Circuit City: Did Multichannel Best Practices Make A Difference?

Circuit City will close 155 stores. Here's how folks on Digg feel about the news.

Circuit City is loved by multichannel experts, pioneering buy-online-pickup-in-store programs that allegedly fuel the "clicks and bricks" advantage for retailers. Check out this presentation from March 2008, promoting "How Web Savvy Customers Are Radically Transforming Retail". In the presentation, Circuit City is lauded for a smart integrated channel strategy.

On the Circuit City homepage today, you'll find free shipping or twenty-four minute in-store pickup. And the brand offers the same price across channels, a strategy the experts love.

Circuit City is doing so many of the things that the experts tell us we must do --- this leader tells us that Circuit City generates an additional $154 from each of these wonderful cross-channel customers. And yet, comp store sales are awful. Online, however, traffic is comparable between Best Buy (via Quantcast) and Circuit City (via Quantcast).

So how is it that all of these brilliant strategies, promoted by so many smart people, result in a brand that generates half the sales per square foot of Best Buy, leading to a decision to close 155 stores? Heck, from 2004 until recently, Circuit City was led by a former Best Buy VP of Customer Segments, and the brand struggled long before deciding to can the 3,400 highest paid employees in 2007.

How does a brand fail when it essentially sells the same merchandise as a key competitor, and executes the multichannel strategies demanded by industry leaders while competitors do not execute similar strategies? Either the strategies don't work, or the strategies have little relevance compared with in-store execution and customer service and store location. Either way, why invest all this effort if it doesn't translate into measurable sales per square foot increases, online conversion improvement, or comp store sales increases?

Now somebody might say "Yabut Circuit City comps would be really bad without these strategies". And that person might be right.

But isn't it time to question what we're being sold? Isn't it prudent to question established best practices? Might it make sense to question the motives of the folks telling us what multichannel best practices are?

Multichannel Forensics studies suggest that multichannel marketing strategies are less important than customer migration patterns across channels. If channel migration patterns result in the customer landing in a channel (retail) that does not resonate with the customer, then the entire multichannel ecosystem (and corresponding strategies) break down. We just don't think about the entire ecosystem often enough, we don't think about the consequences of a hole in one part of the ecosystem.


This isn't about me, however, and it isn't ultimately about Circuit City --- it is about you.

What do you think about the multichannel strategies we're taught to execute? Do they matter? Have they been proven to increase comp store sales, online conversion rates, sales per square foot, or spend/profit per customer? Would you execute multichannel strategies, or would you pare them back in favor of brilliant merchandising and execution and expense management and customer service?

What would you do to re-invigorate Circuit City business performance?

Give Me Someone To Believe In

Last week, Dell agreed to sell computers in Wal-Mart stores, even though management repeatedly assured us that they are a direct-to-consumer brand.

The punditocracy tells us we need to emulate Circuit City and their "Buy Online, Pickup In Store" multichannel program. Yet, Circuit City is fighting to stay in business, as sales sag. Weren't we told that multichannel customers were the best customers? If Circuit City provides a great multichannel experience, then why in the heck aren't they swimming in a pool of profit produced by a ton of multichannel customers, the most valuable of all customers?

Of course, Circuit City competes with the successful Best Buy chain of electronics stores. The punditocracy tells us we should emulate Best Buy's "Customer Centric" approach to store design. On the surface, that would seem like a good idea, because they're killing Circuit City. And yet, Best Buy is accused of allegedly implementing a "bait and switch" program, whereby customers saw one price online, then were shown a higher price in an in-store online version of the website. If this is true, how "Customer Centric" is that? And if the lawsuit is proven to not be valid, the small number of customers who received a higher price did not receive a "Customer Centric" experience, did they?

Dell, Circuit City and Best Buy are "brands" that have a veritable plethora of hard working, earnest employees, all trying to do what is best for their customers and shareholders.

Each week, the punditocracy tells us who we should emulate, and why. All too often, their logic is flawed. We shouldn't copy Dell and their direct-to-consumer model. We shouldn't copy Circuit City and their "Buy Online, Pickup In Stores" program. We shouldn't copy Best Buy and their "Customer Centric" approach.

Instead, believe in yourself, and do what is best for your "brand". Give me someone to believe in --- YOU!!!

Do You Use Algebra In Your Everyday Life? How About Multichannel Forensics?

You probably recall your teacher telling you that you'd use algebra in your everyday life. That seemed like a stretch, especially when trying to solve the equation 4x - 3 = 13.

Kids and adults may feel the same way when taught Multichannel Forensics. Yet, there are all of these interesting things happening in our everyday lives that are well explained by this framework.

Circuit City: You're responsible for selling compact disks. Not many people buy these things anymore. Are customers transferring sales to other departments in your store? Do they still purchase other products in your store? When is the transfer so great that sales per square foot drop below acceptable levels? The same theory can be applied to non-HD 27" tube-based televisions.

Toyota: Are Corolla customers in equilibrium with Hybrid cars? And if so, is the rate increasing to the point where customers will transfer out of one category, into Hybrids? Is there a price point ($5.00 gas) that accelerates transfer?

Safeway: When a customer purchases organic merchandise, how does behavior change? Does that customer exist in equilibrium with traditional brands, or does the customer isolate herself in organic foods? And if the customer isolates herself in organic foods, what does that mean for the products she used to purchase, especially if more customers transfer out of traditional brands?

Comcast: Within the course of ten years, many Americans chose to trust Comcast with HD, Digital and Basic Cable, a DVR, their Telephone Service, and Broadband Internet. Can Comcast forecast a five year sales trajectory by product line, and are there enough new customers available to sustain long-term growth?

Your Input Needed: Circuit City

Recall that Circuit City elected to eliminate higher-paying positions on the sales floor of their stores.

In a transcript of their fourth quarter earnings results, management states that "There is no data in the company’s analysis that the service level has dropped due to the absence of the top paid employees."

Here's where I'd appreciate your input.

• Do you believe that a company can provide the same service levels without the store employees who were compensated the most (increased compensation would imply more talent or more experience)?

• If you were Circuit City management, what would you do to compete against Best Buy and web-based electronics retailers? What would you do from a merchandising, pricing, service, in-store presentation, or strategic standpoint?

Best Buy Verses Circuit City

Best Buy and Circuit City are both leading multichannel retailers. Each chain features hundreds of stores with the latest electronics and entertainment. Each chain features websites with above-average functionality. Both chains lead the multichannel industry with buy-online, pickup-in-store functionality, thereby cancelling out any possible multichannel advantage. Both chains feature a similar merchandise assortment. Both chains have similar pricing on common items.

So why do you, the loyal reader and avid multichannel consumer, choose one of these retailers over the other? When everything between the chains is essentially the same, what causes you to pick one over the other?

If Best Buy verses Circuit City were an election, I'd give the nod to Best Buy, by a 51-49 margin. I don't dislike Circuit City. I just ever-so-slightly prefer the layout of a Best Buy store, I prefer the lighting, I prefer the signage.

In a world where everything is essentially the same, the experience becomes so vitally important, because it is the only thing that differentiates one business from another.

What do you think? Which chain do you prefer, and what is your reason for your preference? Is there anything that Best Buy or Circuit City does that places one ahead of the other in your mind?