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The Fall of Circuit City Stores, Inc.

Essay by   •  September 20, 2015  •  Case Study  •  656 Words (3 Pages)  •  1,126 Views

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THE FALL OF CIRCUIT CITY STORES, Inc.

CASE SYNOPSIS:

  • Circuit City, the leader in consumer electronics retailing for over 20 years was forced into liquidation. At last it has to liquidate its remaining 567 U.S. stores.
  • Circuit City Superstores were between 30,000 & 40,000 sq. feet in size and carried consumer electronics & appliances, each store having 50% space devoted to selling space and rest for storing.
  • Best Buy is the main competitor of Circuit City.
  • The Circuit city business peaked in the year 2000, with sales 17% higher & operating profits up 86% for an all-time high of $541 million.
  • But there is a collapse running in the background since the advent of Best buy which has been slow and painful, though it saw few reprieves in the middle.

CASE PROBLEM:

Why did Circuit City fall so painfully?

CASE ANALYSIS:

HISTORY:

  • In 1949, Samuel S. Wurtzel took the advantage of opportunity of first TV station going on air & rented 1,200 sq. feet of store in Richmond, Virginia.
  • Made public offerings in 1961 and started expansions in 1970.
  • Loading dock proved successful and added 7 more units in 1981 and changed the name to Circuit City Superstores.
  • It grew rapidly reaching 96 superstores and 23 regular stores by 1989

PRODUCTS and SERVICES in CIRCUIT CITY:

  • TV & Home entertainment
  • MP3 & Audio devices
  • Cameras & Camcorders
  • Computers
  • Movies
  • Phones
  • Firedog(Repair and Installation)

Competitors:

  • Best Buy
  • Wal-Mart
  • RadioShack
  • Home Depot

FINANCIAL ANALYSIS:

Trading and P&L account of circuit city

 

Fiscal year

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Comparartive Statement of year 1999 & 2008

sales(in mlns)

$9,338

$10,599

$10,458

$9,590

$10,016

$9,778

$10,478

$11,598

$12,430

$11,744

20.49%

operating profit(in mlns)

$291

$541

$323

$237

$60

-$6

$87

$211

$122

-$349

183.38%

Gross profit

25.00%

26.00%

25.30%

25.80%

25.70%

25.10%

26.00%

25.80%

25.00%

22.30%

-12.11%

selling & admin exp

21.20%

19.60%

21.00%

21.90%

23.50%

23.20%

23.70%

22.60%

22.60%

23.60%

10.17%

operating profit(%sales)

3.10%

5.10%

3.10%

2.50%

0.60%

-0.10%

0.80%

1.80%

1.00%

-0.30%

 

Net income mlns)

$148

$197

$149

$191

$106

-$89

$62

$140

-$8

-$320

146.25%

Common size statement

3.12%

5.10%

3.09%

2.47%

0.60%

-0.06%

0.83%

1.82%

0.98%

-2.97%

 

1.58%

1.86%

1.42%

1.99%

1.06%

-0.91%

0.59%

1.21%

-0.06%

-2.72%

 

Balance sheet

 

Cash

248

634

437

1248

885

783

1005

838

739

297

16.50%

Inventory

1292

1406

1411

1234

1410

1517

1460

1698

1637

1574

17.92%

current asstes

2053

2517

2354

3075

3103

2919

2686

2833

2844

2440

15.86%

current liabilities

882

1210

1066

1418

1280

1177

1264

1622

1714

1606

45.08%

total assets

3135

3537

3453

4133

3799

3633

3789

4069

4007

3746

16.31%

longterm debt

287

128

33

14

11

23

12

52

50

57

-403.51%

Equity

1825

2055

2257

2560

2342

2224

2087

1955

1791

1503

-21.42%

common size statement

7.91%

17.92%

12.66%

30.20%

23.30%

21.55%

26.52%

20.59%

18.44%

7.93%

 

65.49%

71.16%

68.17%

74.40%

81.68%

80.35%

70.89%

69.62%

70.98%

65.14%

 

28.13%

34.21%

30.87%

34.31%

33.69%

32.40%

33.36%

39.86%

42.78%

42.87%

 

9.15%

3.62%

0.96%

0.34%

0.29%

0.63%

0.32%

1.28%

1.25%

1.52%

 

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