Leadership Lessons From Circuit City – Ho Hum, Another Bankrupt Retailer

Circuit City – Another One Bites the Dust

In what might be the least surprising business announcement of 2008, Circuit City filed for Chapter 11 bankruptcy protection on Monday.

Wow, really? Color us shocked.

To be honest, we’re a little shocked it took this long. We’re also a little surprised that their creditors aren’t forcing them into Chapter 7 liquidation – though that may come sooner rather than later. (Lest we forget, fellow specialty retailer Linens ‘N Things initially filed under Chapter 11 and is now in Chapter 7.)

Like Linens ‘N Things, Circuit City cannot blame their bankruptcy on the credit crisis, housing downturn or the growth of online retailing. No. Circuit City can only blame themselves. Specifically, they can only blame their leadership.

Leadership is More Than Directing Traffic

The Circuit City executives deserve to join Lehman’s Richard Fuld in the business Hall of Shame. Like Fuld, Circuit City leaders made misstep after misstep that effectively condemned their company. However, unlike Fuld, Circuit City’s leadership failed to take enough risks; deciding instead to ride out a doomed strategy for the past several years while their competition ate away at their market share.

What is Circuit City? At what do they excel? What is their niche? Can you identify one thing they do better than anyone else? The short answer: No. Circuit City is a vacuum; they are the epitome of nothingness; they lack an identity.

You must be the Best “Something”

Who’s the best online bookseller? Which hotel company provides the best customer service? Which rental car company is the undisputed king? Where can you go to get the best sushi in Las Vegas? (It’s important to note that 3 of these 4 command a premium for their products.)

The answers to these questions are not relevant to this discussion, though being the best and/or carving out a niche is critical in business – good economy or bad. Circuit City had no such niche. They were not the best at anything. They were known for nothing.

Of chains offering electronics, Wal-Mart is the low cost provider and Best Buy provides the largest selection and the most knowledgeable salespeople. Circuit City has long been known for poor service, poor selection and product shortages of loss leaders. This is not the niche you want to carve out for yourself. (Did Circuit City executives ever understand their goal?)

Circuit City chose to compete with Wal-Mart and Best Buy by duplicating pieces of these companies’ strategies – something they could never hope to do well – and they never bothered to create a unique business model that would provide something of value to consumers and provide them their piece of the pie.

While there is certainly room for additional bricks and mortar electronics retailers, Circuit City executives never understood what it took to be the best at something… anything.

That’s Not Fair – They Never Saw This Coming

If your argument is that the credit crisis is really what took Circuit City down you’re sadly mistaken. Perhaps you’re unaware that Circuit City executives burned through more than half a billion dollars in the last four years.

What about creating an aggressive online strategy? Doesn’t it seem like $500+ million would have been enough to develop a competitive online business model? With that kind of cash in 2004, true leaders would have developed a sustainable business. Instead, Circuit City chose to watch the cash reserves decline quarter-after-quarter until they were forced in bankruptcy. Were they negligent, incompetent or just suffering from analysis paralysis?

The End is Near

Don’t be fooled by their reorganization plans, Circuit City is down for the count and not getting up. Lousy leadership is lousy leadership, and court protections will change nothing.

While Chapter 11 might provide a short-term reprieve and allow them to stock their stores for Black Friday 2008, they’ll not be around for Black Friday 2009. (Heck, they probably won’t make it to Good Friday.)

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(Just in case you were wondering, the answers to our questions about who are the best ___________ are Amazon, Ritz Carlton, Hertz and Nobu.)