Circuit City Closing 155 Stores
Richmond, Va. Circuit City Stores announced on Monday that it is closing 155 of its more than 700 stores, or about 20% of its portfolio, citing its deteriorating liquidity position and the continued weak macroeconomic environment.
“The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” James A. Marcum, vice chairman and acting president and CEO said in a statement. “The combination of these trends has strained severely our working capital and liquidity.”
The closings, which will take place in 55 markets, are scheduled to be completed by Dec. 31. Circuit City said the stores earmarked for closing are either underperforming or no longer a strategic fit for the company. About 17% of its domestic work force will be laid off in the process.
Circuit City also said it will further reduce new store openings and plans to work with landlords to renegotiate leases, lower rent or terminate agreements.
The company said it expects the stores it is shuttering, which generated about $1.4 billion in net sales in fiscal 2008, will not open on Tuesday and store-closing sales will begin on Wednesday.
Circuit City has had only one profitable quarter in the past year, posting a wider second-quarter loss in September with a 13% drop in same-store sales. Its results have weakened as the company faces significant declines in traffic, heightened competition from rival Best Buy Co. and others and a weakened brand position.
The company said last week that the New York Stock Exchange has warned it that its stock price is not high enough for continued listing.
Holiday Sets Stage for 2009
A recent survey from The Nielsen Co. offers insight into consumer shopping patterns this holiday season—and what retailers can expect as they move into 2009. According to Nielsen’s 2008 Holiday Forecast, more than one-third (35%) of consumers across all income levels expect to spend less this season.
The survey leaves little doubt as to where the holiday action is likely to be: mass merchandisers, dollar stores, supercenters, supermarkets and warehouse-club stores are expected to attract the lion’s share of holiday spending as consumers shift their purchases to more value-oriented channels. Convenience and gas retailers may also come out ahead, with 12% of consumers expecting to spend more in these locations.
Online retailers are another bright spot, according to the report, with consumers increasingly turning to comparison-shopping sites to find bargains and check competitive prices.
The season is likely to prove the biggest challenge for department stores and electronic stores, with almost one-third (28%) of consumers expecting to spend less in these outlets this year, Nielsen reported.
“Whether it’s lower prices, instant rebates or free-shipping offers, value messages will speak to bargain-seeking consumers in today’s tough economic climate,” said Todd Hale, senior VP, Consumer & Shopper Insights, The Nielsen Co., Schaumburg, Ill.
Necessities (as opposed to novelties and luxuries) will rank among the hot items this year, according to Nielsen, along with practical apparel (undergarments, socks, fleece jackets and the like) and household goods (basic kitchen supplies and bed/bath linens). Also in: categories aligned with at-home entertainment, DVDs, mobile phones, books, wine and spirits, and video games. Indeed, this last category appears recession-proof, according to the survey.
As to how retailers can survive this holiday season and reinforce consumers’ desire for value, Nielsen offers these suggestions:
- Manage inventory like never before to avoid extra inventory come January.
- Recognize that necessities will drive strong sales this season. Gift cards for basics—grocery items, toiletries, baby-care products, gas and car repair—are all expected to do well.
- Reach out to your best customers and make them feel special by providing special coupons or sale prices.
- Leverage consumer packaged goods (CPG) categories, from toiletries to pet care to food stuffs, to drive basic gifts and stocking stuffers.
With no easy end in sight to the economic crisis, the report makes clear that the results of this holiday season will serve as an important precursor as to what retailers can expect in the New Year. Looking into 2009, Nielsen predicts more of the same as existing patterns intensify, with fulfillment of basic needs taking precedence over discretionary spending. Consumers will continue to trade down, and variety and convenience will continue to take a back seat to value.
But all is not lost. Nielsen advises companies to use the current economic slowdown to build competitive advantage, differentiation and loyalty. It reminds retailers that those companies that help drive the trends, as opposed to those that just react, will be best-positioned to grow and succeed.
One Site Fits All
An independently owned retailer that is part of the Ashley Furniture Industries family, headquartered in Arcadia, Wis., has developed a 135,000-sq.-ft. distribution and retail complex in Clayton, N.C., that also hosts the company’s headquarters, a 10,000-sq.-ft. clearance center and a 25,000-sq.-ft. store.
Ashley Furniture HomeStore of Clayton owns stores in neighboring Raleigh, Durham, Goldsboro and Fayetteville, each serviced by the Clayton DC.
John Spach, advertising and marketing director for the North Carolina furniture retailer, took Chain Store Age on a tour of the DC and store, explaining that the company reviewed a number of sites over the course of a six- to 12-month period before settling on the current location, chosen largely because of its central positioning relative to the other company stores and its immediate access to major transportation arteries.
“The lease on our previous DC in Morrisville, N.C., was expiring and we first thought we would build a DC with a clearance center, but when we found this location we decided to include a retail store,” he said.
The flagship store is stunning, with a welcoming foyer of stacked-stone columns, a floor-to-ceiling waterfall cascading over a glass etching of the company logo, and an expansive ceiling with rustic timbers forming a cathedral A-frame. However, the most notable aspects are economies of scale gained through the one-site-fits-all business model and efficiencies built into the design of the DC.
Inside the DC area, the ambience is distinctly improved over typical DCs—which are characteristically noisy, dimly lit and poorly ventilated. Conversely, the Ashley Furniture DC is bright and quiet, with fresh air circulating throughout the space.
There are no conveyors or forklifts, and two machines, which are used to recycle materials, were not audible although they were operating during the tour. Low-energy fluorescent lights facilitate excellent visibility, critical to quality-control inspections of product.
“In our previous DC, product was stacked high on three levels of racking,” Spach described. In the new DC, all inventory is on the floor, which has greatly reduced the amount of product damage and created a safer working environment because the product, which is inherently bulky and heavy, no longer has to be accessed with electronic lifts.
“We maintain very low inventory,” continued Spach. “Typically, product is in and out the same day. The corporate office [manufacturer and licensor Ashley Furniture Industries] has a cross-docking system that automatically schedules deliveries through our stores’ POS systems when customers make their purchases.”
The unique forced-air ventilation system makes a huge difference in the working conditions of the DC. Six large fans installed at ceiling height on one side wall maintain air flow, which is augmented with the opening of dock doors. The DC has 20 dock doors plus a triple-wide garage door on the opposite side of the DC from the fans. This extra-wide bay is utilized for customer pick-ups, an option that has gained popularity as budget-conscious consumers increasingly elect to pick up their purchases rather than incur delivery charges. The customer pick-up area includes a waiting room and public restrooms, also rare to find in a retail DC.
When Chain Store Age visited the DC last month, humidity was high and the temperature topped 80 degrees, but the DC was pleasantly comfortable with the fans running, two dock doors and the customer-pick-up bay open. Spach said that even on the hottest, most humid summer days, the DC was adequately cooled by the fan system, and an auxiliary air-conditioner unit never had to be turned on.