Circuit City Charges Forward
By George Anderson
In case you hadn’t noticed, Circuit City is on something of a tear.
The consumer electronics chain has put together a plan that promotes better store level execution and customer service responsiveness to drive its top and bottom lines.
Bear Stearns analyst Dana Telsey is one who has noticed the marked improvement in Circuit City.
“The transformation of Circuit City into a good company from an underperforming one should drive further strong stock performance in a classic multi-year turnaround story,” she
wrote in a report to investors.
Sales of digital televisions and other popular consumer electronics should help Circuit City maintain its strong performance in 2006. Ms. Telsey expects Circuit City to earn
$1.02 a share in 2007 and $1.28 in 2008. She previously had the company’s earnings projected at 98 cents and $1.16 for the two years.
Moderator’s Comment: What is the Circuit City turnaround story as you see it? –
George Anderson – Moderator
Circuit City has made progress because they seem to listen to their customers. One major improvement they have made is reeling in the manufacturers who utilize rebates as a deceptive marketing tool.
Circuit City has greatly reduced the rebate hassle and the rebate deception. Their efforts in this area alone have turned me into a fan of their stores. Now if they could work on the loud music, the staff, the selection and the prices I might shop there. They are a great place to go to look at product before you buy it over the net for 20% to 30% less than they charge.
Circuit City has suffered from the same malaise as other consumer electronics chains – selling practices, such as rebates, extended warranties, and pricing games that tend to undermine consumer trust. Otherwise exemplary interpersonal service practices will not undo the bad feeling a customer gets when asked to pay $16 to protect a $110 electronics item from failure within a year. And the unfinished, uncertain feeling you get when leaving the store with a wad of duplicate receipts and rebate forms is a loyalty killer. (Rebates separate customers into “chumps” and “gamers” – who wants either type?) Throw SPIFs and sales commissions into the mix and it’s a laboratory for caveat emptor.
So here’s my recipe for a better Circuit City:
1) Reject all manufacturer rebate programs – insist on their value dropping to the net/net/net cost of goods. Then shout it loud to all the land.
2) Post item prices with and without available service contracts or extended warranty, so consumers can think over their value judgments before the sales person has swiped their credit cards.
3) Provide a printed service menu for common delivery, installation, and troubleshooting services. Include a prominent, generous, service quality guarantee.
4) Turn sales people into customer advocates: eliminate commission selling, raise base wages slightly to make the job attractive, and create a storewide bonus pool based on total store performance (sales volume and service quality rating).
This is news to me, as experiences I had in 2000 (buying a standard, $250 TV) and 2001 (desktop computer) poisoned me so much against the chain that I haven’t set foot in a Circuit City since then. I’m sure I’m not the only one they’ll have to convince to come back into their stores. If things really have improved so much they should make this renewed commitment to service the central focus of their advertising. Meanwhile, an unpleasant experience at Best Buy over New Year’s weekend will keep me from their stores for quite some time.
I was speaking with a neighbor who manages a Circuit City, relating to him the difference that I’ve seen between Best Buy and Circuit City in Customer Service; the example was something that happened this Christmas, where I asked a Best Buy employee about seeing a certain TV plugged in so I could determine if it was a good TV (it was in a box, and had no display). The kid really wanted to help me, but wasn’t allowed to take it out of the box. He asked another employee, but both agreed that policy wouldn’t let them take the product out of the box to show me. I wrote BB about this, saying that they need to give the stores policies that let them take care of the customer; their reply was a standard email that didn’t address what I wrote about. I spent my Christmas money at Circuit City.
One item that my neighbor brought up is the collapsing of the high-end in electronics; he motioned to a TV that was selling for over $3K, telling me that he never would have carried that before, as consumers would go to places like Tweeter for something that high end. Now, they go to Best Buy and Circuit City for those purchases, undercutting stores like Tweeter. Possibly, we could see only Category Killers and audiophile shops in consumer electronics.
Shocking. A company realizing that improving customer service responsiveness can drive its top and bottom lines. OK, didn’t mean to make fun, but is this really something retailers are still confused about?
A national survey conducted a couple years ago indicated that while 90% of Consumer Electronic Store customers were “satisfied,” less than half were truly loyal to their supplier. What is the top driver of loyalty in the Consumer Electronics industry? Being customer focused, defined as being easy to do business with and caring about the customer. Being customer focused was shown as being more important to customers than the brand, the overall quality of the retailer, the company’s reputation, even the overall cost of the products or services purchased.
This same study also showed that four in ten customers were willing to pay a little more for qualified sales assistance, an opportunity for organizations like Circuit City to move away from “guaranteed lower prices” as a key to bringing in and keeping customers.
Companies that concentrate on delivering world class service to their customers will differentiate their organization from their competitors.
In the past, most Circuit City profits came from the extended warranty service plans, not the equipment sold. Circuit City profits have improved lately because of the growth in high-end technologically advanced televisions. Circuit City needs its own answer to Best Buy’s Geek Squad. Many customers don’t want remote fixes. Many customers, especially older customers, don’t want to “bring it in” for repair, either. They’re willing to pay for on-site technician visits. Circuit City could private label other companies’ technician networks and create their own Geek Squad to service offices and homes. When Dell was young that’s exactly what they did. Service work ties up no capital, has no markdowns, and reinforces a customer relationship.
I have long felt that Circuit City doesn’t get nearly enough credit for the customer service and multi-channel initiatives. Best Buy’s Geek Squad, etc. gets better press, but except for their 30 new stores (which I have yet to see), I still find their service lacking, their in-stock position weak, and overall experience unimpressive.
Circuit City’s biggest problem is actually their store locations, which tend to be just slightly harder to get to than Best Buy’s, whose stores are usually available through easy off-ramps. The Circuit City entrances appear to be more complicated or harder to find.
The move to customer-centricity is just beginning.
James Tenser, regarding your comment below: Circuit City eliminated commission selling in February 2003, and also laid off some of their best and top-paid associates as part of the move. They did raise base wages to make the job almost more attractive (for kids anyway), or as a last resort job for your formerly-rich IT professional who was laid off during the dot-bomb or something. Storewide bonus pool based on total store performance? Well, right now only management gets all that good stuff and associates are just there to make the bonus for their managers while getting their very attractive $9-10 or so an hour.
Overall, Circuit City is really trying to change their culture and we’ll see where it takes them.
Thanks for setting me straight on the commission facts, PrinceOfD. Too bad CC hasn’t yet found a way to extend incentives to its store level personnel. In my experience, valued employees provide valuable service.