Circuit City’s

WSJ: Why do you think the new, smaller-sized store will improve Circuit City’s profitability and sales growth?

Mr. Schoonover: It offers a different experience. Customers can touch and compare, and learn how to use the most complex products and services that we sell.
 
It is a more efficient use of space. Typically, our stores are 35,000 square feet, and less than 18,000 of that is selling space. The new prototype is 20,000 and has 17,000 of selling space. This fundamentally changes the economics. We can get higher revenue per square foot, higher-margin dollars per square foot, and we can find additional sites that weren’t necessarily available for our old box.

I’m a big believer in high interactivity shopping experiences, so it will be interesting to see what they do with the new store format.  The main concern I have is the smaller stores.  Will this mean a smaller product selection?  Will they turn into the Radio Shacks in the malls?  It’s almost as if they are positioning themselves between Best Buy and Apple, and I’m not sure they can build an identity between these two and flourish.   Apple has set the bar high for shopping experience and Best Buy’s product selection is better than all except for Fry’s and a couple regional players. 

WSJ: How is Circuit City’s multichannel approach — store, Internet and call centers — any different from the approach of its two bigger rivals, Best Buy and Wal-Mart Stores Inc.?

Mr. Schoonover: We have a culture that is beginning to cooperate and work together to provide a customer experience that is different and better.

One example is our “24/24″ promise. Order online, and we’ll have your purchase ready for you at a store in 24 minutes. If not, we’ll give you a $24 gift card. Our technology is unique and allows us to make that promise. Another is content. We have product reviews by leading consumer magazines. We have a whole explanation on what you need to make this new digital entertainment world work.

The 24/24 program that Circuit City has produced is one of the best implementations of Buy Online, Pick Up In Store, however they have to figure out how to integrate it into the rest of the store.  Recently, I bought a hard drive for my wife’s computer via the 24/24 program.  The BO/PUIS experience was great, service was fast, and it was waiting for me when I got there.  When I walked into the store, I saw a DVD on the rack that I’ve been meaning to pick up as well so I took it to the counter with me.  When I asked the store associate to add it to my order he explained that he couldn’t.  I figured it was a systems technology issue since the web order had already been paid for on the web, so I asked for the associate to just do a second transaction after we were done with the first.  Surprisingly, he said that they could only do 24/24 orders at that counter, and that I should go to lane 1 to check out for the DVD.   This is obviously a dissappointing downturn to the experience and I wonder how many lost opportunities this has presented for Circuit City.

 The other thing I would have liked to hear in Philip’s reply was that Circuit City would be capitalizing on a wider product selection available on the web with the ability to deliver to store; or order from the store and deliver to my home.  As Murphy’s Law dictates, as soon as I replaced my wife’s hard drive, her DVD burner went out and I had to go shopping for a new one.   So I went online to CC’s website and looked for a DVD burner with a SATA interface.  They had one in the web catalog yet out of stock, and none in the stores.   So I switched to Newegg.com where they had 26 different burners available from about 9 manufacturers.  Multichannel retailing to me is about giving the consumer the best benefits of each channel and choice of how & when I get the product. 

TD: What do you think the business will look like in five or 10 years?

Mr. Schoonover: I think it could be a great services business with retail roots.

I think it could be the best and most convenient multichannel retailer in our sector.

And I think we can have a very different but very cool store experience.

I thought this was an interesting reply.   I’m with him on these three, but I think he should reverse the order of the answers.

A few other interesting pieces on Circuit City this week.

Circuit City’s Schoonover Just Doesn’t Get It  - Seeking Alpha

Circuit City prototype comes to Houston

“Is buy online/pick-up in the store (BOL/PUIS from here on out) the cross-channel activity with the highest ROI? The panel’s consensus: the ever-popular answer, “It depends.” It certainly can provide a solid ROI – despite fears of channel cannibalization, whether coming from stores or from online, BOL/PUIS actually offers growth opportunities. It captures online sales that would have been lost because the consumer needed it “right now.” It also is additive to in-store sales, as consumers coming into stores tend to purchase more than just the item they came in to pick up.”

I agree with these statements and they are all very valid.  I also think that it’s beyond the ROI you are able to measure directly in same store sales year over year.  It comes down to customer experience and the loyalty that the positive experience generates.  We know that 17% of store sales, about $400 billion, is currently influenced by online research.  Forrester predicts this to be over $1 trillion in the next 5 years.  As the reliance on information on the web continues to increase, customers will demand to be able to do business in whichever channel suites them at that particular time.  If a consumer is not able to achieve the experience they are looking for, their loyalty will go elsewhere. 

Currently, I’m fairly loyal to Amazon.com for books.  Most of the time, they provide the customer experience I am looking for.  They have a wide selection of books, ways of finding and recommending books I would like, but more importantly they have in depth reviews of the books that I generally find reliable.  At some point, Borders or Barnes & Noble or someone is going to obtain these same capabilities plus be able to allow me to get it the same day from my local store.  When that happens, my loyalty will shift, because I will be in control of which experience I want to have that day. 

Obviously this issue is much larger than BOL/PUIS.  It’s inventory visibility to know that I can pick it up in 2 of 4 stores in my general area.(predecessor to a sucessful BOL/PUIS implementation)  It’s also order on the web, return in store or order from the web, modify order at the call center, and then pick up in store.   

The key to all of these capabilities in Nikki’s last bullet:

What are the biggest implementation obstacles in implementing BOL/PUIS? There are two that I always get asked about. The first is around order management – what application should be the customer-facing order management system? Retailers have tried to adapt their merchandising order management, have tried to extend their POS special order capability, and have tried to build out their order capture front-end to serve this critical capability. The reality is, you need a system that is designed to be a customer-facing order management system, which is tightly integrated into order capture, POS, and fulfillment. Nothing else will work. If you don’t have a strong central OMS that can bridge online and in-store, you are going to drop the ball with your customers. “

I completely agree.