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Byline: Michael Rudnick

NEW YORK-In the wake of a lackluster December sales report, Mike Foss, Circuit City's senior vice president and chief financial officer, outlined the company's efforts to improve sales via what he called an "aggressive" real estate relocation and expansion program.

At the SG Cowen & Co. Annual Consumer Conference held here earlier this month, Foss detailed a store revitalization program the retailer is undertaking to remedy "erratic" same-store sales. Over the course of 2004, Circuit City opened 60 new domestic stores, roughly half of which were relocations. The big-box consumer electronics retailer plans to open 30 to 40 new stores by Feb. 28, 2006, half of which will be relocations.

"When we started, we were the only game in town," Foss said. "We bought cheap real estate and forced customers to seek us out, but when Best Buy or some third box retailer comes in with the same product at the same prices, it hurts -- we got hurt in the early 2000s."

Foss noted that Circuit City has seen a pickup in sales of more than 30 percent at the new locations over previous locations.

Joseph Feldman, equity analyst with SG Cowen & Co., agreed that the relocations will help restore sales, but noted that the program is moving too slow to be effective. "They need to relocate one-third of the 600-plus stores [625], but only expect to add 30 to 40 stores in 2005. The slow process continues to be a drag, as they are still operating in B and C locations," he explained.

Officials with Circuit City did not return calls by press time to address Feldman's comments.

Feldman said that an aggressive shift to A locations within the next year does not come without challenge. "Because Best Buy was so aggressive with new store rollout, it has taken all of the great sites. Circuit City has almost been boxed out." In the third quarter ended Nov. 27, 2004, Best Buy opened 32 new U.S. stores, bringing the domestic total to 659.

Circuit City does, however, have a few options for new big-box locations including potential opportunities at new market lifestyle centers as well as Toys "R" Us locations, Feldman said. "Toys `R' Us could make sense as its tries to liquidate, but Best Buy will be right there waiting," he added.

Foss addressed other initiatives that Circuit City is taking to improve sales and profits. The company is seeking to grow its operating margin to about 4 percent by the end of fiscal 2006 (February) via inventory management; selling, general and administrative cost reduction; and continued reassortment of product, Foss said. Feldman estimated that operating margin was 1.3 percent for 2004, up from zero in 2003.

Foss explained that the company is focusing on "best sourcing" of product, more private-label programs and an aggressive opening price-point program. The company also introduced higher-margin gifts and gadgets.

Circuit City is also cutting costs on a non-product basis, which includes eliminating district and divisional offices, and monitoring spending on fixtures, carpeting and store office supplies, Foss added.

"[Circuit City] will need to do more efficient Chinese product sourcing and step up private label, but it is a long road with tough competitors who are not standing still," Feldman said.

Caption(s): Circuit City has seen a pickup in sales of more than 30 percent at the new locations over former locations.
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Title Annotation:pickup in sales at the new locations
Comment:CIRCUIT CITY OUTLINES ITS MOVING PLANS.(pickup in sales at the new locations)
Author:Rudnick, Michael
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1USA
Date:Jan 24, 2005

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