Circuit City Sales Disappoint

Although Circuit City's total sales rose by 3.8% to $2.5 billion from slightly more than $2.4 billion in the same period last year, comparable-store merchandise sales decreased 4.3% in the third quarter, disappointing both the company and Wall Street analysts who had expected an increase rather than a decrease in the comparable store figures. Sales "did not meet the company's expectations," according to W. Alan McCollough, chairman and CEO, who blamed the weakness on a number of factors.

First, the company chose to be less promotional in music and movie software than it did during last year's third quarter, which resulted in lower traffic and sales totals that were exacerbated by a weaker new release schedule. Second, the company's "business model changes in digital satellite services and wireless phones and related products negatively impacted sales," McCollough explained. In addition, the company's decision to promote and price music less aggressively and to limit quantities of the most promotional offers on the Friday after Thanksgiving negatively affected that day's sales, McCollough said.

Circuit City reported its results amid a consumer electronics retailing industry that set a new record with $100 billion in sales in 2003 and is expected to break that record by hitting $108 billion this year, according to the Arlington, VA-based Consumer Electronics Association. The CEA reported that almost every product category was expected to post higher sales this year, including industry leaders like personal computers, digital televisions and wireless phones, yet these increases come at a time when industry research reports also show that retailers face increasingly fierce competition as product life cycles shorten, retailers change formats, new discounters emerge, Internet sales increase and focus on tighter inventory control systems.

Circuit City's responses to this intense competition have included the launching of new formats, like the Verizon Wireless stores that it established within more than 570 of its locations during the third quarter. It also opened 18 US superstores during the quarter, relocated 12 superstores and fully remodeled one. The company expects to open nine more superstores and relocate an additional seven in the fourth quarter. As of Nov. 30, it operated 622 superstores and five mall-based stores in 160 US markets. Its international segment operated through 1,026 retail stores and dealer outlets in Canada.