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Circuit City liquidation another reminder of retailer's blunders

Circuit City's deals aren't quite what shoppers are expecting from a liquidation sale. You'll have to wait for the real bargains.

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Circuit City's deals aren't quite what shoppers are expecting from a liquidation sale. You'll have to wait for the real bargains.

Bob Kohler left Circuit City empty-handed Monday rather than save only 15 percent on a $279 TV.

"That certainly isn't much of a going-out-of-business sale," the St. Petersburg retiree said.

His experience underlines two truths about today's accelerating rush of retail bankruptcies:

• The credit crunch shortened the road to liquidation as creditors grew less willing to bankroll stores through a long Chapter 11 reorganization, even if they were as large as Circuit City, the nation's second-biggest consumer electronics chain.

• Liquidators guaranteed they would recover more cash selling leftover merchandise to split among creditors, so shoppers face a weeks-long waiting game for real bargains.

Here's the deal driving Circuit City liquidators: They agreed to raise at least $900 million selling Circuit City goods that at full retail would be worth $1.8 billion — or $1.2 billion wholesale.

So moving into the third week of the Circuit City sale, the "up to 30 percent" savings extends as far as things such as accessories for car audio and video games. The savings on video games, DVDs and CDs hit 20 percent, TVs inched to 15 percent and car stereos and MP3s are still 10 percent.

Gone are Circuit City's pledge to beat competitors' prices by 10 percent and the right to return merchandise. Customers can test their purchase at the door before leaving to be sure it works.

Given the prospects of getting top prices in the depths of a recession, the liquidation sale revives a question: Just why did Circuit City brush off a $1 billion offer to sell itself to Blockbuster Inc. a year ago?

Actually, it's par for the course given this once high-flying Richmond, Va., chain's blunders the past decade.

It walked away from its profitable $1 billion appliance business even though it lured female shoppers. When discounters like Wal-Mart, Sam's Club and Costco got serious about selling consumer electronics at lower prices, Circuit City was the last to follow Best Buy and Apple to the safety of the higher-margin services and installation. When Circuit City made the leap, it fired 3,400 of its senior and most knowledgeable salespeople at the dawn of the holiday season.

"They just never could get away from a belief their business could be based on anything except price," said Ken Banks, a Seminole consultant who could not soften the attitude as Circuit City chief marketing officer until 1995.

Bigger rival Best Buy proved to be more nimble after realizing not everybody is a bottom-dollar do-it-yourself geek.

"Until 1999 our pricing strategy was to beat any price, anytime, anywhere," said Dan Moe, Best Buy senior vice president of merchandise and pricing. "Today we have eight types of stores, each with selection, services and pricing based on the type neighborhood the store serves. It's about what the customer wants. That helped transform our executive staff to focus on constantly managing change."

Scott McKain, author of Collapse of Distinction: Stand Out and Move Up When Your Competition Fails, summed it up:

"There was no way Circuit City would get out of this mess," he said. "This is not about the economy. It is about the way they failed to differentiate themselves through compelling customer experiences."

Kohler, by the way, says he'll check prices with Circuit City in a few weeks — unless there's a better deal somewhere else.

Mark Albright can be reached at albright@sptimes.com or (727)-893-8252.

Circuit City liquidation another reminder of retailer's blunders 01/26/09 [Last modified: Tuesday, January 27, 2009 12:28am]
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