What Happened to Circuit City – Part I

Do you remember Circuit City? Again this holiday season I thought of them when I drove by their old building here in Portsmouth, NH on my way to Best Buy. The company lived for 61 years – born in 1948 and died in 2009. It is a story filled with many business and leadership lessons. Once considered a “great” company, how could it spiral downward and die?

In Part 1 of this Blog post, I’ll write about the growth of Circuit City. In Part 2, I’ll write about the death of Circuit City and the rise of Best Buy. Then in Part 3, I’ll share with you some great leadership and business lessons from its second generation CEO, Alan Wurtzel.

A Family Business Grows

Circuit City was started by Sam Wurtzel in Richmond, Virginia in January 1948. He soon added a helpful partner, Abraham Hecht, who would remain active in the business for many years. The business was first named Wards TV, not as in Montgomery Wards, but as in Wurtzel-Alan-Ruth-David-Sam. When you read about Sam Wurtzel you get a sense he had those two qualities all successful entrepreneurs have – a continuous optimism about the future and a persistent drive for business success.

Wards started as a Richmond television store when about 8% of homes had them. By 1960 televisions were in 85% of American homes and Wards had four stores around the Richmond area. Wards entered the world of discount retailing in 1960 when it agreed to be a licensed television and hi-fi department within a huge (100,000 sq ft) GEM warehouse store in Norfolk, VA. GEM stood for “Government Employees Exchange” and it was similar to what Sam’s Club is today.

Wards first went public in 1961 when their sales level reached $2.5 million. By 1966, Wards had sales of $22.8 million and had 27 licensed departments from Boston to Oklahoma City plus the original four stores in Richmond. Alan Wurtzell, Sam’s son and an attorney out of Yale Law School, joined the company as its legal counsel.

Wards later acquired Custom Hi-Fi in 1969, which really helped them get into the music hi-fi business mostly around Washington, D.C. This is an interesting story on its own, but I will simply say they later named these stores “Dixie Hi-Fi” and expanded.

Alan Wurtzel became CEO in 1972 just as the recession was taking hold and Wards was facing a number of serious issues that nearly caused them to go bankrupt. Sales were somewhere around $60 million.

Under Alan Wurtzel’s leadership, Wards turned it around. They became Circuit City in 1977 and opened six new innovative stores in the Washington, D.C. area. This new design is the one most of us became familiar with. These showroom stores let customers see the products, place their order with a salesperson, pay for the product, and then wait for the product to come out of a backroom near the exit for a more easy carry to your car. By 1980 they had replaced the Dixie Hi-Fi stores with this new design and had 36 all-electronics Circuit City stores in the southeast.

Right after Wurtzel retired as CEO in June 1986 and turned the electronics retail firm over to Richard Sharp, Circuit City had 90 locations and sales surpassed $1 billion. For the five years from 1983 to 1987 it had the highest return to investors of all companies on the New York Stock Exchange.

Richard Sharp was a talented executive who helped Circuit City continue its growth. However, he also wanted to diversify the company. He steered the company into developing CarMax, which became a successful used-car sales business. They also developed a business called DIVX, which was a home video type of business, which failed.

Circuit City had become the market leader in retail electronics sales. However, during Sharp’s tenure Circuit City ignored two things. First, the emergence of a formidable competitor in Best Buy, which unlike Circuit City had larger superstores and put all the product out on the floor. This allowed customers to take what they wanted immediately and not have to wait for salespeople.

Secondly, Sharp ignored the widespread external changes happening to the consumer electronics industry. Sharp let Circuit City get distracted and they didn’t have the discipline needed to deal with these two issues.

In the next few days Part 2 of this story will be posted. I will continue with the death of Circuit City and the rise of Best Buy.