Today is the last day of life for Circuit City. The bankrupt company announced it will close the last of its stores this evening. Thus ends the tragic tale of a company that in 2001 was cited in Jim Collins’ book Good to Great as one of the best-run American businesses. As with most corporate failures, the seeds of Circuit City’s destruction were sown long ago.
One of the first signs of trouble came with the decision to abandon the core business as the principal driver of growth. A determination was made by management to look elsewhere for innovation. The result was the launch of CarMax, a used-car chain. At the time, Circuit City was the largest consumer electronics company in the world. Archrival Best Buy wasted no time in exploiting the distraction, overtaking Circuit City and never looking back.
Circuit City was further distracted by the launch of DIVX. The technology platform was developed to compete with DVDs, but famously failed, costing the company over $100 million. By the time Circuit City jettisoned CarMax and exterminated DIVX, Best Buy had become the strong front-runner in the race.
Refocused on its core business, Circuit City began to explore ways to improve the store experience and revive the brand. But on March 28, 2007, the company shot itself in the foot by firing over 3,000 experienced employees to replace them with lower-priced staff. The move famously backfired as the quality of customer service and employee morale sunk to new lows. Employees never again trusted management and consumers lost patience with the brand. The company continued to plummet, but the free fall ends today.
What lessons can we take from this brand fatality? Circuit City and Best Buy operated with similar product lines, prices and locations. But Best Buy took care of its employees, consumers and its brand – Circuit City didn’t. And the rest is history.