Circuit City fires back at critics

Discount Store News, Sept 19, 1994

RICHMOND, VA. -- Circuit City fired back at critics. Some contend that its superstore format and commissioned sales force place it at a competitive disadvantage against the rapid charge of megastore operator Best Buy and mass merchants like Kmart, WalMart and Target.

In a conference call with analysts from investment firm Dean Witter, chairman Richard Sharp and several top executives unveiled the results of a consumer survey showing that shoppers prefer Circuit's level of service over all others and predicted that Circuit will be a $10 billion company operating in 400 markets by the year 2000.

In the research, conducted by an unnamed third party, customers in St. Louis, Houston, Phoenix and Chicago were asked to shop Circuit City and at least one mass market competitor (defined as Best Buy and The Big Three discounters), then report back on level of service.

"Every competitor except Circuit City scored with too little service and too little attention to the customer," Sharp said. "Where 5.0 (on a scale of one to 10) was just right, we scored a 4.8, where even our sales force was a little on the under-attentive side." No survey methodology was revealed.

Competitors, particularly Best Buy, have suggested regularly that their low-pressure, often self-service environments are more conducive to success in the CE field, and that high-pressure environments tend to influence the customer to buy what the salesman pushes, not what the customer really needs.

Circuit has reportedly tested lower-pressure approaches with a blend of commissioned and noncommissioned sales help in markets like Naples, Fla., to respond to that criticism. The company has also taken a step out of the transaction process by allowing sales staff to write up all purchases, which the customer then collects at a pickup area. Previously, customers had to get a transaction report from a salesperson, take it to a cashier, then move to the pickup area.

Sharp also reported that tests of a more self-service environment in some categories resulted in a vote for full-service selling.

"We took a couple of stores and tested taking the telephones ... and some of the boomboxes and walkmans and making them available on a self-service basis," Sharp said. "But having walked into our store, they went over to the TV department or the audio department and dragged (staff) over and said 'OK, now help me with this product.'"

Sharp conceded that many shoppers prefer a self-service approach, and that the growth of "the WalMarts, the Targets, the warehouse club industry, and the Best Buy chain have all created significant pressure," but that "we don't need 100% of the market. We can make a very attractive return for our shareholders with a 20% market share."

Sharp also conceded that Circuit's cost structure makes it tough to remain price-competitive, but that its loyal shopping base guarantees sufficient market share to remain competitive and that its sales force can step customers up to higher margin goods and ensure more accessories sales.

But the major difference between Best Buy and Circuit City is product mix. "What they have is a much, much larger assortment of music software and a much larger assortment of computer accessories and peripherals and computer software," he said.

"We have almost twice the assortment, right on the button, (as Best Buy does) in VCRs, camcorders, televisions, appliances and audio. In our newer stores, we're about equivalent to them in computer CPU hardware, but have not attempted to turn our stores into computer superstores. It's interesting that about half their sales today come out of computers, computer accessories and music software. So they're shifting their business rather radically away from what we consider to be our core categories of audio, video and appliances," he added.

Best Buy, of course, notes that it still sells at least as much in those categories as it ever did, but that the rapid growth in music and computer goods has obscured those results.

Home office, mainly computer products and typewriters, account for 12% (15% in the latest quarter) of Circuit's sales, compared to about 32% of Best Buy's. And apart from recorded music, which is starting from a base of zero, is the only category growing as a percent of sales at the chain.

Although Best Buy is on pace to surpass Circuit and become the No. 1 electronics retailer in the United States, Circuit has turned in extremely strong financial results over the past six months. After a lackluster 1993, the chain has regularly exceeded its profitability and samestore sales projections, often moving into double digits against projections of 5% increases. While the aftermath of the Los Angeles earthquake deserves some credit, the increases were nearly chainwide, Sharp said.

The company's previously announced three-year expansion plan, which will add 180 superstores to its base of 293 stores (252 of those are superstores), should bring the concept to every major market in the United States with the exception of metro New York. The company will enter Kansas City, New Orleans, Little Rock, Seattle, Portland, Ore., and Cleveland this year.