Is Circuit City in danger?

Circuit City is about to post yet another loss for its fourth quarter. And as Don Reisinger points out, the company better fix things quickly if it doesn't want to join CompUSA as another victim of Best Buy.

According to a recent report fromIna Fried, Circuit City is having quite a bit of trouble turning a profit and making something out of its business.

Fried reports that the big box retailer will post another loss for its fourth quarter (its busiest) after a staggering $208 million loss over the past quarter. Even worse, the company's stock price is floundering at just $4.75 and once it posts these losses, look for that to tank even further.

Of course, the story doesn't quite end there. Circuit City's major competitor -- Best Buy -- is enjoying a $52.48 stock price and a $228 million profit last quarter alone. Amazingly, Best Buy posted a $1.377 billion profit over the 2007 fiscal year, while Circuit City is poised to lose about $200 million during its own year.

And while Circuit City is still a major retailer with about $12 billion in revenue, it can't sustain these kind of losses if it wants to even have a fighting chance to stand up to the Best Buy juggernaut. After all, take a look at CompUSA and try to tell me Best Buy isn't capable of outright destruction of any and all opponents.

It may happen sometime down the road, but trust me, if Circuit City doesn't change its ways, look for it to be just another victim of Best Buy.

If you've spent any time in both Circuit City and Best Buy, the differences are staggering. First off, the former's store is much smaller than the latter's and overall, Circuit City's experience doesn't quite compare to Best Buy's.

More than anything, the issues Circuit City seems to be experiencing have nothing to do with Best Buy and everything to do with an entirely different corporate culture. Instead of offering a huge selection of products at a reasonably affordable price (for a brick and mortar retailer), the stores are nominally better than CompUSA and it fails to create any sort of benefit over Best Buy and online stores. Simply put, why shop at Circuit City if you can go to the Best Buy down the street?

Of course, the company's CEO Philip J. Schoonover agrees: "We believe that these issues are primarily self-induced and are within our control to improve," he said.

So what can Schoonover and his cronies do to save Circuit City? Unfortunately, the answer isn't quite so self-evident. Generally speaking, he probably only has two options: change the entire operation of the store so it creates a more unique experience than Best Buy (one-on-one care of customers, special deals and more profitable products) or he can take most of the business online.

Sound a bit radical? Well, why shouldn't the company be thinking radically at this point? With a competitor kicking it in the pants at every chance it gets, why shouldn't the company close all losing stores and take all of that stock online? Think of it this way: it has the physical infrastructure in place and its online store is actually growing. By reducing overhead, the company should be able to reduce prices to more competitive levels and become a hub for electronics lovers on the Internet.

Even better, this would also help it differentiate itself from Best Buy, which currently relies more on brick-and-mortar than its online space and with profitable brick-and-mortars still up in cities all over the country and a profitable online store running on all cylinders, Circuit City could turn things around quite quickly.

Simply put, Circuit City cannot become content to stay as the second-place electronics retailer and let Best Buy run circles around it. Instead, it needs to find ways to jumpstart its business and take Best Buy for a ride for once. If it doesn't, look for it to go the way of CompUSA.

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About the author

Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.

 

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