Nothing Up My Sleeve

Jon Gallagher

The Death of a Retailer


Less than two years ago, Circuit City stood as the nation’s number two retailer of consumer electronics behind only Best Buy.  Less than two years ago, the Richmond, VA based company boasted 2.6 billion dollars in the bank in cash and assets.  There were over 700 stores nationwide and shares of its stock were trading at more than $20 a share.

By March 9, 2009, all 722 stores had been closed, stock was worthless, and 34,000 employees were permanently out of a job.

How did a 60 year old company that only months earlier was making Best Buy extremely nervous manage to blow through two and a half billion dollars, squander away the goodwill of customers and employees, and leave itself as carrion to be picked over by the liquidation vultures?

Economists can wax poetically with their Ivy League educations and talking heads will offer their complicated economic theories.  A common man on the street might suggest it was “just a bad economy.”  All of them may be partially right, but it comes down to this simple truth: Circuit City executives made some of the stupidest decisions in the history of retail.

Things were fine for the giant retailer when Philip Schoonover took over as CEO in June of 2006.  The Board of Directors were excited to have Schoonover who had been an executive at rival Best Buy.  It wouldn’t be long before Circuit City executives were scratching their collective heads, wondering just what in the world Best Buy had him in charge of.   More than one person has suggested that he must have been in charge of cleaning the executive washrooms at Best Buy “because he sure as hell didn’t know how to run a company” other than how to run it straight into the ground.

The company made it through the Christmas season of 2006 in good shape.  It was shortly after that when things started to sour.  In early February 2007, it was announced that seven Circuit City Superstores and a regional distribution center in Kentucky would close.  This closing of stores didn’t make national news and quickly was forgotten, both by media, and current employees.  It might have made bigger news, but there were other things going on in Richmond; rats began jumping from the ship.

Michael Foss, Chief Financial Officer announced his resignation from the company late in February 2007.  He was the highest ranking of three executives who submitted their resignations over a three month period.   All three of the departing execs said they were leaving to take similar jobs with other companies, however, it may be that they knew what was to happen about a month down the road.

On March 27, 2007, Circuit City asked 3400 store employees spread throughout the United States to report for work the next morning, whether they were scheduled or not, for a special meeting.  At that meeting, those 3400 employees were told that they were making too much money and that they would be let go.  All received a “generous severance package” which amounted to about a week’s worth of pay for each year they had been with the company.

The decision to cut these 3400 jobs enraged customers, employees, managers, and just about every person who heard about it.  According to media reports, the 3400 were making too much money and they would be replaced by lower paid, inexperienced new hires.  The determining factor in whether someone lost their job was simple.  A ceiling or cap was put on the wages for every position in every store, determined by the area of the country in which the store was located.  Anyone making 51 cents per hour more than the cap would be “separated” from the company.

Since every story has two sides, and I don’t recall a single media outlet that gave Circuit City’s side, let me try to explain.

The employees who were let go were long time employees, holdovers from the days of commissioned salespeople.  Some of them had been in lower store management, while others had just racked up years of service.  Peoria lost six employees that day and a combined total of 66 years of experience.

When Circuit City did away with commissioned salespeople back in 2003, salary caps were put in place for each job in each store.  From time to time, low level managers would be moved back into the sales force, but their pay remained at the management scale.  This, in most cases was more than the salary cap, but no one adjusted the pay of those moving back into sales from management.  In other cases, managers ignored the salary cap, gave the long term employees semi-annual raises which put them over the cap, yet no one either at the store level or at Corporate did anything to stop the raises from taking effect.

In our store in Peoria, one employee, who had the same job that I had, made almost twice as much as I did.  While she had several years seniority on me, she didn’t do twice the amount of work that I did.  A higher wage would have been justified based on her longevity, but the difference was too steep for any justification.

Some of the high paid employees had become complacent in their jobs.  One of the employees we lost did little to sell TVs, and did so only if he was pressed into service.  He was very good at what he did; he just didn’t like doing it. 

Circuit City had several choices as to how to correct the situation.  First, they could have done exactly what they did:  set a salary cap and fire anyone who was over the cap.

A second option would have been to offer employees who were over the cap a chance to continue working, but at a lower wage.  Many would have accepted this, but realistically, most would have stayed on and done what they could to sabotage or bad-mouth the company to potential customers.

A third option might have made more sense.  Employees over the cap could have been given a chance to move back into a management role (since most of them had been in that role previously) at no additional compensation.   By using natural attrition, the employees over the cap could have filled in management roles as they became available either in their own stores or in nearby stores.  The company would not have saved any money by doing this, but they would have saved their reputation with the American Consumer.  As it turned out, the dismissal of 3400 employees because they were making too much money hit a sour note that is still pealing across the country.

Phil Schoonover and his hand picked cronies would go on to congratulate themselves on a job well done.  While expressing their condolences to the departing employees through whatever media outlets would listen, behind the closed doors of the boardroom, they were slapping each other on the back, telling each other how brilliant their plan was and how it was going to save the company millions of dollars.  They further celebrated by giving themselves big fat raises.

Employees who were not fired were left to deal with lost friendships, and disgruntled customers who were voicing their disgust with Schoonover’s firings both on the phone and in person.  We did our best to spin things in Circuit City’s favor, but our hearts just weren’t in it.  At the time, I told my boss that I guess it was my goal to strive for mediocrity because if I strove for excellence, I might find myself out of a job.

Schoonover wasn’t done cutting jobs.  This time, May 30, 2007, his sword fell on management.  Schoonover came through and eliminated department managers, replacing them with senior members of the sales staff.  Our technology department manager was making about $45,000 per year and found himself replaced by the senior salesperson in his department who was being paid a little over $13.00 an hour, a savings of more than $15,000 a year.  The manager of our roadshop (car stereos and installations) was replaced by one of his salespeople. 

Each store lost a minimum of two managers at a savings of about $30,000 per year.  Take that times the 722 stores and there’s a 21 million dollar a year savings.  It still wasn’t enough to stop the bleeding.

The salary cap was put in place and I was denied a ten cent per hour raise because it would put me over the cap.  They couldn’t pay me an additional four dollars a week, but Schoonover received a raise of $35,000 that year, according to the annual report.

By now it was clear that not a whole lot of people at Corporate knew what they were doing.  The company designed and produced “Buying guides” which allowed us to ask the customer questions, then direct them toward a product that would fit their needs.  For example, we’d ask a prospective computer customer what they’d be using their new computer to do.  We’d make marks on the buying guide, then based on their answers, recommend a computer with the proper amount of RAM, the proper processor, a hard drive that could handle what they wanted to do, and accessories that would help them along the way.

In the year that we used these buying guides, they changed four times.  On the final one, the second question, above what they wanted the computer for, was “would financing help you make your purchase today?”  Circuit City received a nice little kick back from Chase Bank on all approved credit card applications, so we were instructed to push the Circuit City credit card.  That’s why that question was second on the list rather than concentrating on what the customer actually needed in a computer.

The final buying guide also pushed for us to include software such as an antivirus and Microsoft Office.  These were high profit items and it became clear that Corporate was trying to sell the high profit items along with the computer.

After I became a manager, I found out why.  The computers we were selling were advertised BELOW COST.  That meant every time we sold a computer, we were losing money.  In order to recoup that loss, they wanted us to “attach” items to the sale.  Printers, printer cables, software, computer carrying cases, Firedog installation services, and extended warrantees became essential to the purchase if we were to make any money off the sale of the computer.

I’ll admit that I didn’t take any business courses in college.  But it would seem to me that if you’re selling something for less than you paid for it in hopes that whoever buys it will buy other items that will make you a profit, then you’re doomed to failure.  That’s just common sense, a commodity that Corporate seemed to be seriously lacking.

At one meeting with my district manager, I said, “why don’t we just tell the people to go buy their computer over at Best Buy, then bring it back here where we’ll set it up, put the software on, and get them set up with a printer?  That way, Best Buy takes the hit on the computer and we sell the high profit items.”  He thought about that for a while and then actually agreed that that wasn’t a bad idea.  Wow.

It was a similar story throughout the store.  In the camera department, we made a little on each camera, but to make up for the small profit, we pushed memory cards, camera cases, extended warrantees, and extra batteries.  Photo printers were also a big money item for that department. 

Televisions had a high markup already, so we made money when we sold one of them.  That department had to carry the rest of the store though, and to do so, they we asked to attach as much as they could to each sale.  Blue-ray DVD players, expensive composite cables to hook everything up, extended warrantees, home theater systems, and in-home installations were some of the things TV salespeople offered to boost their sales.  In an effort to further increase attachments, Circuit City began paying their TV salespeople a commission based on the amounts of accessories they could attach to each sale.

In our store, we did well with attachments.  We always suggested the accessories since it would help the consumer enjoy their new purchase even more.  We were never pushy and we always hit the goals established for us by the company.  That might account for us being the 19th most profitable store in the entire chain.

Things started going south at the end of the last fiscal year.  Where we had listed 2.6 billion dollars in cash and assets the previous year, we had only half a billion dollars for fiscal 2007.  What happened?

Again, a series of stupid decisions by Corporate paved the way to the bankruptcy court.

I’ll admit that our cash register system was out of date.  It was the same system that we’d used when we opened the store in 1994.  Most of our monitors in the store were the old CRT type that no one sells anymore.  Still, it was a functional system that worked.

Someone at Corporate decided that replacing them system would be a good idea.  They purchased a new system and shipped them to each store.  The transition process would take some time.  Each store had one representative appointed who would be sent to a store that had already put the system online, and that person would learn the system, then learn how to train the employees at his or her home store.

The trainers would descend on the host store for a week, spend 40 hours in the store, then return to their own store to train fellow employees.  Trainers were told that they could bring family members with them for the training if they wanted.

The location of the training store?  Orlando Florida.

You may have heard that Orlando is home to an oversized rodent who specializes in fun times for the family. 

The training exercises were cancelled after two weeks of putting them into practice.  It seems that the trainers were returning home with a nice tan, hats that had plastic mouse ears on them, but with little to no knowledge of how the system worked.  They were unable to train employees at their home stores on the system because they hadn’t learned themselves.

Someone at Corporate actually had the gall to express his surprise at the lack of knowledge returning trainers had.

Well, duh!

This misadventure, by some accounts, ended up costing Circuit City three quarters of a billion dollars.  That was in the Spring of 2007 and by the time the stores closed for good, only a handful of stores were operating under the new cash register system.

Those who were found monumental problems.  The system was designed to keep track of inventory as well as sell merchandise.  When something was sold, the system was to take the item out of inventory so that it couldn’t be sold again.  That way, when a store ran out of an item, the system would tell the salesperson that there were no more available.

The new system would take merchandise out of inventory… for a day.  The next day, everything that had been sold the day before was right back in inventory.  Store associates would practically drive themselves nuts trying to find a TV that the system claimed to have in stock when in reality, it had been sold the day before.  As far as I know, this problem was finally corrected, but at a cost of over a million dollars.

In April 2008, Blockbuster attempted to buy Circuit City.  Schoonover and company denied the rumored takeover bid, sending emails to all employees telling them that there was no truth to this rumor.  For those of us who had been with the company for any length of time, we knew this meant that Blockbuster had in fact made an offer and that our corporate offices were just espousing their usual line of BS.

The bid itself was for around one billion dollars.  Circuit City resisted the takeover attempt, but finally, in May acknowledged that Goldman Sachs had been retained to help it explore “strategic alternatives to enhance shareholder value.”  That’s corporate double speak for, “they’re going to help open our books so we can be sold to Blockbuster.”

By July, after two months of looking over the books and seeing what kind of shape Circuit City was really in, Blockbuster withdrew their bid to buy the company citing market condition.  In other words, Blockbuster was able to see a gaping hole in the patient and knew that there was no life support system that could save it.  Meanwhile, Circuit City would continue trying to fix an oversized Humpty Dumpty with Band-Aids.

Problems at the store levels escalated.  One of the problems was that store policies and displays were being written and enforced by people who sat in a corporate office and had never set foot inside an actual Circuit City store.  Planograms, a computer generated map for merchandising products, became one of the biggest stumbling blocks between Corporate and the stores.

Planograms were explicit maps of how merchandise was to fit on shelves.  The computer had exact measurements for each product so all someone had to do is sit at a computer and slide rectangles around a computer screen until everything fit together.  This was accomplished by a low level office urchin who passed it on to a superior.  By the time it got to the store level, four different sets of eyes had looked it over from a corporate standpoint.

The problem with this was that the computer program didn’t take into account any variables.  When working with items that go on peghooks, for example, the computer failed to account for support bars which would prohibit a peghook from being placed in the precise position it needed to be in for the planogram to work.  Because of those support wires, planograms were off by fractions of an inch which made it impossible to fit everything onto the rack which had been planned by the office urchin.

District and regional figureheads would then visit the stores and give employees hell for not following the planograms.  Once, I handed the planogram to a district manager and told him to follow it.  He couldn’t.  Things wouldn’t fit.  Even he hadn’t tried before.

Had just one of those four people who approved the planogram actually taken the time to go to a store and try to implement it, they would have found the problems.  Instead, they sat in their office and bitched at store level employees for not being able to follow a simple map.

Further problems with the planograms arose when it came time to place the displays.  Corporate dictated where the displays would be in the stores despite our objections.  As a result, our store had a section of Blue-ray discs in the camera department, a section of camera bags in the computer department, and a display of blank DVDs between the software and home audio departments, some fifty feet from where they had been in the computer department.

One Sunday, we had a sale where 50 blank DVDs were selling for less than ten bucks.  The problem was, no one in the computer department could find them.  We started telling people we were out.  I finally checked the computer for inventory and to find out if we’d be getting more in.  I found that we supposedly had more than 200 of them in stock.

When I went in search of them, I found them between the software department and the home audio department, completely ignored.  They sold very well after we started directing people to where they were located.

Employees of Circuit City received an employee discount of sorts.  The discount was based on the wholesale cost of the item so there wasn’t a flat percent off of anything.  High profit items were cheap, but many of the products in the store came out being the same price that a consumer would pay for it.  There was a computer cable that sold for about $30 that cost the store about $3.00, a nice markup which bordered on price gouging.  Employees could buy the cable for about $10.  Computers, on the other hand, were sold to employees at the same price as consumers.  Occasionally, we’d get an additional $50 off the shelf price, but that was rare.  We figured our discount was approximately 5%. 

In order to boost morale in the store and attract more business, Circuit City began partnering with other local firms, giving them a discount on purchases.  Employees of OSF, Caterpillar, State Farm Insurance, and others could print a coupon from their place of business (on their private intranet), which gave them 10% off purchases. 

In almost every case, this gave outsiders a bigger discount than it did employees.  Whenever someone from a “partner business” would waltz in and get a larger discount than employees, inevitably, there would be hard feelings on the part of the employee.  I once called the liaison at OSF to find out if I got a discount at his place the next time my kid took a tumble and needed stitches.  He laughed at me and asked why I would ever think that.  I told him that he got a discount at my place, and he replied that this was something I needed to take up with Corporate rather than with him.

In many stores shrink was a problem.  In Peoria, it was more of a nagging problem than anything else.  Certain known people would enter our store with the solitary purpose of leaving with items that they had no intention of paying for.  When we would catch them, the only thing we were allowed to do was stop them, ask them if they had something they forgot to pay for, then let them go no matter what they said.

We had more than 30 cameras hidden behind dark Plexiglas globes on the ceiling of our store.  Most of the items that were shoplifted from Circuit City were CDs and DVDs.  So how many of the thirty cameras would you guess were pointed at the high theft area?

If you guessed “zero,” you are correct.  Not one damn camera was set to record the highest theft area in the store.  Instead, most of the cameras were aimed at cash registers and exit doors, making sure that employees didn’t steal from the company. 

Phil Schoonover was finally forced to resign from his position as CEO on September 22, 2008.  No one was upset to see him go, and I doubt that he was all that heartbroken.  He’d managed to lose the company over two billion dollars during his last year of tenure, yet as a reward, his severance package was valued at 1.8 million dollars (the board of directors later voted this down).

Jim Marcum, a lifelong Circuit City employee took over the reigns, but by this time, it was like trying to bail out the Titanic using a paper cup.  One November 3, less than a month before the start of the holiday season, it was announced that Circuit City would close 155 stores across the country.

There were stores around the country that weren’t profitable.  One of our stores in the St. Louis area was reportedly losing $400,000 a year, most of that to shrink (products leaving either by the front door or the back door but in either case, not being paid for).  Where it would have made sense to close the 155 least profitable stores, that’s not what happened. 

Instead, approximately the 50 least profitable stores were closed.  Then, Corporate closed another 100 stores that were strategically located.  Circuit City pulled out of the Atlanta Georgia market almost completely, leaving just one superstore in the Atlanta area.  Every store in Arizona whether profitable or not, was closed.  Chicagoland lost 11 stores. 

Bombshells were beginning to drop almost daily.  One week after announcing the closure of 155 stores, Circuit City filed for Chapter 11 bankruptcy.  

It was at this point that employees could easily tell when Circuit City executives were lying; their lips were moving.  We were told that the reason we filed bankruptcy was that the 155 stores closing represented almost nine million dollars a month in leases.  The bankruptcy was to protect us from those leases which were being broken.

Meanwhile, the news was scary to many.  Two people who I had just hired for the Christmas season and who were in training, just quit showing up for work.  One of them told me later that he figured that the news of the bankruptcy meant we were either going to close or that he wasn’t going to be paid, so he didn’t see any reason to report for work. 

Circuit City was given a DIP (Debtor in Possession) loan of 1.1 billion dollars from Bank of America to get us through the Christmas season by providing working capital.  Unfortunately, Circuit City was deeply in debt, owing $119 million to Hewlett Packard and $116 million to Samsung.   Other creditors such as Sony, Panasonic, LG, Canon, and Acer were owed astronomical amounts of money as well.  In fact, many of the vendors, Acer in particular, had quit shipping products to Circuit City until they were paid.

In Richmond VA, where Circuit City had their corporate headquarters, 700 office employees were laid off due to the closing of the 155 stores.  Districts had to be realigned because of the store closings as well.  Some district staff, including district managers, lost their jobs too.  Corporate completely closed one of their office buildings, moving all operations from that site into a single structure.  By this point, 2900 corporate employees were still on staff in Richmond VA to run 567 stores.

On November 23, every store had their “Black Friday” meeting.  All employees across the country gathered at their individual stores to discuss their roles for the biggest day of the year, the day after Thanksgiving.  At this meeting, store managers revealed “the ad,” that would attract customers, gave out schedules (most employees were scheduled for a minimum of 12 hours beginning at 4:00 AM), and a video message from acting CEO Jim Marcum.

This was the sixth of these meetings that I’d been to.  Usually the meetings are upbeat and positive with a video message giving attempting to inspire and excite us.  This message was far different.  It was somber with Marcum never cracking so much as a grin, let alone a full fledged smile.  He told us that this was the most important day of the year and that our future, the very future of the company depended on each of us individually as well as our performance as a team. 

It was unfair that Corporate put all the pressure on the stores.  Corporate was the ones who came up with the ad, set the prices, and determined our future.  Stores would do all that they could, but in reality, on Black Friday, there’s very little “selling” involved.  People rush the store for the advertised items and we hope that they manage to pick up some of the high profit items along the way.  Otherwise, all the doorbuster specials do is lose money for the company.

After Thanksgiving dinner, I headed home early, hitting the sack around 9:00PM.  I knew that the future of Circuit City depended on the next day.  We needed a kick ass day, and we needed to do no less than half a million dollars at our store.  We’d done $570,000 on Black Friday in 2007, but this year, our ad just didn’t have any kick to it.

In 2007, we had the biggest Black Friday I’d ever experienced.  That morning when I arrived at the store, I found a line snaking down the front of the building and around the side.  It extended the entire length of that side, crossed the parking lot, went out to the street behind the store, and continued to the parking lot of the hotel behind us.  It was estimated that there were 1500 people in line that morning.

When I pulled into the parking lot on Black Friday 2008, a lump formed in the pit of my stomach.  The line extended halfway down the front of our building.  That was it.

In Clarksville TN, a picture ran in the local newspaper of what appears to be less than ten people in line for their version of Black Friday.

We had a person counting people at the front door.  By fire code, we were only allowed 450 people in our building at one time.  When the counter got to 450, he stopped anyone else from entering until someone exited.  Then, he would allow the same number of people to enter as the number that had just left.  In 2007, it was almost 10AM before there was no more line to monitor.

This year, the counter at the door never reached 450.  According to him, there were 364 people in line when the doors opened.  Not once during the day did we ever stop someone from coming in because there were too many people in the store.

We ended the day with a little over $300,000 in sales.  It was far below what we had been budgeted to do.  Still, our district manager put a positive spin on it by letting us know that profit wise, we were one of the top stores in the company. 

This led a lot of the other managers in my store to be optimistic.  My own feeling was not so positive.  I knew we had had a disappointing day and if we were one of the top stores in the company, then the rest of the chain was in serious trouble.

Christmas continued on with us consistently missing our daily budgets.  Again, district tried to spin it in a good light by telling us that the budgets had been made several months ago, a long time before the nation’s economy went in the crapper.  I still wondered how long it would be before all of us were hunting for new jobs.

On January 9, 2009, we received an email from Jim Marcum and it wasn’t good news.  According to the email, Circuit City had one week to find a buyer or we would be forced to liquidate.   It was a long winded email that said we were trying desperately to find a buy for Circuit City as a “going concern.”  In other words, they wanted to sell the company as a whole and keep it operating.  The email went on to say that if a buyer could not be found, then we would be forced to liquidate.  He said that there was at least one interested party, but warned that the economic conditions might stall the negotiations.

According to the email, an auction would be held and would begin in less than a week on January 13.  Employees were shocked, but again, a spin came from district and regional headquarters, assuring us that we would be fine.

Of course, the economic conditions were as bad as what the media portrayed them.  No one wanted to loan anyone money to buy Circuit City and it was too large of a company to be sold outright to any one individual.  Add that to the fact that there was a lot of debt outstanding, and it was easy to see that the death watch was just beginning.

Word leaked out of the auction on Tuesday the 13th of January that a bid had been placed to buy Circuit City’s corporate jet for a price of 4 million dollars.  The reaction among employees was outrage.  Why in the hell did Circuit City need their own private jet?  Large companies such as Blockbuster, Best Buy, and WalMart didn’t have their own jet.  In fact, WalMart executives flew Coach whenever they needed to go somewhere. 

There wasn’t even an attempt to spin this one in a positive manner.

Wednesday brought word that at least one liquidation company had made a bid in case the sale as a going concern didn’t go through.  We were given no details other than that.

On Thursday, the 15th, there was no word at all.  Our district manager told us this was actually good news because it would allow the sale to take place on Friday with no complications.  Both sides were keeping details to themselves. 

On Friday morning, January 16, we met at 8:30 AM for our weekly sales meeting.  The store director met with department supervisors to go over the upcoming ad which would hit Sunday’s newspapers.  Our store director had just gotten off the phone with our district manager and we were told that it looked like the parent company for Express, a clothing store in the Mall, would be the successful bidder and that we’d still be open indefinitely.

This came as a bit of a surprise.  All week long, in fact for more than a month, we’d been told that a guy named Ricardo Salinas was the leading candidate to purchase the company.  A billionaire from Mexico, he had already purchased 28% of the stock in the company and he already owned several Circuit City type stores in Mexico.  Best Buy had opened several stores in Mexico to compete directly with his company so his motivation to purchase Circuit City came from that.  He was anxious to go head to head with our largest competitor in the United States.

At 9:59 AM, we opened the doors for another day.  Our store manager was on the phone with the district manager and once again we were assured that everything was looking good for the sale to the Express people.

At 10:01 AM, the first story broke over the internet detailing the news out of Richmond VA.  Circuit City had failed to find a buyer for the company as a going concern and would ask the bankruptcy judge for permission to accept the bid of four liquidators.

We were going out of business.

Our store director called the district manager back to find out what was going on.  The DM was on the road without access to the internet, so our GM read the story to him over the phone.  He said he’d call us back.

Within minutes, all hell broke loose.  The media had broken the story and our phones started ringing off the hook.  When the DM called back, he used the GM’s cell phone to relay the information.  It was true.  The sale had fallen through.

Our GM called his management staff together in his office where less than an hour earlier, we’d met with  him going over the ad.  He gave us the news and said, “I don’t care if you want to stand at the computers all day posting your resume.  Just don’t make it too obvious.  I doubt if we’re going to be very busy today.”

By 10:35 AM, everybody working in the store knew that all life support had been pulled.  We assumed that the negotiations had broken down in the past hour and that the decision to liquidate had soon followed.  We assumed this because of what we had been told all morning. 

We would later find out that the liquidation company had contacted the liquidation specialist who would be assigned to our store approximately midnight that morning.  In other words, Circuit City officials who had been blowing smoke up everyone’s ass for the past few hours, had known ten hours previous to the story breaking on the wire services.  We should have suspected they were lying; their lips were moving again.

The news was met at our store with a lot of tears, a lot of swearing, a ton of disbelief, and a pall that would almost smother the entire store.  The liquidation sale would begin the next day on January 17 and continue till our walls and shelves were bare. 

They told us we had about eight weeks left and they were close.  All Circuit City stores were closed by March 8 (even though a week earlier they had assured us that we would not close prior to March 9, and not after March 20).  They warned us not to speak with the media or we would be immediately terminated and unemployment would be contested.  We were asked to try and stay until the end, but no bonuses were promised for those who did.

Jim Marcum would be quoted in a press release saying “We are extremely disappointed by this outcome (the liquidation),” before concluding with “this is the only possible path for our company.”

To my knowledge, Marcum has never sent an email to employees to either apologize for Corporate’s incompetence or to express his condolences for failing to provide us with a place to work.  I know I’ve never received one.

There are a multitude of other reasons why the giant retailer failed.  Individually, the reasons don’t mean much.  But with so many reasons piling up, it was literally like the straws piled on the proverbial camel’s back.  There is no one “main reason” the company went under.  Added together, however, the main reason is easy to see.

Circuit City failed because of miserable management at the top.





This is the email sent to all employees from Jim Marcum a week before the liquidation began.



This week, the company filed with the Bankruptcy Court a motion that seeks Court approval for a process that formally puts the company up for sale. A sale could include as a "going concern" (meaning that the acquirer would continue to operate Circuit City as a business), pieces of the company as separate business units (such as markets, regions, or operating units) or as individual assets (such as the sale of inventory). The motion was made public today in advance of a hearing to approve the motion later today.

As we told the Court in our motion, we are engaged in active and significant discussions with more than one interested party regarding a sale of the company. The discussions with each of these parties have focused on a "going concern" transaction. In particular, interested parties are contemplating providing Circuit City with financing to complete a reorganization through a stand-alone plan and/or purchasing all or substantially all of our assets. At this point, the parties have substantially completed due diligence and are in negotiations with us and our major stakeholders in order to finalize such a transaction.

Let me back up and explain in greater detail what this filing means, what led us to this point and what it means going forward.

One of the original requirements of our debtor-in-possession (DIP) credit facility was to have a sale or auction process occur no later than early March if no other resolution had been reached for the company at that time.

Since that time, as we have discussed with you, we have worked diligently to pursue various alternatives for our business – a stand-alone reorganization plan, transactions with strategic partners and sales of all or certain parts of our business.

As we have worked, the world has continued to change. Poor macroeconomic conditions are further impacting our business and our vendors' confidence. Some of our vendors, including some key merchandise vendors, are still unwilling to relax their strict terms and have not provided meaningful credit. Securing better vendor credit and terms is essential for Circuit City's survival.

Faced with these conditions, after consulting with our advisors, the Creditors' Committee and our Lenders, in December we agreed with our DIP lenders to move the auction process for the company's assets forward to this week.

Based on the negotiations with the interested parties that I mentioned above as well as discussions with our vendors and lenders, we are optimistic that we can successfully complete a transaction. Of course, nothing is certain and we can't provide any assurance or guarantee that a transaction will be completed.

A number of outcomes are possible. We could reach a sale agreement and have it approved by the Court before the auction starts on the 13th. These discussions or the auction could result in an approved sale agreement before the hearing on the 16th. Or, we could reach an agreement with the DIP lenders to amend our agreement and change or delay the timing of the hearing on the 16th. To the extent that these efforts are unsuccessful, we will need to pursue a more dire path for the company.

There's no way to sugar-coat this, so out of respect for you I'm going to be completely honest: if no sale agreement is approved, then the company will be forced to liquidate beginning soon after the hearing on the 16th. I'm sure this news will shock many of you because we're doing the right things to move our company forward and are making solid progress in improving our operations. In fact, we've been able to accomplish the following:
As planned, in the months of November and December, we completed liquidation sales in and subsequently closed 155 domestic stores that were underperforming or were no longer a strategic fit for the company.
We have achieved significant selling, general and administrative expense reductions as we restructure our business to align operations with the smaller national store base and have implemented more stringent expense controls.
We retained DJM Realty Services, Inc. to negotiate reduced rent for leased properties and to sell owned properties.

And probably most importantly
The company's sales trends improved significantly during the last two weeks of December, and the combination of the improvement in sales and focus on gross margin has enabled us to continue to operate well within the operating budget required by the amended DIP credit agreement.

What are the next steps?

I want you to understand that the management team has worked tirelessly to avoid coming to this point. In fact, the reason I am communicating this via email, instead more personally, is that Bruce Besanko and I will be on the road trying to get support from our banks and our vendors for a deal.

Over the next week we will continue working with interested parties. In the meantime, we've got to stay focused. We must continue to show improvements to the parties who are interested in buying the company and to our vendors and lenders. The auction process is set to conclude at the court hearing on January 16th, so we will soon know whether or not someone will step forward and purchase the company. While we would all prefer it to be sold in its entirety, we cannot say for certain that will happen.

If you receive questions from our guests, your families, friends or acquaintances, please continue to use the Q&A document provided on This news does not change the answers to those questions or the way we respond to customers. Again, the only thing that I can ask of you is to continue to work hard through this major distraction so we can continue to show improvement in our results to any potential purchasers.

Unfortunately, we won't be able to discuss the outcome until the auction process concludes on the 16th. I apologize in advance that I won't be able to discuss it further.

Thank you,


·       Read