Alan L. Wurtzel, the former chairman and CEO of Circuit City Stores Inc., said the now-defunct consumer electronics retail giant ultimately failed because it lost its way and was unable to make the needed changes in time to survive the recession.
"I think Circuit City declined in three stages," said Wurtzel, son of Circuit City's founder Sam Wurtzel.
He cited a lack of focus from one of his successors, the inability to follow through on plans from another and a clash of cultures brought about by the last CEO.
Those issues led the once-proud Henrico County-based retailer to miss the challenges posed by its biggest competitors — mass-market retailers and its chief rival Best Buy — and to put itself in an untenable position when the economy crashed in 2008.
"They underestimated the change in consumer taste, the change in consumer buying patterns and they clearly underestimated the rapid rise of Best Buy," Wurtzel said.
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"They dismissed Best Buy as a flash in the pan, as a marginally profitable company that wouldn't survive," said Wurtzel, who was Circuit City's CEO from 1972 to 1986, its board chairman from 1986 to 1994, and its vice chairman from 1994 to 2001.
Instead, Circuit City was too slow to react to a changing market, Wurtzel said Wednesday to about 150 people at the University of Richmond's Robins School of Business.
He spoke about his book "Good to Great to Gone: The 60 Year Rise and Fall of Circuit City." The book, which is set to be released Tuesday, is a combination of company history and a business strategy guide.
"One of the lessons of the book is listen to the customer, not listen to Wall Street. Wall Street ended up punishing (Circuit City) anyway," he said.
Wurtzel said he approached the book as a journalist would — studying corporate reports, news reports and interviewing former dozens of employees, including top executives.
"I wanted to be able to answer the question: 'What happened to Circuit City?' to the thousands of loyal, long-standing employees and millions of customers," he said in a separate interview.
The strategy side of the book was culled from his business experience.
Nancy Bagranoff, dean of UR's business school, said Wurtzel's book documented a "great cautionary tale."
"There is a story in the growth and there is a story in the fall" that students and others can learn from, Bagranoff said.
She said lessons about a company that failed are every bit as important for students as great success stories.
"Students (need to) learn how quickly things can go wrong," she said.
Circuit City, which got its start in 1949 selling televisions out of a small downtown Richmond storefront, filed for Chapter 11 bankruptcy protection in November 2008. It was forced to liquidate several months later when it was unable to restructure its finances or find a buyer able to continue operating.
"I compare the death of Circuit City to the loss of a child. It was supposed to outlive me," Wurtzel said.
Wurtzel said the chain lost focus of its core operations as a consumer electronics retailer under then-CEO Richard L. Sharp, who tested new ventures such as automotive retailer CarMax and the digital video disc system called Divx. Those ventures, he said, distracted Sharp and other Circuit City executives.
"New business excited him more, I think, than running the staid old company," Wurtzel said of Sharp.
The new ventures came at a time when Best Buy and other retailers started passing Circuit City in sales and profit performance. But Circuit City executives and board members held onto the old business model of having customers buy merchandise from an employee on commission rather than buying the items right off the shelf.
"They came to those beliefs without empirical evidence. The empirical evidence was to the contrary: Everybody else was doing it and succeeding," Wurtzel said.
There were other missteps, he said. The chain put stores in inferior locations — he blamed himself for that mistake. It did not initially sell video games, computer software and similar products. Circuit City stopped selling appliances. And it kept store employees on commission for too long.
W. Alan McCollough, who succeeded Sharp as CEO in 2000, "understood that there was a challenge, understood that there were existential issues and he talked about how to resolve them. But he never developed a bold, clear, consistent plan to make the necessary changes," Wurtzel said.
"And to the extent that he made plans, he didn't stick to them consistently. It was erratic, it was on and off, it was the decision of the week or the month."
As the company failed to address known problems, Best Buy and other competitors continued to eat away at Circuit City's market share.
Philip J. Schoonover, a former Best Buy executive who became Circuit City's president in 2005 and its CEO in 2006, helped create a clash of cultures by firing 3,400 of the company's most senior sales employees, Wurtzel said.
"He may have understood merchandise, but he didn't understand a damn thing about the Circuit City culture," Wurtzel said of Schoonover, who remained with the company until shortly before it filed for bankruptcy.
"The way he hired and fired and demeaned people. … So the culture that my dad had built, that I had nurtured, that Rick had perpetuated, was destroyed."
But the nail in the coffin was a decision to buy back nearly $1 billion in stock in the last several years.
"As a result, when the economic cyclone of 2008 hit, the cupboard was bare, Circuit City had no resources. Suppliers were understandably nervous, banks wouldn't extend credits and the company couldn't find a buyer," he said.
"It had no choice but to liquidate."