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Eight Reasons Why Circuit City Went Bankrupt

For an early case study of how C-Suites need to deal with the financial crisis, consider the case of big box electronics retailer Circuit City that finally went bankrupt this week.
The Richmond, Va.-based firm, with revenues of more than $12 billion, had been one of the pioneers in the 1970s and 1980s in mass marketing televisions, refrigerators, stereos and boom boxes. As such, it was something of a one-stop shopping spot for your typical freshman off to college.

By pushing the big box concept in the 1990s, Circuit City also evolved into a new concept of mass retailing automobiles by building big lot inventories and letting customers select exactly what they wanted by make, color and accessories. CarMax, spun off in 2002, was highly successful, at least until recently.

Over the years, Circuit City built itself into 1520 stores in the U.S. and Canada and 46,000 workers. Competitors popped up, such as Minnesota-based Best Buy and discount club stores such as Costco. Yet sometime during the 1990s, Circuit City lost its way:

  1. It dumped sales of popular appliances.
  2. When it spun off CarMax, it let a lot of talented management go with it.
  3. Stores became too impersonal and too large.
  4. As Best Buy took off, Circuit City became merely reactive and not innovative
  5. To please Wall Street analysts, it went on a store expansion spree that resulted in too many stores in dicey neighborhoods.
  6. To save money, it stopped paying commissions to its sales force and then fired 3,400 of its most experienced sales people.
  7. When the going got tough, too many C-suiters and directors came and went.
  8. Commercial credit became tight.
Finally, after a proxy battle earlier this year which gave outsiders three seats on the board, Circuit City seemed poised for a serious comeback strategy. But the financial crisis hit and with it, the commercial paper crunch meant that vendors were not willing to supply Circuit City with goods, fearing that they'd be trapped if the firm suddenly sold off stores. The firm has announced the closing of 155 stores and layoffs of 17 perent of its workforce.

Bankruptcy protection, filed on Nov. 10, became the only option. Odds are against Circuit City's ultimate survival.

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