Circuit City's aggressive turnaround efforts result in 19 closings

DSN Retailing Today, Feb 23, 2004 by Laura Heller

RICHMOND, VA. -- Circuit City announced it will close 19 underperforming stores in 14 states, including two Florida stores that were remodeled in 2000, as the company embarked on it's plan to refresh its store base. Closeout sales have already begun and all stores will be shuttered permanently by Feb. 23.

"An analysis of markets across the country has identified 19 superstores where the trade area can no longer support a Circuit City Superstore, leaving the locations with no reasonable expectation of positive cash flow in the near future," said Alan McCollough, chairman, president and ceo. "The analysis also shows that near-term relocation opportunities do not exist for these stores."

The stores are among the chain's worst performers. "The stores were generating revenue of approximately $151 million, or $7 to $8 million per store," said analyst David Campbell of Davenport & Co. That's approximately half the corporate average of $15.8 million, "and about one-quarter of what Best Buy does per store," he said. These units were generating $256 per square feet compared to the company average of $470 per square feet. In comparison, sales at Best Buy stores average $850 per square feet.

The announcement isn't earth-shattering news. Retailers close stores all the time based on shifting trade areas, but coming hard on the heels of the sale of its credit card business, three-quarters of operating losses and rumors that the company may once again be a takeover target, the move is significant in that it shows Circuit City is getting more aggressive in its turnaround efforts.

"[It's] a step in the right direction," said Dan Wewer, retail analyst at CIBC World Markets. "This indicates a more proactive stance at Circuit City to improve its real estate portfolio."

Circuit City will take a one-time charge of $35 million after tax in conjunction with the store closings in the fourth quarter of the current fiscal year ending Feb. 29, 2004. The costs relate primarily to lease terminations, fixed asset disposals and to a lesser extent severance and other costs.

The closures will not stop or slow the company's store opening program for 2004, when it plans to bow 65 to 70 new stores, roughly half of which will be relocations. Since the beginning of fiscal 2001 through Feb. 29, 2004, 131 stores, or 22% of the company's store base, will have been relocated, newly constructed or fully remodeled. By the end of fiscal 2005, Circuit City expects to have 30% of its store base fit these criteria.

But is it enough to for the company to regain profitability and relevance with consumers?

Mass merchants and even direct sellers of PCs and CE products are increasing their participation in the category and there's a significant difference between Best Buy's position in the CE specialty market compared to Circuit City today, points out Campbell, due to location, marketing, brand name, consumer preference, ease of shopping and store format, he said.

"Best Buy just does better with the traffic-driving items like DVD and music software, they've invested a lot in developing and marketing those items," he said. "The bar is continuing get raised. Circuit City is doing what they need to do and what they should have been doing years ago. Unfortunately for Circuit City, the competition isn't standing still."

Circuit City Store Closings:

* Brooklyn Center, Minn.

* Cape Girardeau, Mo.

* Cutler Ridge, Fla.

* Decatur, Ga.

* Delray Beach, Fla.

* Fairlawn, Ohio

* Federal Way, Wash.

* Fort Smith, Ark.

* Houston

* Indianapolis

* Kokomo, Ind.

* Los Angeles

* Martinsville, Va.

* Niles, Ill.

* Northbrook, Ill.

* Odessa, Texas

* Omaha, Neb.

* Topeka, Kan.

* Trotwood, Ohio