Circuit City Only Now Decides To Have a Good Business Plan

It admittedly took me a couple of days to tackle this just because I was absoultely flabbergasted when I read this.

TWICE: Circuit City Addressing TV Margin Declines

Read the whole thing, but I'll pick out (actually pick on would be more apt) the highlights for you.

Richmond, Va. — Circuit City has taken a series of actions to bolster TV profits amid the weak pricing environment.

Sounds good so far.

The measures, outlined this week to Wall Street analysts and touched on last week during an earnings conference call, include boosting attachment sales through new merchandising practices

Wait, Circuit City has been in business for how long, and they just now are starting to realize the importance of attachment sales (otherwise known as add-ons, or "accessorizing")?

According to a research note by Goldman Sachs retail analyst Matthew Fassler, Circuit City renegotiated deals with its vendors following the fourth-quarter free-fall in flat-panel pricing. The new agreements call for improved communication of planned price cuts and more reliable price protection.

Again, a major retail banner, #3 in the United States behind Wal-mart and Best Buy, didn't have a buying office competent enough to stay on top of managing the back-end price rebates from the manufacturers? Volume incentives, prompt payment discounts, and price-drop rebates are bread and butter for CE retailers. I'm stunned.

The No. 2 CE chain also reworked terms with its key extended service plan provider to enable faster renegotiation of warranty prices, and to provide contingency plans should TV price drops reaccelerate. Management indicated that Circuit City’s inability to adjust warranty pricing to match price point declines during the holiday selling season was a mitigating factor in last quarter’s earnings shortfall, Fassler said.

Again, most other retailers already have extended warranty plans that are keyed to price points, not product categories. This is a trend in the warranty business that dates back before 1999. Has Circuit City not done any competitive analysis of the warranty market?

Going forward, the company is expanding a new operating model designed to improve the building of a TV “basket” that includes such add-on sales as accessories, extended warranties and Firedog installation services. The pilot program was successfully tested in 50 stores in Texas and is being rolled out chain-wide, enabling Circuit City to offer its customers a “basket of goods” at a variety of price points come next holiday season, according to Bank of America analyst David Strasser.

Wow. They're going to try to sell cables, surge protectors, extended warranties and delivery & installation with every television purchased. But it's such an innovation that first they needed to demo it in some pilot stores to see if it would work. That's a retail strategy so cutting edge, I don't think anyone else has ever tried it before.

The chain is also implementing new store operating procedures (SOP) which will eliminate many redundant tasks and allow sales associates to focus exclusively on selling during store hours, Strasser related in a research note.

It's probably good that they won't expect the salespeople to mop and dust, since now they're being paid less.

The picture being painted here is of a retailer that appears to have thought that they could just hammer out Run Of Print ads every week, and make sales without any coherent thought about key sales support and back-end strategies. Busting out attachment and warranty sales as a revolutionary new way to build margin is especially galling, since they should have been doing it all along. Announcing these initiatives, and pretending they're a good idea just highlight how weak and undirected CC's senior management team has been for, oh, the past twenty years. It's as if they've been doing business in a giant bubble, never once even setting foot in a Best Buy or a successful regional independant.

Honestly, Circuit City needs a new senior management team. Now.

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