Pundits on Circuit City: a Blockbuster of a Bad Deal

This week, heads were scratched at the proposed tie-up between Circuit City and Blockbuster. "The world is littered with remnants of bankrupt retailers," Michael Pachter, an analyst with Wedbush Morgan, told Reuters. Others looking for a metaphor have mentioned Sears-Kmart. Uh-oh.

Al Lewis of The Denver Post cast a jaundiced eye on Circuit City management:

Last April [CEO] Philip Schoonover ... announced "a wage-management initiative." Schoonover -- who bagged nearly $7 million in compensation last year -- decided that $12 an hour was too much for his salespeople. So he fired 3,400 employees and replaced them with people willing to work for $8. Circuit City's stock then lost 75 percent of its value. All those big-screen TVs, but few employees left who knew how to sell them.

It could be a Harvard Business School case study on how being a ruthless idiot doesn't always work.

There could be some real synergy between these two companies since they serve the same consumer. The problem here is neither company is very well managed. Management at Circuit City has made far too many mistakes in trying to rebuild this once successful company. And they continue to operate the business at a loss. The same is true at Blockbuster.

I believe there is a place in the market for a strong number two consumer electronics chain behind Best Buy, but this deal won't help make that happen.

I think most commentators are missing a key point -- the Blockbuster current model is clearly dying. Circuit City is horribly managed, but the model itself is not anywhere near as clearly dead. So, if you are Blockbuster management, you can either just prepare for the end and just wind down the business over a few years, or try something to keep [yourself] alive. ... Will it work? Probably not. ... But if you are Blockbuster, it is better than certain death.