From Good to Great to Gone: The Rise and Fall of Circuit City
1. Why was Circuit City so successful as to be featured in Good to Great? What was its strategic position during its successful period? How did it contribute to competitive advantage?
Circuit City developed world-class capabilities in logistics that enabled it to track trends and have inventory in its geographically dispersed stores. Additionally, Circuit City developed a core of motivated and knowledgeable sales staff.
Circuit City employed a big-box strategy with stores that had a large footprint that stocked a variety of products (selection) and service that relied on economies of scale to achieve high sales volumes. High sales volume enabled competitive pricing, but it also resulted in lower profit margins. At the time, this concept was relatively new, and it related to a differentiation strategy.
Circuit City was able to achieve a competitive advantage, because its system of stores, trained salespeople, and logistics system were difficult to replicate.
2. Why did Circuit City lose its competitive advantage? What was Circuit City’s strategic position during the time of its competitive advantage?
Circuit City lost its competitive advantage largely for several reasons, including:
· Failing to invest in its core competencies to limit competitor imitation
· Unrelated diversification into CarMax and video rentals that distracted management from its core business
· Firing its highest-paid salespeople when Circuit City’s performance began to deteriorate
As more competitors entered its market, Circuit City’s strategy shifted from differentiation to cost leadership. The elimination of its highest-paid sales staff lowered costs, but it also eliminated the firm’s underlying strengths.
3. What could Circuit City’s management have done differently?
Circuit City’s management could have done several things differently. Fundamentally, they needed to define the business they were in and create a clear vision for the firm. The move from electronics to cars and video rentals suggests a lack of focus. Identifying the firm as a world-class retailer of electronics may have avoided distractions and kept management focused on maintaining its initial core competencies.
4. What is the future of Best Buy as the leader in big-box electronics retailing as it faces tough competition with Amazon and other online retailers? What core competencies in big-box retailing are critical not only to survive but also to gain and sustain a competitive advantage?
Best Buy largely inherited Circuit City’s position in electronics retailing and greatly benefited from Circuit City firing its highest-paid salespeople. The development of online retailing has largely undermined the value of big-box stores as the number of products available to customers online is essentially unrestricted. However, customers often still want to see and feel a product before purchasing an expensive piece of electronics. This has led to showrooming where customers try a product in Best Buy and then purchase it cheaper online from a company that does not have the costs of a store and experienced sales staff.
Going forward, the critical elements of big-box retailing having a competitive advantage relate to managing customer relationships and getting customers into stores. Customer reward cards, coupons, rebates, and offering recycling of electronics are all services that can bring customers into stores. Additionally, customer service at stores can be complemented with an online presence. Ordered products can then be picked up in stores without shipping or waiting and additional items, such as games, cables, extra controllers, installation, and warranties can complement online purchases with a higher margin in store sales. Offering products that are difficult to purchase online, such as large appliances, or store-branded private-label merchandise can also limit showrooming by providing products that either cannot be found at competing online retailers or that require set up. Offering greater value also explains the complementary service provided by Geek Squad.