Circuit City

Circuit City Stores, Inc.

Former type	Public (1984-2009) Subsidiary (2009-2012)
Industry	Retail
Fate	Chapter 7 bankruptcy liquidation IP acquired by Systemax, Inc.
Successor(s)	TigerDirect
Founded	1949 (Wards) 1984 (Circuit City)
Defunct	2009 (brick and mortar) 2012 (e-commerce)
Products	Consumer electronics
Parent	Systemax, Inc. (2009-2012)

Circuit City Stores, Inc. (former NYSE ticker symbol CC) was an American multinational consumer electronics corporation. It was founded in 1949 and pioneered the electronics superstore format in the 1970s.^[1] Circuit City liquidated its final American retail store in 2009, following a bankruptcy filing and subsequent failure to find a buyer.

At the time of liquidation, Circuit City was the second largest U.S. electronics retailer, after Best Buy. There were 567 Circuit City Superstores nationwide, ranging in size from 15,000 to 45,000 square feet (1400 to 4000 m²), when the company announced total liquidation.

The "Circuit City" brand was then bought by Systemax, Inc., which used the brand to sell electronics and media as an online retailer, CircuitCity.com, until late December 2012, when the website was merged with TigerDirect.

History

Early history and growth

In 1949, Samuel S. Wurtzel opened the first Wards Company retail store in Richmond, Virginia, at 705 West Broad Street.^[2] Wards Company and Circuit City are completely unrelated to the other former retailer that went out of business in the 2000s, Montgomery Ward. The name "Wards" was actually an acronym composed of the founder's last initial and the initials of members of his family (W = Wurtzel; A = Alan; R = Ruth; D = David; S = Sam).^[3]

Years later, Wurtzel got an idea to open a television store while on vacation. Abraham L. Hecht joined him as a partner.^[4]

By 1959, Wards Company operated four television and home appliance stores in Richmond. The company continued to grow and acquired stores in other locations including Albany, New York; Mobile, Alabama; Washington, DC; and Costa Mesa, California. During the 1970s and early 1980s, it also sold mail-order under the name "Dixie Hi Fi", advertising in hi-fi magazines. Wards experimented with several retail formats in Richmond, including smaller mall outlets branded "Sight-n-Sound" and "Circuit City". Sight-n-Sound and Circuit City stores were eventually replaced by the Circuit City Superstore format.^{[citation needed]}

Wards Company officially changed its name to Circuit City and became listed on the New York Stock Exchange in 1984.^[5] One of the company's early slogans was "Circuit City — Where the Streets are Paved with Bargains." The company, which had leased floor space from the Zody's department stores as well as other department stores, began acquiring retail stores and turning them into Circuit City Superstores. The first of these replacements occurred in Knoxville, Tennessee; Charleston, South Carolina; and Hampton, Virginia. In 1981, Circuit City entered the New York City market by acquiring the six remaining stores of the bankrupt Lafayette Radio chain.^[6] They operated the stores under the "Lafayette/Circuit City" name and expanded to 15 locations, but the stores were not profitable and were closed in 1986 after spending US$20 million to enter the market.^[7] Wurtzel served as president of the company until 1970. He remained the chairman until 1984.^[2] When he stepped down, his son Alan served as chairman until 1994.^[8]

Wards purchased a new headquarters building at 2040 Thalbro Street (named after Thalhimer Bros. Department Store) in Richmond, Virginia and in the extra space opened "Wards Loading Dock", its first big-box format in 1974.^[9] The large-format store was very popular with customers. The company continued to expand with the new format ^[5] modeled after "Wards Loading Dock" and renamed it Circuit City Superstore in 1981. Circuit City began to replace its smaller stores with the Superstore format and started a nationwide expansion.

In 1988, the company began constructing the new "plug" design Superstore stores. During this era, Circuit City became known for its exceptional service, going so far as to have many of its staff factory-trained. Its slogan, likewise, was "Welcome to Circuit City, Where Service Is State of the Art."^[10]

In 1998, Circuit City returned to New York City opening a 40,000 sq ft (3,700 m²) Superstore in Union Square, the first of two planned Manhattan locations.^[11]

Also in 1998, Circuit City introduced the "Pluggie" mascot that was seen on television and in-store advertising. The mascot was a plug similar to the one seen on Circuit City television commercials plugging into store fronts, but had a smiley face and arms. Pluggie was discontinued when the new circle logo was introduced in 2001.^{[citation needed]}

2000s

By 2000, many Circuit City stores were out of date and in bad locations, unable to compete with the competition from newer Best Buy stores. In 2000, Circuit City abandoned the large appliance business and introduced a more self-serve "Big Box" format called "Horizon". This was controversial because in the previous year Circuit City was the number two appliance retailer in the United States, behind only Sears. The company had earned nearly US$1.6 billion in sales revenue from large appliances in 1999. However, executives were concerned about the competition from Home Depot and Lowe's and believed there would be big savings in warehouse storage and delivery costs if they quit the large appliance business. It was later realized that Circuit City thus missed out on the residential housing boom of the mid-2000s, which saw a dramatic rise in new appliance sales.

The new "Horizon" stores abandoned the original showroom experience for a brighter, more open sales floor format with open ceilings, low fixtures, and wood floor aisles to allow customers to browse the merchandise easily. The format allowed putting all products on the sales floor, except those that are too large for customers to carry themselves. Shopping carts were added for the expanded assortment of grab-and-go merchandise. A row of registers were located at the front of the store for the first time for quick checkout. Previously, the stores only had registers located within each department since the salespeople were on commission. Even though the new format had commissioned sales people, it was becoming very similar to Best Buy.

Every Superstore was retrofitted after the exit from the large appliance business, using the space for an expanded self-serve computer accessory and software selection. Stores at the time only sold PlayStation games under an exclusive agreement with Sony. The new space allowed them to sell Nintendo, Sega, and eventually Xbox games after the agreement ended. Music and movie sales had been added to most stores years before, but the extra space allowed the selection to be added to smaller stores. The retrofitting project alone cost the company US$1.5 billion.^[12]

In 2003, Circuit City converted to a single hourly pay structure in all stores, eliminating commissioned sales. Many previously commissioned sales associates were offered new positions as hourly "product specialists", while 3,900 salespeople were laid off, saving the company about $130 million per year.^[13] The day of the announcement, Wednesday, February 5, 2003, also known as "Bloody Wednesday", all stores remained closed until noon, to give the current associates the news and to prepare stores for the adjustment.^[14]

In 2004, with the expansion of the wireless phone market, Circuit City partnered with Verizon Wireless to include full-service Verizon Wireless sales and service centers in each Superstore. These locations were owned and staffed by Verizon Wireless. Circuit City stopped selling wireless phones with all other carriers due to the agreement.^[15]

In April 2004, Circuit City announced its purchase of Canadian retailer InterTAN. Circuit City paid approximately US$284 million for InterTAN's 980 stores, which operated in Canada under the trade names RadioShack, Rogers Plus and Battery Plus. Chairman and CEO Alan McCollough believed the move provided an easy entry into Canada, a country where Best Buy had been expanding.^[16] RadioShack sued InterTan in April 2004 over the branding use of RadioShack in Canada.^[17] Circuit City lost the lawsuit and all Canada locations were renamed The Source by Circuit City in 2005.^[18] These stores were sold to Bell Canada and continue to operate. In 2007, a new 20,000-square-foot (1,900 m²) store format was introduced as "The City" and designed to eliminate previously under-utilized space. The smaller format gave the company greater flexibility to enter new markets and backfill existing ones. Most new store openings in 2008 used this new store format.^[19]

On February 8, 2007, Circuit City announced that it planned to close seven domestic Superstores and a Kentucky distribution center to cut costs and improve its financial performance.^[20] News media reports also mention that 62 stores in Canada were to close.^[21][22]

Circuit City announced on February 23, 2007 that its Chief Financial Officer, Michael Foss, would leave the company. This unsettled investors and analysts concerned about management turnover. "This represents the third departure of a senior executive in the past six months, and the second departure of a top-five executive in the past month" said Goldman Sachs analyst Matthew Fassler in a client note. Chief Executive Office Phil Schoonover’s "hand-picked team is turning over faster than we would like to see in a turnaround situation."^[23]

In 2007, the starting wage for new employees was dropped from $8.75 an hour down to $7.40 an hour ($6.55 being the federal minimum wage at the time). In a press release on March 28, 2007, Circuit City announced that in a "wage management" decision in order to cut costs, it had laid off approximately 3400 better-paid associates and would re-staff the positions at the lower market-based salaries. Laid-off associates were provided severance and offered a chance to be re-hired after ten weeks at prevailing wages. The Washington Post reported interviews with management concerning the firings.^[24]

The Post later reported in May 2007 that the layoffs, and consequent loss of experienced sales staff, appeared to be "backfiring" and resulting in slower sales.^[25]

In April 2008, video rental firm Blockbuster announced a bid worth $1 billion to purchase Circuit City.^[26] In July 2008, Blockbuster withdrew its offer due to market conditions.^[27]

Philip J. Schoonover, CEO, President and Chairman of the Board of Circuit City Stores, Inc. announced his immediate resignation on September 22, 2008. James A. Marcum, former Vice Chairman of the board, was named acting CEO. Allen King was selected Chairman of the Board.^[28] This switch was said to be due to a stream of losses stemming from the rapid decline of flat-panel TV prices, and possibly due to the strong call for Schoonover's removal from activist shareholder Mark Wattles.^[29]

Bankruptcy and liquidation

On November 4, 2008, Circuit City announced that it would close 155 stores and lay off 17% of its workforce by the end of the year as a result of continuing difficulties in remaining profitable.^[30][31] On November 7, 2008, Circuit City laid off between 500 and 800 corporate employees from its Richmond, Virginia headquarters. The approximately 1000 remaining corporate employees were consolidated into one building in an effort to further reduce costs and improve profitability.^[32] On November 10, 2008, Circuit City filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.^[33] At that time, Circuit City's stock prices traded well below $1 per share, and were removed from listing on the New York Stock Exchange.^[34]

In bankruptcy court, Circuit City was approved to borrow $1.6 billion to finance operations while restructuring.^[8] Court filings revealed that the company had assets of $3.4 billion and debt of $2.32 billion,^[35] including a $119 million debt to Hewlett-Packard and a $116 million debt to Samsung Electronics.^[36] Chief executive James A. Marcum promised that the stores would stay open and the chain would not be liquidated.^[37][38]

On November 18, 2008, it was announced that Ricardo Salinas Pliego, current owner of Mexican television broadcaster TV Azteca, had purchased 28 percent of Circuit City.^[39]

On January 10, 2009, it was announced by a company spokesman that Circuit City needed a buyer by January 16, 2009 to keep from shutting its doors due to an approaching deadline set by the court and creditors.^[40] Although two unnamed parties were interested in buying out Circuit City,^[41] a bidder could not be found,^[42] so Circuit City, with bankruptcy court approval, converted its Chapter 11 bankruptcy to Chapter 7,^[43] and started airing "going out of business" commercials, as they started closing all of their stores.^[42] The Canadian operations, which were run under The Source by Circuit City banner, were not initially affected by the liquidation, but were later sold to Bell Canada.^[44]

According to Circuit City's website, the company announced on January 16, 2009 that it intended to close all of its stores. Reportedly, over 30,000 employees lost jobs in the liquidation,^[45] as well as 45% of Verizon's Circuit City sales force being laid off with the remainder resigning or transferring to other Verizon locations.^[46]

The final day of operations for all Circuit City stores was March 8, 2009.^[47] Besides retail auto dealerships, Circuit City closed more retail locations in the U.S. than any other retail chain in 2009.^[48] Circuit City selected Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC, and Tiger Capital Group LLC ^[49] to handle the liquidation of all stores nationwide.

After the final date of operation for all Circuit City stores, the company's online store was replaced with a page that read as follows:^[50]

Circuit City would like to thank the millions of customers who have shopped with us during the past 60 years. Unfortunately, we announced on January 16, 2009, that we are going out of business.

Purchase by Systemax

Systemax, Inc., in April 2009, signed a stalking horse agreement for $6.5 million, which was an initial offer for the bankrupt Circuit City's assets.^[51]

On May 13, 2009, it was announced that Systemax had purchased the Circuit City brand name, trademarks, and e-commerce website for US$14 million at auction from Circuit City Stores, Inc. on May 11, with the deal set to take effect on May 19.^[52][53] Systemax relaunched the CircuitCity.com website on May 22, 2009, as an online retailer of consumer electronics.^[54] Systemax had earlier acquired both CompUSA and TigerDirect separately, which superficially continued to operate as separate online retailers with the same website formats and product catalog along with the new CircuitCity.com site. The revived site's front page initially looked similar to the original front page, while other pages were similar in appearance and functionality to the other two sites.^[55] All three sites eventually transitioned into slightly rebranded mirrors of each other.

On November 2, 2012, it was announced that Systemax would drop both the Circuit City and CompUSA storefront brands, consolidating their businesses under the TigerDirect brand and website.^[56] Customers of both businesses were informed via e-mail on November 7, 2012.

Former subsidiaries

CarMax is a used car auto superstore concept developed in 1991 at Circuit City by Austin Ligon, then Circuit City Sr.VP Planning, and Rick Sharp, then Circuit City CEO. The goal of CarMax was to revolutionize used car retailing through a combination of large selection (400+ used cars at each store); low, no-haggle pricing; guaranteed quality; and a consumer-friendly shopping experience. The first location opened in Richmond, VA in September 1993. CarMax grew slowly for its first four years as the team refined the basic concept, then went public through an IPO as a "tracking stock" (KMX) of Circuit City in February 1997. The offering was managed by Morgan Stanley and Goldman Sachs, and raised more than $400mm for a 20% interest in the company, with Circuit City retaining the remaining 80% ownership. CarMax used the proceeds to repay Circuit City's initial $170mm investment in the company, then used the remainder to grow rapidly, adding 27 more stores from 1997 to 2000, and turning its first profit in FY2001.^[57] Circuit City sold a further 10% of its interest in CarMax in July 2001 for $140mm, with proceeds going to Circuit City. CarMax was spun off from Circuit City in a tax free distribution to shareholders in October 2002 to allow both companies to grow and be valued independently. The stock distribution provided Circuit City shareholders with KMX stock valued at over $1.2bn at the time of the spin off in 2002.^[57]

CarMax continued to grow rapidly to its current 103 used car stores in 49 markets throughout the US in 2010. CarMax will sell nearly 600,000 retail and wholesale cars, and record total revenue of nearly $9 billion in FY2011. At over $85mm in sales per store, CarMax used car superstores are among the highest volume retail stores in the U.S. CarMax, Inc. is a Fortune 500 company traded on the New York Stock Exchange as KMX, and was named one of Fortune's "100 Best Companies to Work For" for the sixth consecutive year in 2010. The CarMax stock distributed to Circuit City shareholders in October 2002 would have a market value of approximately $3.8bn as of at December 31, 2010.

Circuit City Express was a chain of mall-based Circuit City stores with over 55 locations at its peak. The first locations opened in Baltimore, Maryland; Richmond, Virginia; and McLean, Virginia in 1989.^[58] The stores were originally called "Impulse", but were later renamed in 1993 to focus on the strength of the Circuit City brand. These stores focused on small electronic products for personal use or to be given as gifts. Cellular phones were a major focus of the business since all major carriers were sold until the exclusive agreement with Verizon Wireless in 2004. Circuit City Express stores offered Superstore prices and the Circuit City "Price Match Guarantee" in a mall environment. Most of the locations closed in the early 2000s as the original 10 year leases expired.

DIVX was developed by Circuit City and launched in 1997 as a complement to DVD. DIVX discs cost $5 each, but could only be played for 48 hours on proprietary set-top players before a continuation fee was required to continue viewing. The player was connected to a phone line to check whether the disc was still valid.^[59] Opposition to the format and limited acceptance by the public led Circuit City to discontinue the format in 1999. Circuit City took a US$114 million loss to close its DIVX division.

Firedog was launched in August 2006 to provide in-store, in-home, and online computer and home theatre technical support and installation services^[60] in competition with other retailers' consumer and business technical services offerings such as Best Buy's Geek Squad and Staples' EasyTech.^[61] The firedog brand was sold to Firstmark for US$250,000 in September 2009.^[62]

First North American National Bank was created by Circuit City to operate its private-label credit card in 1990.^[63] In 2002, Circuit City began offering a co-branded Visa credit card. It sold both of these operations in 2004 to Bank One (now Chase Bank).

Patapsco Designs was acquired by Circuit City in 1987.^[64] The company was in charge of designing product displays and other electronic services for Circuit City. Patapsco Designs was founded in 1977 and is based in Frederick, Maryland and in November 2004 was acquired by American Computer Development Inc. Patapsco Designs, Inc. filed a voluntary petition for reorganization under Chapter 11 Bankruptcy in joint administration with Circuit City Stores, Inc. in November 2008.^[65]

Logo

• 

  1984–1991

• 

  1991–2001

• 

  Mascot, 1998–2001

• 

  Express, 2001–2004

• 

  Final logo, 2001-2009

Criticism and controversy

In 2005, Circuit City agreed to pay $173,220 in settlement and investigation reimbursement costs due to a false advertising claim in a 2004 New Jersey court case. The court found that important information pertaining to sale items was purposely obscured within the advertisement, thus potentially deceiving customers.^[66]

The same year, Harris and Kaufman, Attorneys at Law, successfully represented a class action suit of Circuit City employees caught in an unfair arbitration agreement. The court's ruling in Gonlugar v. Circuit City Stores, Inc., found the store's arbitration agreement to be "tainted with illegality." The arbitration agreement was found to be so one-sided that it was unconscionable. Harris and Kaufman maintained the arbitration agreement bound only the employee to arbitration, required the employee to pay fees to Circuit City for initiating the arbitration (Circuit City paid no such fee), imposed a shortened statute of limitations on the employee (not on Circuit City), and prohibited class actions.^[67][68]

During the week of August 31, 2007, the California Supreme Court ruled that the Circuit City arbitration agreement, which all 46,000 employees were required to sign, violated the state's labor laws and that Circuit City employees may sue the store for labor law violations despite having signed it. The document requires employees to waive their right to sue their employer and establishes a cap for damages regarding any wrongdoing on the part of corporate or management, which violates California's well-established law on arbitration agreements.^[69]

Circuit City's City Advantage Plan was also challenged in a United States District Court in Massachusetts. The plaintiffs' claim concerned Circuit City's cancellation of its warranty plan without full disclosure of the plan at the time of sale. The plaintiffs cited breach of contract, unjust enrichment, and violation of the Massachusetts Consumer Protection Act. Circuit City requested the matter be dismissed. The court, however, upheld the plaintiffs' claim that the monies paid for the protection plan be reimbursed and credit be issued for non-working goods returned.^[70]

Liquidators handling the sale of remaining Circuit City inventory have also become the target of consumer complaints, not only for often-uncompetitive pricing of items but also for an "all sales final" policy which allows the sale of defective or damaged merchandise at former Circuit City locations with no recourse afforded to the consumer.^[71]

Real estate holdings

Due to the expansion of Circuit City stores in the 1970s-1990s, the company accumulated a surplus of unused real estate with a presence in nearly every major market in the country. Although a typical retail location is approximately 30,000 square feet (2700 m²), the company had numerous freestanding and in-line locations ranging from 2,000 to 50,000 square feet (180 to 4500 m²), and also surplus office, service and distribution locations scattered across the country. During Circuit City's 2005 fiscal year (March 1, 2004 through February 28, 2005), the company disposed of approximately 1.2 million square feet (108,000 m²) of vacant retail space.^[72] In January 2007, Circuit City's vice president for real estate announced plans to open 200–300 stores in the next two years, a large increase from the current trend of 10–12 stores a year.^[73] Due to the economic conditions the company faced, they did not reach that goal. Many of these stores, however, did open in 2008 and operated for only a few weeks before closing. Some were built and never opened and upon the company's declaration of bankruptcy, it was discovered that large expenditures were due to paying leases on buildings that were not even opened to the public.

In January 2010, the main Circuit City headquarters building was placed up for sale. The five-story 288,650-square-foot (26,816 m²) office building, "Deep Run I", had been appraised at $46.2 million. New York-based Lexington Property Trust, defaulted on a $17 million commercial mortgage and the lender foreclosed on the property. An asking price was set at $11 million.^[74][75][76] The former headquarters was sold in September 2010, for $3 million to DRCC Properties, LLC. They also bought the 58 acres (230,000 m²) of land that the building sits on for $2.75 million.^[77]

See also

• Best Buy
• CompUSA
• The Good Guys!

References

External links

Wikimedia Commons has media related to Circuit City.

• Circuit City Stores, Inc. History at FundingUniverse
• Circuit City final home page
• Circuit City's headquarters liquidation
• Op/Ed Inside Circuit City’s implosion

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