Essay: Circuit City Best Buy

Circuit City Best Buy

Circuit City

Introduction

Many companies are good companies, but few are great companies according to Jim Collins, the author of Good to Great. Our focal company throughout this research paper is Circuit City, one of the eleven good to great companies discovered by Collins and his research team. Our main focus is on Circuit City, but we will also look at a company in the same industry as our focal company, Best Buy. Best Buy will be considered as our comparison company.

Circuit City

History of Focal Company: Circuit City

Samuel Wurtzel founded Wards in 1949. He came up with the idea when he was discussing business with a barber in regards to a new television station opening up in the South, more specifically in Richmond. The first store he opened sold only television sets and his idea worked out great! He then expanded and within a few years had a total of four Wards stores that sold television sets, but home appliances as well.

In 1961, Wurtzel made an initial public offering (IPO) and sold 111 000 shares for $5 375. With this capital, he expanded even more throughout the 60s and 70s by opening up even more stores. He also started buying many department stores in the Richmond area and started selling furniture and automobile parts. He was trying to expand fast and it was working out very well for him and his company. In the late 70s, Wurtzel was confronted by a small problem: continue opening up small stores where he sold television sets and home appliances along with buying department stores where he sold furniture and automobile parts or focus on creating a Circuit City superstore concept. He took the risk and started opening huge Circuit City stores; this is when Wards changed to Circuit City!

By the mid 80s, he had over 100 Circuit City stores across the US and mainly focused in the retail market of consumer electronics. Around that period, they also made over $246 million in sales! They were also featured on the New York Stock Exchange (NYSE). They decided to start a new concept, but similar to the one already in place. They opened CarMax, huge car lots across the US with used cars of great quality. After only one year, they made $55 million. They continued to grow and by 1999, they had revenue in the billions of dollars, $10 billion to be exact. This included Circuit City and CarMax. They also introduced their website in 1999 which helped generate online purchases.

In 2004, Wurtzel and his billion-dollar company headed north to Canada where they acquired InterTAN, Inc. This was another chain in the consumer electronics industry just like Circuit City so they focused on expanding, but by remaining in a market they knew so well. InterTan sold consumer electronics just like Circuit City. They owned 954 retail stores and they also owned 93 Rogers Plus stores and 21 Battery Plus stores.

Today, Circuit City isn’t alone in the consumer electronics industry. They have competitors such as Comp USA, Wal-Mart, RadioShack, Amazon.com and finally, Best Buy. Best Buy will be our comparison company for this research paper.

History of Comparison Company: Best Buy

Richard M. Schulze founded Sound of Music in Saint-Paul, Minnesota in 1966. He sold home and car audio, but his main clientele was young adolescents. He made $173 000 within his first year. He then decided to target consumers with a higher income by adding VCRs and home appliances to his line of products. His sales increased dramatically and by 1983 had reached $9.3 million.

In 1984, Schulze opened his first superstore and changed the name to Best Buy from Sound of Music. In 1987, Best Buy had reached $239 million in revenue and entered the NYSE. They became Circuit City’s direct competition! They also were the first consumer electronic superstore to introduce the concept of non-commissioned service representatives. This boosted their sales and customers appreciated this service a lot more than the normal service they received where they were pressured to purchase an item.

In 2000, they launched their website to increase online purchases and it worked towards their advantage. They also expanded to Canada and acquired Future Shop; the largest consumer electronics retailer in Canada. A year after, they launched their independent label, Redline Entertainment, and this increased their sales even more! By 2004, revenues had reached over $25 billion. They continued to expand by opening even more superstores in Canada under both names, Future Shop and Best Buy.

Best Buy will be our comparison company in regards to Circuit City throughout this project.

Brief Statistical Overview of Companies

Both companies are leading retailers in consumer electronics. Table 1 is a summary of the highlights of the companies’ statistics.

Table 1

Statistical Overview of Companies

Analysis of Companies Balance according to Kaplan and Norton

From table 1, it is obvious that Best Buy employs much more people than Circuit City. Best Buy doubled its number of employees, which shows their dedication to customer service. The average Best Buy store employs 163 employees versus 70 employees per Circuit City store. One main advantage of having more employees is customer satisfaction. According to Kaplan and Norton, customer satisfaction is one of the four perspectives of having a balanced scoreboard. The balance score card demands that managers translate their general mission statement on customer service into specific measures that reflect the factor that really matter to customers (Kaplan and Norton). Customer service includes quality, delivery time, price performance and service. By having an average of more than double the employees per store than Circuit City, Best Buy dominates the service variable of the customer perspective because they have more employees circulating the aisles of the store which ultimately represents more employees to answer customers questions. When one goes in a store to buy a consumer electronic good he/she likes asking questions and making sure that they are making the right choice. Furthermore, a recent study has shown that customers tend to go back and buy the item that they are shopping for from the enterprise that gave them the fastest service and the best explanations to their questions (Hurley). Statistically, Best Buy annihilates Circuit City in the customer perspective.

Another indicator of strength of the company’s statistics was that Best Buy is leading in the overall profit from retail of consumer electronics. Best buy owns more store locations, fifty-four more than Circuit City to be exact. Best Buy has spread their concept mainly across the United States and Canada. Circuit City has done the same, but is also trying to rapidly catch up to the booming business that Best Buy has displayed. The total net income of Best Buy is a lot higher compared to Circuit City’s total net income. Best Buy almost doubled their net income eight times! According to Kaplan and Norton, Best Buy is outperforming Circuit City because of the Internal Business Perspective. In other words, excellent customer performance derives from processes, decisions, and actions occurring throughout an organization; these will enable to satisfy customers’ needs (Kaplan and Norton). The managers at Best Buy have done a better job at identifying what they excel at: customer service. The evidence is seen in the revenue of Best Buy versus the revenue of Circuit City; $27,433,000,000 versus $10,472,364,000. Best Buy almost triples the revenues of Circuit City; this must mean that they are doing something great from the inside to out sell their main competitor.

Kaplan and Norton also include an innovation and learning perspective. This is defined by the ability to launch new products, create more value for customers, and improve operating efficiencies continually because it can increase revenues. Innovations cannot be looked at a statistical point of view therefore it shall be analyzed by research done on both companies. Best Buy offers many customer related programs such as the Vonage’s VOIP service. Best Buy saw an opportunity in this new technology and decided to create the Vonage sales and marketing program, including training for other Best Buy sales associates. Other programs include the   The Geek Squad; Best Buy’s “24 Hour Customer Support Taskforce.”  Members of the geek squad will come to your home to repair malfunctioning computers. Circuit City’s main new innovation is the idea of making smaller stores to have more consumer friendly service (Kavilanz). Circuit City is planning on opening 200 to 300 of these new prototype stores. When comparing the innovations of both companies, Best Buy’s surpass the ones of Circuit City because they will have a greater impact directly on the customers. Yes, the argument can be made that by making smaller stores Circuit City will improve with customer relations, but historically Circuit City became successful by becoming a giant retailer and now they are going to make smaller stores. Instead of focusing on one aspect of business (super centers) they are going upon a new type of business, which will most likely bring down revenues.

The last perspective to complete the balance scoreboard is the financial perspective. Periodic financial statements remind executives that improved quality, response time, productivity, or new products benefit the company only when they are translated into improved sales of market share, reduce operating expenses, or high stock prices (Kaplan and Norton). As you can see, Best Buy Inc. stocks ended at $54.15 per share, and Circuit City Stores Inc. ended the day at $11.80 per/share (Watson). The worth of the stock of Best Buy has towered over Circuit City stocks. According to Julie Watson of Forbes magazine, “Best Buy shares, with 138% increase year to date, is the clear winner and looks likely to continue its success.” With 138% increase year to date shareholders must be very happy with Best Buys performance! Although Circuit City was one of the fastest growing companies in consumer electronics (Collins) it seems that they are now losing the race and giving the lead to Best Buy which must make shareholders unhappy.

Specific Competitive Advantages Held by Each Rival (Porter)

According to Michael Porter, strategy is a vague field of management; there is no precision in strategy. Porter also claims that the essence of strategy is that you must set limits on what you are trying to accomplish. On the other hand, Porter also states that a company without strategy is willing to do anything. Moreover, Porter specifies that if a company is trying to do the same as their rival it is unlikely that they will be very successful. In regards to Best Buy and Circuit City, they both have specific strategies.

Best Buy has freshly improved on their needs-based positioning, which is giving the customer a complete solution and serving most of the needs of a particular group of customers (Porter). Best Buy has recently developed an idea of customer centralization. They have adapted the layout of their stores to comfort the small business along with individuals shopping for electronics. They have “restored 300 out of its 700 stores, introducing ‘customer-centric’ formats to appeal to local shoppers” (Rigby). They have factored in five different type of shoppers: “Jill”, busy mother who is the sole purchaser for the house, “Buzz”, a technological junkie who feeds off of new electronics. “Barry”, a professional looking individual to get in and get out of the store with needed products in an efficient amount of time. “Ray” who is the middle-aged person looking to purchase on a budget and finally “small business owners” who need to set up help options for problem shooting for new electronics (Rigby). The personalized shopping experience suits all different kinds of needs, and ultimately would increase customer satisfaction; customer satisfaction being one of the important variables to the modern day companies (Porter). The company arrived at their clientele by surveying their customers on their age, sex, marriage and other factors which determined these range of customers. By doing so, Best Buy has showed their innovativeness and has made it difficult for the competition to copy them. Strategy is also about making trade-offs; it’s about deliberately choosing to be different (Porter). In other words, Best Buy has chosen to be top at needs-based positioning, but they also have made an effort in access-based positioning, which is segmenting customers by finding unique ways to access those customers (Porter). Best Buy has set up an online aspect that would encourage customers to come to their store to shop. They provide a store locator when you type in your zip code.

Porter affirms that operational effectiveness, things that a company really should not have to make decisions on, is not enough because everybody copies the “other guy” in operational effectiveness; that is why it can only give a company temporary advantage until everybody else catches up (Porter). In other words, a company can only outperform the competition if it can create and preserve a major difference, which is a competitive advantage (Porter). Circuit City has done this by offering a service that the competition didn’t: On their website, www.circuitcity.com, they have a policy on 24 minutes or 24 dollar gift card (CircuitCity.com). They guarantee your purchase will be ready within 24 minutes of your purchase or they will give you a gift card to purchase merchandise at their store. They offer you an incentive to buy products online and an expressway to pick them up. Thanks to this approach of unique positioning Circuit City has the strong hold of purchasing power online.

All together, it is a fine way to get people to buy their products online. Also this makes “integrated shopping a pleasurable and friction-free experience” (Jaffe). Many people browse online before they go to the store. For people who do not have a lot of time to shop at an establishment, Circuit City has made it easy to get in and get out with the exact product in which you are looking for. According to Porter, Circuit City has picked a needs-based positioning by providing their services to people who lack the time to shop. They have also “Fit” (how activities relate to one another), their strategy to all processes by applying their strategy online to the store; management works together to save the customer time.

When comparing both companies, it seems that Best Buy is being more innovative by the way they reach the customers, but on the other hand, Circuit City offers simplicity which customers always enjoy. Both companies have done fabulous work on not deviating their positioning.

Conclusion

References