Do you know what that's like? Dylan is shaking his head,
Speaker 1: but also snort laughing. So take that as you will.
Speaker 1: As the company began to find financial success, Samuel and
Speaker 1: Abraham began to stock it with other TV brands, not
Speaker 1: just those Olympic TVs. They also categorized the various television
Speaker 1: vision sets in steps, like I was saying earlier, with
Speaker 1: each 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, you'd make the most profit.
Speaker 1: But each step had to have features that justified that
Speaker 1: increase in step. You couldn't just have a model that
Speaker 1: had a certain brand name to it and it's automatically
Speaker 1: a step up over other models. It had to have
Speaker 1: demonstrable features that showed that value. In other words, the
Speaker 1: customer had to actually get something for that higher price point.
Speaker 1: So this goes back to that customer satisfaction concept. It's
Speaker 1: not just that the company wants to make money, they
Speaker 1: want to do so in a way that is at
Speaker 1: least remotely ethical, certainly ethical by nineteen fifty standards. So
Speaker 1: by the mid nineteen fifties, Wards had opened three more stores,
Speaker 1: and they had four storefronts at that point. The company
Speaker 1: also began to carry more items than just televisions, like
Speaker 1: refrigerators and other appliances, and the appliance boom in the
Speaker 1: nineteen fifties was kind of similar to the TV boom.
Speaker 1: These were all products that promised to increase convenience and
Speaker 1: save time for households. They were also selling this concept
Speaker 1: of comfort and prosperity, so it's not just selling products
Speaker 1: but an idea, like a representation of a goal that
Speaker 1: every American was envisioning as this is where I want
Speaker 1: to be. And as the company saw more success, the
Speaker 1: owners branched out further and attempted to open stores in
Speaker 1: other places. They opened one in Roanoke, Virginia, and one
Speaker 1: in Greensboro, North North Carolina, but they didn't Those stores
Speaker 1: didn't work out. Those efforts probably were a little too ambitious,
Speaker 1: a little too early, and both of those stores closed
Speaker 1: within twelve months of having opened. The big problem here
Speaker 1: was that Samuel and Abraham found they couldn't manage those
Speaker 1: remote locations personally the way they could the Richmond offices.
Speaker 1: Like they could put managers in charge of those stores,
Speaker 1: but they couldn't oversee the day to day operations, and
Speaker 1: if there were problems, they couldn't respond to them in
Speaker 1: a timely enough fashion for the store to remain profitable.
Speaker 1: So it was an expensive lesson, But Samuel learned that
Speaker 1: he needed to develop someone to oversee each remote store
Speaker 1: at a managerial level and find a way for managers
Speaker 1: to send meaningful data back for him in order for
Speaker 1: him to make some high level decisions. A few years
Speaker 1: after opening the company, Samuel and Abraham brought a third
Speaker 1: person onto the team, the management level team like this
Speaker 1: sort of senior management. And this guy was named Martin Rosenswig,
Speaker 1: and Rosenswig had an accounting background in New York. Samuel
Speaker 1: and Abraham actually gave him a stake in the business
Speaker 1: even 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 Wards Company until the mid
Speaker 1: nineteen sixties. Now I got some more to talk about
Speaker 1: some of the advances that Samuel instituted in the Wards
Speaker 1: Company that set it apart from other stores at that time.
Speaker 1: But before I get into that, let's take another quick
Speaker 1: break to thank our sponsor and we're back. So, in
Speaker 1: an effort to keep track of inventory, which all had
Speaker 1: to be done by hand back in those days there
Speaker 1: were no automated systems, Samuel actually purchased an IBM punch
Speaker 1: card equipment system. He saw the value in this burgeoning
Speaker 1: technological field for using it in order to do supply
Speaker 1: chain management, inventory management, keep track of sales, profit margins,
Speaker 1: and to have a really good look at how each
Speaker 1: store was doing so that if there were any early
Speaker 1: warning signs, they could sweep in and fix things before
Speaker 1: they became too problematic. By nineteen sixty six, he had
Speaker 1: a data processing department to keep track of all of this.
Speaker 1: He also adopted the IBM three sixty computer system in
Speaker 1: the mid sixties to help manage the growing chain of stores.
Speaker 1: Samuel used the data to see which stores were doing well,
Speaker 1: which ones weren't, and, like I said, jump in if
Speaker 1: things aren't going well. As for Alan Wurtzel, Samuel's son,
Speaker 1: he would play an important role in the rise of
Speaker 1: Circuit City. First, he went on to study economics at
Speaker 1: Oberlin College and later at the London School of Economics
Speaker 1: and then Yale University. He passed the Connecticut Bar in
Speaker 1: nineteen fifty nine and became a law clerk of the
Speaker 1: US Court of Appeals in Washington, d c. In nineteen
Speaker 1: sixty So he was studying at that point, not yet
Speaker 1: part of the company Meanwhile, business was going really well
Speaker 1: for the Wards Company, so well that Samuel took the
Speaker 1: company public, as in it became a publicly traded stock
Speaker 1: in nineteen sixty one. Now, in actuality, that was a
Speaker 1: move of necessity. There was a lot of opportunity for expansion,
Speaker 1: but that costs money, and the company lacked the capital
Speaker 1: to do that expansion on its own. But by going public,
Speaker 1: Samuel could raise capital needed to expand further and make
Speaker 1: bigger profits. So to that end, the Wards Company got
Speaker 1: into the discount industry. Now, this was a time where
Speaker 1: we started seeing big stores show up that were either
Speaker 1: open membership or closed membership discount stores such as GEM
Speaker 1: International or Gym International if you prefer. It's sort of
Speaker 1: like what Sam's Club is today. Wards was dipping their
Speaker 1: toe in this pool by opening up departments in already
Speaker 1: existing star So they weren't opening up their own discount
Speaker 1: store with open or closed membership. Instead, they would partner
Speaker 1: with an existing store and they would manage a specific
Speaker 1: department within that store. It was almost like a precursor
Speaker 1: to the shopping mall, except instead of a store space
Speaker 1: within a mall, it was a department space within a larger,
Speaker 1: almost like warehouse style building. So imagine walking into one
Speaker 1: of those big warehouse stores like Sam's Club, and one
Speaker 1: whole department is managed by an entirely separate company like Wards.
Speaker 1: That's essentially what was going on. So Wards would lease
Speaker 1: space from a bigger store and get access to that
Speaker 1: store's customer base in return. The company sold one hundred
Speaker 1: ten thousand shares in December of that year, and that
Speaker 1: amounted to about forty point four percent ownership of the company,
Speaker 1: and collectively those shares represented about five hundred and thirty
Speaker 1: six thousand, two hundred and fifty dollars, which meant the
Speaker 1: overall company's valuation was at one point eight million dollars.
Speaker 1: Small for tech companies these days, for any company considered
Speaker 1: a major company these days, 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 Hasts and the Wurtzels. They owned
Speaker 1: about half the company together. The other ten percent ownership
Speaker 1: was well 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 council for Wards. Now. At that time,
Speaker 1: the company consisted of four stores in Richmond and twenty
Speaker 1: seven licensed departments in other parts of the country. In
Speaker 1: those big discounts I was talking about, sales were at
Speaker 1: about twenty two point eight million, with earnings of around
Speaker 1: six hundred and sixteen thousand dollars, and father and son
Speaker 1: began to expand the company by buying up smaller companies
Speaker 1: that sold appliances. That not only expanded the company's regional
Speaker 1: reach by getting into areas they didn't have an existing store,
Speaker 1: but also boosted the variety of products the company began
Speaker 1: to offer to customers, so again more than just TVs
Speaker 1: at this point. In nineteen sixty eight, the Wards Company
Speaker 1: joined the American Stock Exchange. The following year, Wards makes
Speaker 1: a concentrated effort to buy up local chains and discount stores,
Speaker 1: converting them over to Wards stores or launching them under
Speaker 1: a new name. So one of those chains was a
Speaker 1: chain called Custom High Fi, and that gave Wards a
Speaker 1: foothold in the Hi Fi audio business. Those stores were
Speaker 1: mainly in the Washington, DC area, but they represented one
Speaker 1: of the ways the company was beginning to diversify, and
Speaker 1: they chose to keep the brand separate from the overall
Speaker 1: Wards Company. They named the stores Dixie Hi Fi, so
Speaker 1: if you ever heard that name, that's where it comes from.
Speaker 1: It was originally Custom High Fi and then acquired by
Speaker 1: Wards Company. And in nineteen seventy Samuel Wurtzel transitioned into
Speaker 1: the position of chairman and named his son Alan as
Speaker 1: the president of the company. Abraham Haste at that time
Speaker 1: retired and in nineteen seventy three Alan Wurtzel took over
Speaker 1: as CEO of the Wards Company. Now, that was a
Speaker 1: rough time for Wards Company, not because of Allen's leadership,
Speaker 1: but rather because of just economic conditions in general. Around
Speaker 1: that time, the company was on shaky ground. Sales were
Speaker 1: at around sixty million dollars. That's definitely a lot of money.
Speaker 1: But the company had also expanded pretty quickly in a
Speaker 1: short time, so there was this fact of you, how
Speaker 1: does sales match up against the expansion. Also, there was
Speaker 1: an economic recession in the United States, which was making
Speaker 1: an enormous impact on the company's revenues. Several stores had
Speaker 1: turned unprofitable, and Alan Wurtzel really had his work cut
Speaker 1: out for him, so in nineteen seventy four he decided
Speaker 1: to make the take a pretty big risk. The company
Speaker 1: tried something new. They opened up a forty thousand square
Speaker 1: foot retail showroom. They called it the Wards Loading Dock,
Speaker 1: So this was an enormous showroom dedicated to audio and
Speaker 1: visual equipment. Now. The size meant that the company could
Speaker 1: sell a much larger volume of products, which meant that
Speaker 1: they could buy them at a lower cost and sell
Speaker 1: them for a lower price than a lot of their
Speaker 1: competitors could. The Loading Dock also had a much wider
Speaker 1: variety of products from various brands than most other stores,
Speaker 1: so that was a customer value, and they were able
Speaker 1: to branch far beyond the basic TV and appliance business
Speaker 1: that had defined the company in years past. The store
Speaker 1: also offered services that you would have found in the
Speaker 1: old Wards Company store back in nineteen forty nine, like
Speaker 1: home delivery and installation, 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 around the country. Most
Speaker 1: of them had long since stopped being profitable, and this
Speaker 1: marked a switch and strategy in which the Wards 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 them toward the company's future in retail. It was
Speaker 1: the birth of the superstore. So by nineteen seventy seven,
Speaker 1: the company was beginning to open new concept stores that
Speaker 1: they were calling Circuit City showrooms in the DC area.
Speaker 1: These were smaller than the Loading Doc showroom, but about
Speaker 1: twice the size of the older Wards stores, and they
Speaker 1: were pure electronics stores. They included not just a showroom,
Speaker 1: but 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's filled with lots
Speaker 1: of shiny products from different manufacturers. You can see them
Speaker 1: side by side and take a look and even test
Speaker 1: out certain features, depending upon what it is you're looking at. So,
Speaker 1: for example, televisions, you can see the different picture quality,
Speaker 1: and you might point at a single product. Let's say
Speaker 1: it's an enormous twenty four inch television, and you say,
Speaker 1: I want that, So then you buy it, and you're
Speaker 1: not buying the one that you're looking at. That's a
Speaker 1: display model. Instead, a salesperson calls for a boxed version
Speaker 1: of the same product to come from the backroom storage space,
Speaker 1: and an employee brings the box out and maybe even
Speaker 1: carries it out your car and loads it up for you.
Speaker 1: That was a brand new sales model in the late seventies.
Speaker 1: It's not like that was around. Circuit City was one
Speaker 1: of the pioneers of doing it in this way, and
Speaker 1: it worked. By nineteen seventy nine, sales were at one
Speaker 1: hundred and twenty million, twice as much as just a
Speaker 1: few years earlier. By nineteen eighty, Wards company had thirty
Speaker 1: six Circuit City style stores and boys that hard to
Speaker 1: say in the Southeast, Man, I'm glad I didn't say
Speaker 1: in the Southeast right after all those other essays, and
Speaker 1: 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 in 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 Wards 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 them all. Then there were the
Speaker 1: Circuit City superstores, which were modeled after the loading dock
Speaker 1: and were 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 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 an era where beyond televisions and radios, you started
Speaker 1: seeing other types of electronics emerge. And some of that
Speaker 1: was even coming off a particular product I talked about
Speaker 1: not too long ago, Sony's Beta Max video cassette recorders.
Speaker 1: They were also earning big sales with other big brand names.
Speaker 1: Pioneer Audio Systems is a great example. That was another
Speaker 1: one of their brands that they would offer in these stores.
Speaker 1: In nineteen eighty two, the company hired a computer hardware
Speaker 1: 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 part of Circuit
Speaker 1: City's fate. It's actually a little controversial. Some people point
Speaker 1: him as saying that he's the reason Circuit City flourished
Speaker 1: in the eighties and nineties and just exploded in profitability.
Speaker 1: Others say that he actually laid the groundwork for the
Speaker 1: company's eventual collapse, and we'll talk more about him and
Speaker 1: his decisions in the next episode. In nineteen eighty three,
Speaker 1: sales hit two hundred and forty six million dollars, so
Speaker 1: the company had rebounded big time from that shaky ground
Speaker 1: it was on in the early seventies. Now, before I
Speaker 1: sign off for today, I have to finally get to
Speaker 1: nineteen eighty four. Not the George Orwell book. This is
Speaker 1: the year that the Wards Company finally transformed officially into
Speaker 1: Circuit City. They changed the name of the company from
Speaker 1: Wards Company to Circuit City. In nineteen eighty four, the
Speaker 1: company joined the New York Stock Exchange and listed under
Speaker 1: the code cc 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. That
Speaker 1: was the Circuit City story Heart one. Obviously, next Friday
Speaker 1: we will run part two of that story. Circuit City
Speaker 1: was one of those places that I did visit a
Speaker 1: few times when I was younger. I would have to
Speaker 1: do it when I was younger because it doesn't exist anymore,
Speaker 1: so I certainly can't do it when I'm older. It
Speaker 1: was a no It was an interesting place. It had
Speaker 1: its own vibe, and it was a vibe that set
Speaker 1: it apart from other, you know, retail box stores like
Speaker 1: Best Buy. But yeah, we'll rejoin the Circuit City story
Speaker 1: next week. In the meantime, I hope you are all
Speaker 1: well and I'll talk to you again really soon. Tech
Speaker 1: Stuff is an iHeartRadio production. For more podcasts from iHeartRadio,
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