Fixing what ails Circuit City: too darn much proprietary thinking.

I have to admit that while I love gadgets and electronics, I don’t actually buy things very often. I do my bit for the mythical “trickle down” economy in other ways, though, so don’t worry that I’m not helping keep those greenbacks in circulation.
Every few months I go into the local Circuit City just to walk around, talk with the salespeople about what’s hot, and generally be wowed by the rate of technological advance in this hot sector. But here’s a funny thing I’ve noticed is happening at the store…


When I first went into a Circuit City store years ago, I was impressed. It was like going to the Consumer Electronics Show, but with price tags! Cool! Over the last few years, though, the company visibly branched out into newer and less “consumer electronics” goods, with dishwashers, refrigerators, and similar stuff that I look for elsewhere when I’m actually shopping for appliances.
According to an article in Business Week, I’m not alone in noticing the loss of focus that Circuit City‘s gone through: revenue has dropped and Best Buy is now ahead of Circuit City in per-store sales.
Lots of companies go through similar problems as they mature, actually, because the other end of this continuum is “diversity”, a worthy and sensible goal for a larger, established company. This naturally creates an internal struggle between focus and diversity: which do you pick? More importantly, which does your Board pick?
Now, suppose I tell you that Circuit City‘s profit came purely from the sale of extended warranties at its stores (an item that’s almost pure profit, I have an article on extended warranties I’ve been working on for a while. It’ll show up here eventually). If you factor out their warranty sales, Circuit City lost money in the last fiscal year. December 2004 sales were down from the previous year, too, while other major electronics retailers generally had an uptick in their per-store sales.
The company is going through a tough time. Fortunately, they’re starting to understand the importance of the componentization trend famously espoused by IBM CEO Sam Palmisano. What’s amazing is that it’s such a struggle for this otherwise savvy firm to understand the implications of reinventing its business as a series of plug-and-play components, any of which can be outsourced.
It’s a tremendously powerful concept and business architecture, far beyond “process reengineering” or any of the other jargony attempts to improve process flow or tighten a value chain. But let’s stick with Circuit City. Not sure that what I’m saying is accurate? The BusinessWeek article reports that the internal Circuit City point of sale system, called Magellan, has been under development since 1999, has only been deployed in 17% of their stores to date and only has 30% of the features spec’d in the design documents. A miserable IT story, no question.
Fortunately, as I said, Circuit City is starting to get it. They’ve jettisoned their credit card operation, they’ve spun off CarMax (what did a consumer electronics retailer have to do with an online used car store anyway?) and they’ve finally seen the light of componentization and are dumping Magellan in favor of an off-the-shelf point of sale component solution that they’ll have deployed throughout the corporation within 12 months.
Michael Jones, Circuit City’s Chief Information Officer, states: “We are building our model around the technology, as opposed to the technology having to fit the model we have.”
It’s about time, Michael.
Focus. It’s one of the most important challenges for a company, whether it’s two people toiling in a basement or a public company.
The age of proprietary interfaces and internal processes is dead. The coffin nails were hammered in by Amazon, eBay, HP, UPS, FedEx, Ford, and even Eli Lilly, companies that have fully componentized businesses, and then have been able to leverage this evolution and seamlessly outsource non-mission-critical business services. Do you think Amazon ships books? HP fixes its printers? Gibson guitar tunes its instruments prior to shipping them to their customers? All of these are outsourced.
Circuit City, welcome to the twenty-first century. Your growth awaits you, as does a brave new world of consumer electronics and technology.

21 comments on “Fixing what ails Circuit City: too darn much proprietary thinking.

  1. Fixing what ails Circuit City: too darn much proprietary thinking.

    I have to admit that while I love gadgets and electronics, I don’t actually buy things very often. I do my bit for the mythical “trickle down” economy in other ways, though, so don’t worry that I’m not helping keep those greenbacks in circulation. Ever…

  2. Circuit City is not the only one making this mistake. Office Depot is trying to keep a lot of customers interested by having a few technological items. One major mistake Office Depot is making is not listening to a technical person such as myself and stock items that the conumer can really use. I know Office Depot is more a Office store than a Techonology store. Like the Salespeople at Circuit City I have to suffer when customers come to me for technological help. I hope they will finally catch on. It doesn’t matter to me much anyway because I will soon be resigning from Office Depot this year.

  3. Thanks for the post, Robert. I’m unsurprised that the agents in the field, the people who are meeting the customers face to face, aren’t the ones making the big buying decisions with technology at Office Depot. As companies get bigger, and particularly with franchises, standardization becomes more important than flexibility. And so you end up… where you are. Good luck on your next venture. You sound like just the kind of zealot that will do well in the marketplace of ideas!

  4. This would have had more credibility if you would have not missed that Circuit City spun CarMax off a few years ago. They have nothing to do with them anymore.

  5. Thank you for that clarification, Charlie. I’ve updated my article to reflect the spin-off of CarMax. However, I’m curious that one small fact is sufficient in your mind to shoot down my credibility with this analysis. Perhaps you’re worrying about the messenger, not the message?

  6. Circuit city lost everything when they made a very wrong decision of firing all of their best salespeople when they made the switch from commission to non commission. Lets face it $10 an hour kids don’t care if you buy or not. they (Circuit City) are in big trouble. They will not last long.

  7. I’m not entire sure that I agree with you, Kevin. While commission-based salespeople are obviously incentivized to be more aggressive in their sales, it can be quite a turn-off for customers who dislike aggressive sales techniques, and that can, in the long term, adversely impact sales.
    Further, from what I’ve read about Circuit City, their sales people still have quotas and received bonuses for meeting or exceeding quota. So they should still have an incentive, without having to worry about too many variations in their paycheck due to sales, competition and factors out of their individual control.

  8. I have worked at circuit city since 2000 and I would like to clarify a few points. Circuit stopped selling appliances before I started with the company, and switched from commission to hourly in february 2002. Anyone who criticizes them for cutting commission obviously doesn’t realize that Best Buy seems to be doing just fine using that business model. The problem with paying hourly doesn’t come from lack of motivation from the sales force, but comes from the fact that it gives the company an incentive to understaff the sales floor which decreases the stores’ ability to grow same store sales year to year. And there are no bonuses paid to “product specialists”. The only thing close to that is an annual shrink bonus based on how far under the budgeted level the store finishes the fiscal year. This amounts to maybe 1 or 2 hundred bucks at the most. And please feel free to contact me for information about the gurantees that we sell with our products..I would be happy to give you any information that you would like.

  9. ********************THIS COULD HAPPEN TO YOU******************
    October 5, 2006
    Our Church purchased a Hitachi 42 inch plasma TV, Model 42HDS52, from Circuit City and paid $2849.99 on 8/26/2005. The Television never worked correctly.
    The left speaker often buzzed, and the picture didn’t seem to be any better than a very cheap TV. The store was called, and we were told that since we hadn’t reported the problems within 60 days we’d have to deal directly with Hitachi. Hitachi told us to contact Alex Audio Video and informed us that they were the ONLY authorized service center for our area.
    Alex Audio Video, said they?d pick it up, do the repair at their facility, and return it promptly. We told them we’d like it back for the 4th of July because we had something we’d like to watch at that time. They said, “That should be no problem”. They finally sent someone to pick it up in late June 2006, well within the warranty period. The Forth of July Holiday passed, and the TV was not returned.
    The service center informed us that there were no speakers available for the TV, and they would have to be ordered. When weeks elapsed, and we?d heard nothing, they were again contacted. We were now informed that the speakers had come in but that there was an additional problem. It seems that there had never been a ?high definition digital signal? because of a problem in the manufacture of the digital circuit board (thus the poor picture quality). They said they’d have to order one. Weeks elapsed with no word. When we again contacted them, they said there was not a ?digital circuit board? available anywhere in the United States, and that it would have to be ordered directly from Hitachi.
    Finally, by mid September we had expended all our patience in dealing with Alex Audio Video, Circuit City Store 3624, Circuit City Corporate Headquarters, and Hitachi. We had paid $2849.99 for a new plasma television, and had nothing to show for it.
    We had the expectation when we initiated the purchase from Circuit City that we would receive a television that worked properly.
    We also had the expectation that Circuit City would deal ethically with us, and that should anything should fail to function correctly, that Circuit City would promptly “make it right”.
    Neither of those expectations was met.
    The television for which we paid $2849.99 has been under the control of Circuit City, or their authorized service center for one fourth of a year. Circuit City (along with their authorized service center) had our money, and our television.
    Out of frustration, we contacted Circuit City and told them, that since we were making little if any progress in getting the television repaired, we no longer wanted the television. We explained that we had purchased the television to watch, and that it wasn’t doing us any good, since it had been in their service center for 3 months.
    Circuit City told us that they were not going to do anything about our problems. They claimed no responsibility for selling us a faulty television, and were very “curt” with us, and were told that they had no responsibility (even though their store had sold us an improperly manufactured television). They told us to go ahead and file a lawsuit against them if we wanted to.
    At that point, we asked store #3624 for Circuit City Corporate address for “Service of Legal Papers” (we were in the process of preparing documents for the filing of a law suit). They claimed not to know the address. Another time that we asked, they would not give us the address, but told us to have our lawyer contact them for the address. We finally went in to the store and demanded the address of Circuit City Corporate from Mike Arndt, Sales Manager. Very reluctantly he gave it to us.
    We also contacted Hitachi and asked for their legal address. Hitachi acted very concerned with the way we had been treated by Circuit City, and asked if we’d give them some time to try to work this out. We did so.
    Hitachi said they would issue a “Merchandise Return Authorization” to Circuit City, giving them full credit for the television. They told us that we could then go into the store and use that credit toward the purchase of another television.
    Mike Arndt, Sales Manager for Circuit City Store 3624, called us on September 29, 2006 and insisted that we go to Alex Audio Video and pick up the television and return it to his store. We returned the TV to the store on on September 30, 2006. Circuit City has possession of both our $2849.99 and the television.
    Mike Arndt called us on Tuesday, October 3, 2006 and told us that Circuit City was issuing us a credit for only $1750 toward the purchase of another television., when we?d paid them $2849.99.
    Circuit City plans to confiscate $1099.99 of our money, after selling us an improperly manufactured television and dragging their feet for over 3 months to settle the matter, while we’re without a television. (And now, they want to allow us only 61% of what we paid them.)
    After discussing this with only two other people, I was shocked to learn that both had experienced similar horror stories in dealing with Circuit City, and had vowed to never enter another Circuit City store.
    This could happen to any consumer. Circuit City apparently is only interested in getting the consumer’s money, and apparently has no intention of serving the customer, or rectifying any wrong that has occurred.
    Unfortunately, Circuit City has just thumbed their nose at us, and insulted us with an offer of 61% of what they charged us for the television … after having it in their authorized service center for 1/4 of a year.
    Every potential customer should ask himself or herself, “Since there are so many reputable companies that sell high end electronics, is it worth taking a risk to deal with Circuit City? Am I willing to just hope and pray that everything works correctly, and that I won’t need any help ? once Circuit City has my money? Am I willing to give Circuit City my money, wait for a fourth of a year for the item to be repaired, and then be insulted by Circuit City offering me 61% of what I just paid them?”
    In a discussion with Hitachi on October 4, 2006, we were informed that Hitachi had credited Circuit City with the full amount of their purchase, and that the insulting 61% offer was from Circuit City … and not from Hitachi.
    We just wish we’d heard those other horror stories before we did business with Circuit City; maybe it would have saved us from this experience.
    Oh well … maybe our sounding the alarm, will cause others to check out Circuit City’s reputation before laying down their hard earned cash … and loosing it.
    Maybe we can turn our sorry experience with Circuit City into a positive. If making our experience known to others, saves them from falling into the same trap as others and ourselves… then some good will have come from this terrible situation.
    Meanwhile, we will do everything in our power to recover our attorney fees, court costs, the $2849.99 we paid Circuit City for a properly operating TV, and reasonable compensation for the months of phone calls, time, and loss of our television.

  10. Beware of the so called replacement protection plan that Circuit City offers…My first ipod had defects … sent it back. They sent me a refurbished that doesn’t work properly … and now they tell me I am stuck with it… My first one was only a couple of months old … the one they sent back it only lasted 3 months. yes not even a year into this “protection Plan” I have paid for a product that won’t work! This is only the extremely short version of my headache, I haven’t even begun to list the numerous individuals I have talked to on the phone… I just wanted use a product that I paid with my hard earned money … instead they make the customer feel at fault for a defective product… I wish I had read other people experiences about Circuit City before shopping there… I am now shopping else where … any suggestions.� Best Buy? Anyway thanks for letting me vent … by the way any successful experiences with MP3 players… I need a new one!

  11. first of all for world outreach. if you had a problem why not contact circuit city immediately or at least with in 30 days for replacement. unfortunately you ran into a service center that hitachi uses not circuit city and the gave you the run around. sounds to me that you should only be mad at yourself for being to lazy to exchange the tv in time. I mean come on 30 days is plenty if the problem was immediate like you say. I bet you lost any type of laysuit you filed because your unreasonable. Sounds like you would expect them to give you a tv even if you were out of warranty.
    The best option for you is to calm down and look in the mirror to see who should really be blamed

  12. In light of Circuit City’s recent announcement to fire 3400 employees because they “make too much money”, I will no longer patronize them. This is one of the problems with American Business today, screw over the employees… well I work for a company who’s doing the same actions, and it’s hurting the company big time.. They can no longer retain their experienced employees, and the younger ones don’t know enough to support the customers. Now customers are leaving in droves… the company is now going through it’s death ..

  13. Hi Michael:
    I worked for Circuit City for nearly 10 years and was layed off recently. You are absolutely correct that the extended service warranty is 100% profit for Circuit City. I would like to let consumers know that thier warranty is not all that you are led to believe. Beware of associates calling you after a purchase to encourage you to buy the extended warranty.
    You will not get a new tv if they cannot fix it.
    You will not be eligible for a loaner tv while your unit is being serviced. The warranty states that your product will be replaced if it is not repaired within 7-10 business days. This is not true. Not only is it not true, your unit could be out of service for months waiting on a part to arrive. The replacement plan doesn’t actually replace the unit, you have to mail it off and wait for a gift card in the amount of the purchase to go back into the Circuit City store to purchase another one. That’s if they still have it in stock. Yes, and recently if you purchased the warranty on an Ipod, they will send you a refurbished one, not a new one. Not only does Circuit City screw thier employees, but you also could be screwed as a consumer.

  14. Circuit City is the biggest liar in the world–I ordered a telephone from the company on August 5,2007–got an email that it was being Del–via FedEx–yea right!! Delivered to Atlanta, Ga via FedEx to be picked up one week later by the local United States Postal Service. I try to have all my packages delivered to my door–I am 75 years old and use a walker. I do not have the package yet! When it arrives, I will skip downstairs swing it over my back and use the stairs to get back to my apartment…The Walker………..oh yea I forgot.
    I could have received a package from Australia by this time…
    Screw Circuit City….oppppppps sorry! Out of the mouth of an old lady—I am young @ heart.

  15. Circuit city fails miserably at customer service. I bought a Siemens Speedstream DSL modem last year. It died last week: under the manufacturer’s warranty. Problem: After over a dozen phone calls I eventually squirreled out the info that Siemens stopped making this model three years ago, so they refused me warranty service. Despite the manufacturer leaving me holding the bag, Circuit City refused me repair service because I hadn’t purchased the “extended warranty” even though the modem was still within the original warranty. They refused to make an exception to their policy even though they sold me the product.

  16. This is in reguards to all the layoffs at ccity. What a joke have people seen how much Philip Screwover earns? Bet he feeds his family very well. What was done to the loyal employees at ccity is a disgrace. Don’t make Philip Screwover any richer. Shop else where. LMJ

  17. To everyone who has posted about a bad experience with circuit city. I for one am currently employed at circuit city because I just finished college and needed a job asap regardless of what it was. First and foremost, trust me I couldn’t care less if you chose to shop at circuit city, however don’t base your experience from one curt manager on your continued shopping. Furthermore, in regards to the persend with the modem issue. I feel your pain, however at least 5 people come in every day when im working trying to get something fixed for free because they didn’t buy the protection plan. It’s not my fault you figured your 350 dollar p.o.s. computer broke and you wouldn’t get a protection plan. Oh no, now you have to pay 60 dollars for a diagnostic fee plus 99 for virus removal because you were looking at porn and got a virus. Suck it up people. Its technology and things break. BTW, I NEVER push people for protection plans. I offer and tell them what they get for the money if they inquire, but especially with computers things happen. Buy it at circuit city, best buy, staples, anywhere odds are it will break eventually, and more often then not sooner then later.

  18. Circuit City hell!
    Their Customer Service and Rebates Department are STEALING FROM ME. Don’t let them bounce you around like they did me – they have no recourse. I am going into their store tonight to raise a big stink, and, if nothing else, turn some otherwise paying customers away. They have cheated me out of money and now time, putting me on hold, emailing me with “Thank you for contacting the Rebate Center. We apologize for the inconveninece” over and over, as well as giving me old toll-free numbers which no longer do what they claim. I come up with an easy solution, and they reply “Dear [my name]
    Thank you for contacting the Rebate Center. We apologize for the inconveninece. Unfortunately, we are not able to answer your question as we only have information about rebates available to us. Please contact (800)843-2489 for the assistance you requested.
    If there is anything else we can do to assist you, please contact us at cc_consumer@parago.com. We are always happy to help.
    [name]
    Promotions Customer Service”
    I call their store and get put on hold indefinitely. One time I was put on hold until the store closed. F them! They’ve earned a little noise – public nuisance arrest, be damned!!

  19. If you think you have heard it all, listen to what a friend told me about Circuit city, much of which I have been able to verify. What Best Buy does, I don’t know, although it seems to be less atrocious at first glance
    Go buy an extended warranty on that laptop computer. 50-60% of it is pure profit for the store, according to a business magazine article a year or two ago, about 25% goes to an administrative company. Only 20-25% actually goes to the outfits that fix the computer if they have to send it out. Bottom line, you are betting 3 to 1 against yourself. A fair price for a $300 warranty is, in my opinion, about $100, but they have the right to charge what they want, and you can always say no.
    But now it gets sticky. If you come in with your warranty to get your computer fixed, they will charge you $60 for a diagnostic, and $100 for checking and removing viruses and spyware and generally fixing failed software, apparently even if you have an inforce extended warranty. Did they tell you when you bought the warranty that software problems are not covered? Yes, they say they will return the $100 portion, if the problem is covered hardware, but they already have your money. What chance do you have against them if the employees are under pressure to make budget? Additionally, if the problem is viruses or spyware, they while they remove it for the $160, they do not install preventative anti-virus and antispyware software. Assuming lack of that software is why you got the problem in the first place, they will be glad to install that software for about $150 MORE, btw that is a reasonably fair price on this one. And in my personal experience, most all the problems I’ve had with PCs have been software related.
    The old motto applies – let the buyer beware.
    The new motto applies – don’t listen to what they tell you extended warranties cover – ask forcefully what they do not cover – software, virus issues, accidental damage, hardware when software is an integral part of the hardware. BTW, they do offer extended warranties that cover physical damage and presumably abuse. The cost is usually about an additional 50% on the warranty, and I don’t know – perhaps someone else can comment – what is legitimate damage, and what might be considered uncovered abuse. A gray area here.
    Yes, btw, circuit city does have an option to purchase online / phone tech support for software problems. Something like $90 for 6 months, though I may be wrong on the amount here. Hopefully, you can understand the person’s english on the other end despite his Indian or other accent, follow his instructions so he can actually gain control of the machine remotely, and of course what they do if the problem is viruses I don’t know, other then tell you to go get, install, and run anti-virus software to clean it up if possible. Good luck on this one, and have we all had experience talking with overseas service bureaus, not only re language issues, but just how long will you be on the line waiting for them.

  20. Just wanted to say, that extended warranties should be exactly that and should not differ from the manufacturers guarantee. Also the manufacturers should take a greater responsibility for the goods that they sell, especially the high ticket items.

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