Circuit City - Examining a Business Failure

Examining a Business Failure

LDR 531

Examining a Business Failure

Over the last several years, many businesses large and small have experienced company failure for one reason or another. Many times organizational behavior within a business contributes to the failure of such businesses. "Organizational behavior (often abbreviated as OB) is a field of study that investigates the impact that individuals, groups, and structures have of behavior within organizations, for the purpose of applying such knowledge toward improving an organization's effectiveness" (Robbins & Judge, 2007, p. 9). For Circuit City, organizational behaviors expedited this company to its inevitable demise. Three organizational behaviors that led to the fall of Circuit City included outdated locations, aging infrastructure, and managerial decisions made in an effort to save money.

The Failure of Circuit City

From its modest beginnings as a leading appliance and electronic retailer for 35 years, Wards Company Incorporated owned by Samuel S Wurtzel opened its first store in Richmond, Virginia, in 1949. Wards began buying local chains and discount stores as it began expanding. Wurtzel named his son Alan Wurtzel as president in 1970 when his partner Abraham Hecht retired. In 1977 the Circuit City opened its first showroom in Washington D.C. with 6,000-7,000 square-feet of top brands, in store service departments, pick-up areas, and knowledgeable sales staff. Wards shareholders agreed to change its name to Circuit City Stores in 1984 with Alan succeeding as chair and Richard Sharp as president. At this time the company was worth about $250 million and traded on the New York Stock Exchange (NYSE) (Wolf, 2009).

Circuit City had quite a few changes in organization structure from 1984 until the store's closing while realizing several years of profits exceeding $12 billion. Appendix A (see attachment) depicts notable moments for the company. Circuit City underwent several changes in management prior to its demise and Phillip Schoonover chief executive officer (CEO); forced out by investor Mark Wattles, was succeeded by James Marcum interim CEO. Despite all the changes in leadership, problems for Circuit City had begun long before these changes occurred. With the changes happening within the economic climate of the business, Circuit City had come to realized that outdated locations, an aging infrastructure that no longer had a competitive edge, and managerial decisions had led to the company to a downward spiral. Although many efforts were made to cope with the changes, it was not long before Circuit City was realized that further action needed to be taken. Circuit City began closing many of its stores and liquidating its assets while trying to find a new buyer. Because of a failure to find a buyer in a timely manner, the second largest electronics retailer in the United States, Circuit City, in 2009 filed for Chapter 11 bankruptcy that later converted to Chapter 7 when a buyer could not be found (Wolf, 2009).

Outdated Locations and Aging Infrastructure

With all of the expansion that took place for Circuit City between 1970s and 1990s, the company had accumulated an abundance of real estate holdings all over the United States including some unused locations. By 2000 many outdated locations created difficulties in competing with other retailers in the market that according to Hamilton (2008) probably marked the beginning of the problems for the company (p. 1). Even though it managed to shed or reschedule $2.32 billion of its debt by filing Chapter 11 in November 2007. As a result the company could forego leases on older real estate in non-flourishing locations with hopes that the company would begin moving in a better direction. "It had hoped to re-emerge as a stronger, sleeker company, with an expanded online presence and store locations in high profile areas" (Kwiatoski, 2009, p. 4). Circuit City also hoped that with the reduction in debt, it may have a better chance as securing a new buyer or new financing; however, neither happened. With the impact of the recession increasing, customers concerned more with financial security spent less money on high ticket, discretionary purchases. "Circuit City posted a loss in seven out of eight quarters" (Kwaitoski, 2009, p. 4).

Poor Managerial Decision

With rising competition from other retailers such as Best Buy and Amazon, Circuit City business structure and management decision continued to compound the problems the company already had brewing. Some of these decisions as illustrated by Hamilton (2008) included not moving aggressively into gaming and missing out on big in-store promotions with thriving companies like Apple Computer (p. 1). This opened up an opportunity for Best Buy to move ahead in the industry. In 1990 Circuit City opened its own bank to handle the company's private-label credit program that later converted into a debt for industry mogul. Another came in 1993 when Circuit City moved into the automotive industry by opening CarMax a used car superstore. Circuit City could not realize profits from this venture until 2001. In 2002 CarMax spun off from Circuit City in an effort to allow each company to grow independently with its shareholder reaping the benefits.

The company continued to be more focused on short-term profits rather