Circuit City's Problems Go Beyond Economy

ROBERT SIEGEL, host:

From NPR News, this is All Things Considered. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block. There's been so much bad economic news lately that you may have chalked up Circuit City's bankruptcy filing yesterday as just another retailer succumbing to the credit crunch. And in fact, Circuit City executives cite the global economic crises as one of several factors that led them to seek bankruptcy protection. But others are pointing to a troubled business plan that dates back a decade.

Anita Hamilton of "Time" magazine puts it this way, the real culprit is good old fashioned bad management. And Anita Hamilton joins us now. Thanks for coming in.

Ms. ANITA HAMILTON (Staff Writer, "Time" Magazine): You're welcome.

BLOCK: You write in "Time" that it's useful to compare the track record of Circuit City and its competitor, Best Buy. What has Best Buy successfully done that Circuit City hasn't?

Ms. HAMILTON: Well, Best Buy has been really great at its promotions of in-store partnerships. For example, with Apple Computer, if you walk in to any Best Buy store, you'll see a big display of iPhones and iPods and things like that. They were quick to pick up on the trends, the things that people are really interested in. They also have a great website, they have good customer service. They move fast. Also, if you just look at things like CEO compensation, while Circuit City was paying its CEO $8 million a year, Best Buy was lean and mean and only paid its CEO about four million.

BLOCK: What was the trouble with Circuit City's website?

Ms. HAMILTON: They didn't get up to speed on their website as quickly as, you know, like Amazon was doing all these promotions. So Circuit City had a website but it wasn't, you know, as user-friendly. It wasn't like - they weren't aggressively marketing it. It was just sort of there. You know, in the mean time, as the online retail is catching up, people are figuring out how to do it, you know, free shipping and all that, and Circuit City was just behind the curve on that.

BLOCK: And you also point out that something as basic as where the stores are located, that plays a key role here.

Ms. HAMILTON: Right, you know, Circuit City became a sensation in the 80s and 90s and it was so popular that people were willing to go a little out of their way. You know, like people go to IKEA as a sort of a destination. But as more competitors got in to the market, that was less the case and consumers were going to, you know, other places like Wal-Mart or Best Buy.

As a result, Circuit City really needed to change. They needed to get better locations, but they held on to these other locations that they initially had because they were cheap. And in the meantime, their traffic started to fall.

BLOCK: You mentioned customer service, and this has been a real bone of contention with Circuit City that they fired, that they laid off the highest-paid workers, hired lower-paid, lower skilled workers, and they seem to be paying a price.

Ms. HAMILTON: Right. I mean, when we say higher-paid workers, they were laying-off people who made $11 an hour to replace them with people making only $8 an hour.

BLOCK: And what's the effect of that been?

Ms. HAMILTON: You know, it hurt morale, it hurts a skill. You know, if you're a skilled sales person, why not go to Best Buy or somewhere else where you can make a couple bucks more? It's just sort of a bad signal, especially when you're paying your CEO, you know, $8 million a year.

BLOCK: Well, last week, Circuit City said it was going to close 20 percent of its stores, and now it's filed for bankruptcy, it can borrow about a billion dollars. When you talk to folks who track this industry, what's their best guess about whether Circuit City will survive?

Ms. HAMILTON: Well, it's a mixed bag. Some people say, you know, they're toast. And other people say, well you know, my best answer will be it really depends on their creditors. If the creditors are willing to give Circuit City more time to pay back the money that they owe them for the product inventory that they have, then you know, Circuit City could turn around. They have an interim CEO now, they have - you know, they're trying to make some changes. As long as people are willing to keep them on life support, they could stick around.

BLOCK: It sounds like though you're saying they would need to become a more nimble, more flexible company than they are right now.

Ms. HAMILTON: Right. They would need to make radical changes.

BLOCK: Anita Hamilton, thanks very much.

Ms. HAMILTON: Thank you.

BLOCK: Anita Hamilton is a staff writer who covers high tech for "Time" magazine. Transcript provided by NPR, Copyright NPR.