Strategic Analysic of Circuit City Stores, Inc.

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Circuit City Stores, Inc.

Executive Summary

Circuit City History
The year is 1966 and Wards, a television and appliance company established in 1949, is hot. As the one and only giant of television, the company enjoys a growth rate of 2200% since 1958 and its sales continue to skyrocket. The company continues to expand itself by offering innovative products like audio equipment and diversifies by entering markets including automotive supplies, gasoline, clothing, and even children’s toys. In 1968 the company goes public while continuing to expand and focus on innovation and differentiation, grasping each opportunity gain a hold of untapped markets. In 1977 the company renames itself Circuit City and continues to prosper as the market leader in consumer electronics. Its almost 50-year reign over other companies unfortunately lasts only until the late 1990’s due to a highly saturated market with slow growth. The consumer electronics retailing industry, in the late 1990’s, becomes essentially a “zero-sum game: each percentage sales gain for one store is a loss for another” (Sack, page 7).

Best Buy’s Winning Strategies
With changing times, emerging competitors, and shifts in customer needs, Circuit City slips into second place as Best Buy moves into first, becoming today’s market leader in consumer electronics. With an aggressive demeanor to gain market share, Best Buy in 1995 began mimicking Circuit City’s expansion through the of opening new superstore chains. Being younger and with fast expansion, Best Buy now benefits from having more modern-looking stores located in more key areas that allow for both exposure and convenience. What has mainly contributed to Best Buy’s success, however, is having a strong strategic focus on efficiency. Operating with a non-commissioned sales force and placing a strong emphasis on having a low-cost structure was definitely the golden way for Best Buy. Financial comparison between Best Buy and Circuit City is illustrated in Table 1 & 2.

Table 1: Circuit City Financial Data
*source: Circuit City 2002 Annual Report

Circuit City
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993

Revenue in Billions $12.812.912.610.88.877.667.035.584.13
3.27
Yearly Growth Rate %
-(.7)
2.416.721.815.89263526.3
Return on Equity %
8.6
7.96.916.98.57.118.521.120.621.5
5 Yr. annual growth rate
6%

Number of Stores
624

Market position
2

Table 2: Best Buy Financial Data
*source: Best Buy 2002 Annual Report

Best Buy
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993

Revenue in Billions $19.615.312.510.18.347.767.225.083
1.62
Yearly Growth Rate %
28
22.62420.77.57.5427085
Return on Equity %
22.6
26.227.132.627.219.010.715.413.210.1
5 Yr. annual growth rate
20.3

Number of Stores
Approximate number500

Market position
1

Circuit City Today
Circuit City today has over 600 stores, owns 40 CarMax auto superstores in 10 states, and also owns First North American National Bank, located in Richmond, VA and Atlanta, GA. The company long ago abandoned clothing and children’s toys, but continues to focus on innovation through its modern inventory and diversifies in the automotive and financial industries. All of this has contributed to Circuit City’s success, yet the once market leader now lacks a sustained competitive advantage with its pursuit of differentiation through innovation and customer service. In the early 1990’s, Circuit City added a strong strategic emphasis on state of the art service with a ringing slogan heard in multiple advertising campaigns, “Circuit City – Where Service is State of the Art.” This became a distinctive competence for the company and Circuit City became known as a search engine – a place people went to first to find information about electronic products....
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