Parks Associates Blog

Friday, June 01, 2007

Circuit City's Turnaround Strategy

Interesting article in Thursday's Wall Street Journal about Circuit City's plans to turn its fortunes. It was nice to see some good references to the retailer's firedog installation and technical support service offering. I've been craving some decent data about both Circuit City and Best Buy's digital home support services (my efforts to get any public information about Best Buy's Geek Squad initiative are constantly thwarted!).

I've been completing our latest report on the market for digital home support services in a report that will be released next week titled Digital Home Services: Carriers, Retailers, and the Consumer. I received a great deal of support and insight from significant numbers of companies for this report (we profiled more than 40), so we really appreciate the insight.

Here's a quick recap of what's happening at Circuit City, particularly as it relates to the firedog services:

Circuit City formally launched its firedog service in September 2006. Its technicians provide in-home and in-store installation, optimization and repair services in-home, in-store. There are two main categories of services offered – TV and home theater installation services and home computer installation, optimization, and repair services. The service is also available online or by phone.

Circuit City’s decision to deploy its own branded installation and support service that includes CE installation (the retailer’s previous IQ Crew was more heavily focused on pure home IT troubleshooting) was driven by Best Buy’s recent success with Geek Squad. However, marrying higher-end CE purchases such as flat-panel TVs and home theaters with trained installers is also a critical strategic move by Circuit City, since it is much more dependent on sales of TVs to drive revenue than Best Buy. TV sales account for 32% of Circuit City’s revenues (compared to 20% at Best Buy).[1] A 50% decline in the prices of LCD TVs, in particular, surprised Circuit City officials, and the company is reporting that it will experience a first-quarter loss in the tens of millions of dollars.

In December 2006, Circuit City Chairman, President, and CEO Philip J. Schoonover reported that revenues for the firedog services grew 72% from the previous quarter, driven largely by home theater installations. Circuit City’s next fiscal year ends in February 2008, at which time the retailer expects to have 3,900 firedog staffers and post revenues of approximately $400 million (about 3% of Circuit City’s total revenues).[2]
[1] “Circuit City Enters New Turnaround Stage,” Kris Hudson, The Wall Street Journal, May 31, 2007.
[2] Ibid.

My opinion: If Circuit City is hitching its wagon on improving flat-panel TV sales volumes to make up for the price decreases, a technician-led installation service is a wise strategy. Not only can a service such as firedog improve the chances that a less tech-savvy customer will leave with a high-definition television set that is professionally installed, but the company stands a good chance of employing its technicians in “upsell” situations, where home theater and multi-room audio systems and accessories – perfect complements to an enhanced entertainment experience – can also be sold and installed.

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