Sep 21, 2007

Next CEO at Circuit City to Refocus on Forgotten Consumer

Ask anyone in the business, and they'll be quick to point out that 'retail is a tough business'. Nobody feels that crushing reality more acutely these days than Phil Schoonover, Circuit City's President, CEO and Chairman.

Generals Are Always Prepared to Fight the Last War

Times are particularly brutal for electronics retailers, who created their own worst nightmare by addicting consumers to commoditized shopping experiences and a lust for price shopping bargains. In a recent conference call with investors, Schoonover acknowledged that Circuit City was focusing too much on selling higher-tech televisions when consumers cared more about price. And overseas contract manufacturers are always there to fuel the addiction, with factories adding low cost production lines at a dizzying pace, allowing retailers to keep up with the increased demand triggered by lower prices.

Retail experts convinced Circuit City's leaders that the industry was commoditized, and that the only growth strategy that would produce results was one focused on organizational changes, cost cutting, and store operations fixes. Schoonover announced to Wall Street that his decision to take that advice was flawed.

Kris Hudson reports in the WSJ that sales at stores open at least a year fell 7.9 percent in the last quarter registered and the company saw a decline of more than three percentage points in gross margin (to 21%). Schoonover blamed the wider-than-expected loss on disruptions he had implemented such as shuffling store managers, letting highly paid salespeople go, trimming its headquarters staff and recasting store procedures.

"When Somebody persuades me I am wrong, I change my mind. What do you do? - John Maynard Keynes

A new era of retail distribution is quietly emerging, and it's all about consumer experiences. In a 'back to the future' swing of the pendulum, merchants are back in vogue, with a twist. Merchants are today remembered as those old-school retailers, the ones who were run out of the executive suite for being too much about creative, and not hard-edged enough about the income statement. Buyers rose in power, and private label sourcing fed a preoccupation with scale. Lost in the shuffle was any sense of excitement for the consumer. In a world where all that's different is price, guess what smart consumers make their decisions on?

But consumers are voting with their wallets, and demanding that retailers deliver retail innovations and experiences and leave it to branded product makers to deliver on the promises of trust, quality and innovation in the actual product.

The new consumer era will require new-style leaders from both brand makers and retailers who are willing to work together to drive pro-consumer growth strategies. New leaders that are up to the task of marrying together the creative demands of consumer experience with investor demands for profitability.

In retail, sacrificing great consumer experiences to achieve short-term profit gains is quickly becoming the new “old school” thinking.

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