Welcome back to the Deep Dive. Today, we are
looking at a giant. And I mean, I really don't
use that word lightly. We are talking about a
true titan of the American retail landscape that
for a very, very long time just seemed absolutely
invincible, untouchable. Totally. And if you
grew up in the United States, any time between,
say, the 80s and the early 2000s, you know exactly
what I'm talking about. You can probably picture
it right now. Oh, the imagery is iconic. It's
burned into my... brain. It really is. I want
you to just close your eyes for a second. Imagine
you're in the passenger seat of your parents'
station wagon, right? You're driving down some
suburban highway, you pass a strip mall, and
there it is. The Red Tower. That massive burgundy
red tiled tower standing like a fortress at the
entrance. The plug design, the sheer scale of
the place. We're talking, of course, about Circuit
City. It's such a fascinating case study. Because
for a long time, Circuit City wasn't just another
store. It was the destination. It was the place
you went to see what the future of technology
looked like. If you wanted to see the first flat
screen TV or the first DVD player or the newest
camcorder, you went to the Red Tower. And yet,
if you drive past those same locations today.
The contrast is just haunting. It really is.
They're either these empty shells or they've
been turned into a gym or a Halloween pop -up
store or some other retailer. The speed at which
this company went from a Fortune 500 powerhouse
to total liquidation is just... And that is exactly
the mission of this deep dive. We are not just
here to get nostalgic about buying CDs in 1998.
We really want to understand how a company that
pioneered the very concept of the electronic
superstore and, spoiler alert for anyone who
doesn't know this, a company that actually created
the massive success that is CarMax. Which is
an amazing story in itself. How could a company
like that just completely collapse? We're talking
about a company that liquidated everything in
2009. Gone. Poof. And it's not just... You know,
it's not just a story about the economy being
bad in 2008. I mean, that's the easy answer,
but it's not the whole story. Not even close.
No. When you really dig into the source material,
especially the detailed corporate history and
all the financial filings, you see this series
of strategic missteps that are They're almost
Shakespearean in their nature. We're going to
look at how they timed the housing market completely
wrong, how they bet on the wrong tech formats.
And this is maybe the most critical part, how
they fundamentally misunderstood the value of
their own people. Oh, that human capital piece.
When we get to it, it is going to blow your mind.
It's genuinely one of the most frustrating, just
baffling corporate decisions I've ever read about.
It's a textbook example of what not to do. Exactly.
But before we can get to the collapse, we have
to start with the rise. Because Circuit City
didn't just appear as a big box store. It actually
started with a barbershop. It did. It's a classic
American origin story. But I think you have to
understand the context of the era to really get
why it was so revolutionary. We have to go back
to 1949. 1949. OK, so post -World War II. The
baby boom is just getting started. Suburbs are
being built. Precisely. The American consumer
engine is just waking up from the war. So into
this world comes Samuel S. Wurzel. He's a businessman.
And he's on vacation in Richmond, Virginia. Okay.
And you have to imagine this scene. He's sitting
in a local barbershop, just getting a trim, a
totally normal day. And while he's sitting in
that chair, he witnesses something that completely
changes his life. He sees the start of a television
broadcast in the South. Let's just pause on that
for a second. 1949, he sees the TV. I mean, today
we're so saturated with screens. They're in our
pockets, on our walls, in our cars. But back
then, what did that actually mean? Oh, cool,
a TV. No, no, it was basically alien technology.
It was magic. You have to remember, for most
people, entertainment was the radio. It was audio
only. Right, voices out of a box. To see moving
pictures. In a box, in a barbershop. It was a
marvel. But the way people bought things back
then, retail was very stiff. Stiff how? Like
you had to wear a suit and tie just to go look
at a toaster? Pretty much. You went to an apartment
store, everything was behind a glass counter.
You had to ask a clerk, usually an older gentleman,
in a suit. to please show you the merchandise
it sounds so formal it was a very high friction
experience it was intimidating wurzel and later
his son alan they realized that the future wasn't
may i help you sir it was look at this massive
pile of cool stuff so he's in the barber shop
the tv turns on most people would just say wow
that's neat but wurzel sees dollar signs he sees
the future of consumer demand and what's amazing
to me is the speed of his reaction He didn't
just go home and write a business plan for a
year. In late 1949, same year, he moved his entire
family to Richmond and opened the first Ward's
Company retail store. And just to clarify for
everyone listening, Ward's Company was the original
name. It wasn't Circuit City yet. Correct. And
for the next couple of decades, really through
the 50s and 60s, Ward's Company was successful,
but it was still kind of exploring. They were
figuring out what they wanted to be when they
grew up. They were expanding into places like
Albany, Mobile, D .C., and Costa Mesa, California.
They even had a mail order business called Dixie
Hi -Fi. Wait, mail order Hi -Fi? That sounds
like the Amazon of the 1960s or something. In
a way, it was. They were trying to reach the
audiophiles, the real enthusiasts. They were
testing all these different formats. They had
smaller mall outlets called Sight & Sound. And
some were even branded Circuit City. But it wasn't
the Superstore concept yet. It was still small
scale. OK, so when does the Circuit City that
we all remember actually come into play? When
do we get that big warehouse vibe? Because that
feels like such a distinct shift from a little
sight and sound store in a mall. The real game
changer happens in the mid 70s. Samuel's son,
Alan Wurzel, he becomes CEO in 1972. And Alan
has a long range plan. OK. In 1975, they're building
a new corporate office and distribution center
on Thalbro Street in Richmond. And they have
all this extra space in the facility. I mean,
basically a big empty chunk of the warehouse.
So they decided to open a new retail format right
there. They called it Ward's Loading Dock. Ward's
Loading Dock. It sounds so gritty, industrial,
like you need to wear a hard hat to go shopping.
And that was exactly the point. It opened in
May 1975. It was a massive warehouse showroom
and consumers. They absolutely loved it. I mean,
why would people want to shop in a loading dock
compared to a nice department store with, you
know, carpets and stuff? It implies a lack of
pretense. It was literally the loading dock of
their corporate headquarters. They rolled up
the bay doors. It was gritty. But that triggers
something in the consumer's brain. It makes you
feel like you're getting a deal, like you're
bypassing the middleman and buying it straight
off the truck. It's the Costco effect or like
the Ikea warehouse section. If I have to go pick
it off a giant metal pallet myself, I assume
I'm paying less for it. Precisely. It's that
treasure hunt aspect. And because it was so wildly
popular, they decided to pivot the entire company
toward this model. So by 1978, they renamed this
format the Circuit City Superstore. which led
to the company listing on the New York Stock
Exchange in 1984 and then officially changing
its corporate name to Circuit City Stores, Inc.
So they ride this superstore wave right into
the 80s. And this is where the branding we all
know really starts to solidify. We mentioned
the Red Tower earlier. That wasn't just some
arbitrary design choice, was it? They didn't
just have a surplus of red tiles laying around.
No, no. It was incredibly strategic. In 1985,
they were entering the Los Angeles market. Now,
you have to think about L .A. It's a car culture.
Totally. You're driving past endless strip malls
and shopping centers at 45, 50 miles per hour.
If you want to stand out, you need something
vertical. You need a beacon. You need something
that just pops against all that beige stucco.
Exactly. So they introduced the red tower entrance
specifically to be identifiable to drivers in
that crowded L .A. market. It was brilliant architectural
branding. You didn't even need to read the sign.
You saw the shape. You saw the color. And you
knew that's what the TEs are. It's marketing
through architecture, which is so smart. And
then in 1988, they evolved that look into what
they called the plug design. Right. If you look
at photos from that era. The entrance literally
looks like a giant electrical plug going into
the building. Yeah. They were just doubling down
on their visual brand as the place for electronics.
And along with that look, they had the slogan,
Welcome to Circuit City, where service is state
of the art. And, you know, in the 80s and 90s,
that wasn't just a tagline. It was a real differentiator.
You have to remember, technology back then was
complicated. Oh, yeah. It was not plug and play
like it is today. Not at all. Setting up a home
theater meant dealing with all these different
receiver wires, impedance, tracking on your VCR.
Buying a camcorder meant understanding formats
like VHSC versus 8mm, early home computers. They
were a nightmare for the average person. You
couldn't just Google it. Right. You needed a
guide, a tech Sherpa to get you up the mountain.
Exactly. And Circuit City had factory trained
staff. They wore uniforms. They were professionals.
You know, discount stores like Zody's, which
funnily enough, Circuit City actually took over
a bunch of their old locations. They didn't offer
that level of expertise. You're on your own at
Zody's. At Circuit City, someone would actually
explain the difference between a two head and
a four head VCR. So they are absolutely crushing
it. They're expanding aggressively. They're taking
over former the Akron stores, former Zody's stores.
They are the big dog in the yard. But this, this
is where it gets really interesting. In 1988,
they had a chance to squash a future rival before
it even really got started. This is one of the
biggest what -ifs in all of retail history. It's
fascinating. Okay, lay it on me. In 1988, there
was this smaller, growing competitor called Best
Buy. They were mostly based in Minneapolis. And
Circuit City had the opportunity to preach as
Best Buy for just $30 million. Worthy. Million.
I need to put that in context. For a company
the size of Circuit City back then, that's barely
a rounding error on their balance sheet, right?
It was a pocket change. It was essentially nothing.
So play devil's advocate for me. I'm Rick Sharp.
I'm the Circuit City CEO at the time. I've got
the money. Why on earth do I say no? Is it just
pure hubris? Or was there a business case for
rejecting it? It's so easy to just say ego. In
hindsight. But you have to look at the metrics
from 1988. Circuit City stores were generating
double the sales per square foot that Best Buy's
were. Wow. OK. Their profit margins were fatter.
Their stores were cleaner, more organized. Sharp
looked at Best Buy and he saw a messy, low margin
operator with a confusing store layout. Best
Buy didn't have the commission model. They were
experimenting with this grab and go thing. So
he thought he was buying a lemon. He thought
he was buying a distraction. His logic was, why
should I spend $30 million to buy a worse version
of us when I can spend that same $30 million
to build 10 more red towers that I know for a
fact will print money? He didn't see the value
in buying them. He thought he could just beat
them by opening stores in their home turf of
Minneapolis. Okay, I can see the logic in the
moment, but it completely ignores the concept
of a defensive buy. I mean, sometimes you buy
a competitor just to kill them, right? Just to
take them off the board. Absolutely. And that
is the Shakespearean tragedy of it. He fundamentally
underestimated Best Buy's capacity to evolve.
He just assumed Best Buy would stay messy forever.
He didn't foresee that Best Buy would eventually
adopt the very best parts of Circuit City's inventory
system, but strip away all the high labor costs.
Best Buy became the lean predator, while Circuit
City just stayed fat and happy. And as we all
know, that is not how history played out. Best
Buy eventually became the apex predator in this
whole ecosystem, but at the time, Circuit City
felt untouchable. And to be fair, they were still
innovating. We have to talk about one of their
biggest successes, which ironically most people
don't even realize, was a Circuit City creation.
CarMax. Yes, CarMax. The used car superstore.
I feel like most people know CarMax as the place
you go to buy a Honda Civic without getting yelled
at by a salesman. But that was a Circuit City
project. It was 100 % homegrown. It was a concept
developed in 1993 by Austin Ligon, who was the
senior VP of planning, and Rick Sharp, the CEO.
They looked at the used car market and just saw
a disaster area. A disaster. I mean, think about
buying a used car in the early 90s. It was the
used car salesman stereotype in the plaid suits.
It was fragmented. You had no idea if the odometer
had been rolled back. You had to haggle for three
hours. It was just a painful, untrustworthy experience.
So they thought, what if we treat cars like we
treat TVs? Exactly that. They thought, what if
we apply the big box electronics model to cars?
No haggle pricing. A massive selection. We're
talking 400 plus cars at a single location. A
professional, clean, consumer -friendly experience
where the price on the sticker is the price you
actually pay. It seems so obvious now, but back
then, buying a used car was like entering a battle
zone. Circuit City brought corporate standardization
to the Wild West. And it was a grand slam. They
opened the first one in Richmond in 93. It grew
slowly at first, but then they took it public
as something called a tracking stock in 1997.
Hold on, I want to double click on that, a tracking
stock. We hear these finance terms thrown around,
but what did that actually mean for a regular
Circuit City shareholder? It's a little bit of
financial gymnastics. So essentially, Circuit
City said, we have this amazing car business
inside our company, but the market is confused.
Are we an electronics store or are we a car lot?
So they created a specific stock ticker just
for the performance of CarMax, even though Circus
City still owned the whole thing. It allowed
investors to bet on the car business completely
separately from the stereo business. So they
were trying to unlock the value. They wanted
the market to see CarMax as this huge growth
engine, not just some used car lot attached to
a speaker store. Exactly right. And it worked
almost too well. The child started outgrowing
the parent. So eventually, in 2002, Circuit City
spun it off completely. Shareholders got stock
valued at over $1 .2 billion. That is just incredible.
A consumer electronics store incubates a used
car dealership that becomes worth billions of
dollars. It is so rare for a retailer to internally
incubate a business that becomes as successful,
if not more so, than the parent company itself.
It really showed that Circuit City did have vision.
They did have innovation deep in their DNA. But
for every CarMax. there is a DIVX. Ah, DIVX,
the strikeout, the dark side of innovation. This
is one of those technologies that if you weren't
there at the time, it just sounds like a fever
dream. Explain what DIVX was and why on earth
Circuit City bets so heavily on it. So this was
1997. The DVD format is just emerging. It's the
new hot thing. Circuit City, however, decided
to back an alternative called DIVX. Was it like
a different shape of disc or something? No, it
looked just like a DVD. But the business model
was radically different. The concept was you
would buy a disc for a really low price, say
five bucks. But, and this is a huge but, you
could only watch it for 48 hours after you first
hit play. Wait, so it's like a rental, but you
own the physical disc. Correct. But here's the
real kicker. The player had to be connected to
a phone line. To watch the movie, the player
would literally dial out to a central server
to authorize the viewing. If you wanted to watch
it again after the 48 hours were up, you had
to pay a continuation fee. Okay, I can already
see why consumers hated this. It feels like Big
Brother is in your living room monitoring your
movie habits. Plus, you have to keep a phone
line plugged into your DVD player. That's just
annoying. It was incredibly annoying. But you
have to ask yourself, why did the executives
think this was a good idea? These aren't stupid
people. What was the pitch in the boardroom?
I'm going to guess it was about recurring revenue.
Bingo. The whole pitch was subscription revenue.
Think about it. When you sell a standard DVD,
you get paid once, $20, done. But with DIVX,
you sell the disc for $5 as a loss leader, and
then you charge them $3 every single time they
want to watch it again later. It was the Netflix
model before streaming existed, but tethered
to physical hardware. It was a subscription model
implemented via hardware. Yes. But they completely
ignored the psychology of ownership, the first
sale doctrine. People want to own things. The
idea that you had to ask your DVD player for
permission to watch a movie you were physically
holding in your hand, it just felt dystopian.
Please, HAL. Open the pod bay doors so I can
watch The Matrix again. Exactly. And remember,
this wasn't just a product failure. It was a
PR disaster. Internet forums were just becoming
a thing in the late 90s. And the tech nerds,
you know, Circuit City's core demographic, they
organized boycotts. They viewed DIVX as anti
-consumer evil. Wow. Circuit City pushed it hard,
but it was a total disaster. They discontinued
it in 1999 and took a $114 million loss. That
is a lot of money to just set on fire. So you
have Carrax, which is brilliant, and DIVX, which
is a catastrophe. It shows a company that's swinging
for the fences, but maybe... Maybe losing its
focus on the core business. And that loss of
focus becomes painfully apparent as we move into
the 2000s. This is where the tide really begins
to turn. We start seeing these strategic decisions
that, in hindsight, are just baffling. Let's
talk about the year 2000. This is what's known
as the appliance blunder. This is such a critical
pivot point. In July of 2000, Circuit City made
the decision to abandon the large appliance business
in all of their stores. So we're talking refrigerators,
washers, dryers, gone. Was this just a small
part of their business? I mean, if I'm selling
90 % stereos and 10 % fridges, maybe it makes
sense to drop the fridges to focus? Not at all.
That is what makes it so shocking. In 1999, Circuit
City was the number two appliance retailer in
the entire United States. They were second only
to Sears. They had nearly $1 .6 billion in revenue
coming just from that sector. They walked away
from $1 .6 billion in revenue. Why? Who walks
away from a billion dollars? The rationale was
a mix of fear and cost -cutting. The executives
were worried about competition from Home Depot
and Lowe's. Those home improvement stores were
getting really aggressive in appliances. So Circuit
City leadership thought, we can't compete with
Home Depot on fridges. They also thought they
could save a fortune on warehousing and delivery
costs if they just stopped selling these big,
heavy metal boxes. They wanted to use that floor
space for consumer electronics, PlayStations,
PCs, software. Okay, I can almost see the logic
in a boardroom. Let's focus on the high -tech,
high -margin stuff. Let the hardware stores handle
the fridges. But the timing. The timing was catastrophic.
I mean, think about what happened in the U .S.
economy right after the year 2000. The housing
boom. The massive residential housing boom. Everybody
was buying houses, flipping houses, renovating
kitchens. And what does every single renovated
kitchen need? A new stainless steel fridge. Exactly.
The mid -2000s saw this dramatic rise in new
appliance sales. And by exiting that market in
2000, Circuit City completely missed the boat.
They walked away right before the party started.
They essentially just handed all that market
share to Best Buy, Lowe's, and Home Depot on
a silver platter. And to make it even worse,
the cost of the transition itself was enormous.
It wasn't free to just stop selling fridges.
No. They had to retrofit every single superstore.
They had to rip out the plumbing and the heavy
-duty shelving for appliances and install new
shelving for games and computers. That retrofit
alone... cost the company $1 .5 billion. Wait
a minute. Let me get this straight. They walked
away from a $1 .6 billion revenue stream and
they paid $1 .5 billion to do it. Essentially,
yes. They spent a billion and a half dollars
to stop selling the very products that were about
to see a massive surge in demand. And the new
products they focused on, games, CDs, movies,
those were all low margin. Right. There's not
a lot of profit in a CD compared to a brand new
washing machine. Exactly. And those smaller items
were also increasingly moving to digital or to
other big box competitors like Walmart. You don't
need expert advice to buy a Britney Spears CD.
You just buy it wherever it's cheapest. But you
do need advice to buy a washer and dryer set.
They gave up their advantage. That is just painful
to hear. And it wasn't just the product mix,
right? Their real estate was starting to become
a problem, too. It was. By the early 2000s, those
iconic Red Tower stores were getting old. They
were often these older shopping centers built
in the 70s and 80s. Those centers were losing
foot traffic. Meanwhile, Best Buy was building
shiny new stores in the newer power centers,
closer to where the population was moving. Circuit
City tried to adapt. They introduced new store
formats called Horizon and Tide. Tide, like the
laundry detergent. Or the ocean. Like the ocean
tide. Yeah, the Horizon format in 2000 and Tide
in 2001 were these attempts to modernize. They
removed the old racetrack layout. They lowered
the sight lines. And sadly, they eliminated the
red tower entrances in favor of a central one.
They were trying to look more like a self -service
big box store. So they were basically trying
to copy Best Buy. They were trying to look like
them, yes. They even did this internal research
that found that women and teenagers felt disrespected
by the Circuit City sales staff. So the Tide
format was designed to be friendlier and more
open. You know, that research point is really
interesting, disrespected by sales staff, because
that leads us directly into what I think is the
darkest chapter of this whole story. Section
5. The human capital crisis. This is the heart
of the collapse. This is where the tragedy really
sets in. We talked about state -of -the -art
service. Well, that relied on experienced, knowledgeable
people. But starting in 2003, Circus City began
to view those people not as assets to be cultivated,
but as liabilities to be cut. So what exactly
did they do? In 2003, they eliminated commission
sales in all stores overnight. They laid off
3 ,900 experienced salespeople who were making
good money on commission. And they replaced them
with hourly product specialists. So you take
the people who know the most, who are the most
motivated to sell because their paycheck literally
depends on it, and you just show them the door.
All to save money. Yeah. They estimated it would
save about $130 million a year. But company insiders
later identified this as the single most influential
decision that led to the company's demise. You
traded expert service for cheaper labor. But...
It gets worse. 2007. 2007. This is the wage management
layoffs. Yeah. And the details of this are truly,
they're difficult to comprehend from a morale
standpoint. Walk us through it, because this
sounds like something out of a dystopian novel.
So in March 2007, Circuit City announced they
were firing 3 ,400 better paid associates. These
were people working on the floor. But here's
the kicker. They weren't fired to do a bad job.
They weren't fired for being late. They were
fired because they were too good at their jobs.
Wait, explain that. How can you possibly be fired
for being too good? Because they had been there
a long time. They had earned their annual raises.
They had hit the pay cap for their position.
The corporate algorithm just looked at the payroll
and said, this person costs $15 an hour. I can
replace them with a kid who costs $8 an hour.
That is the most spreadsheet -brained decision
I have ever heard in my life. It's the McNamara
fallacy. You know, making decisions based solely
on quantitative metrics like wage cost and completely
ignoring the qualitative ones like trust, expertise,
and loyalty. They calculated the savings perfectly.
What they couldn't calculate because it doesn't
fit in the spreadsheet was the cost of losing
all that knowledge. And the insult to injury
was the offer they made to these people, right?
Oh, yes. These laid off workers were told they
could be rehired after 10 weeks at the new lower
market rate. The starting wage had dropped from
roughly $8 .75 to $7 .40 an hour. You're fired,
but hey, come back in two and a half months and
we'll pay you less to do the exact same job.
That is, I mean, who thought that was a good
idea? That's just humiliating. It was a disastrous
miscalculation of human psychology. The Washington
Post reported on this at the time and it backfired
immediately. Obviously, the fired people didn't
come back. They went to Best Buy or somewhere
else that valued them. But think about the people
who weren't fired. The survivors. Exactly. If
you're a survivor. What's your incentive to work
hard? Yeah. If you work hard and get a raise,
you might be the next one on the chopping block
for earning too much. So everyone just stops
trying. Morale completely collapsed. Yeah. And
customers noticed it immediately. Imagine being
a customer the next day. You walk in to buy a
$3 ,000 home theater system. You want to talk
to Dave, the guy who helped you last time, who
knows everything. Where's Dave? Dave is gone.
And in his place is a 19 -year -old making minimum
wage who is just reading the tag off the shelf
to you. I can read the tag myself. Exactly. Circuit
City destroyed their entire value proposition.
Why would you pay Circuit City prices for Walmart
level service? The moment they fired their experts,
they became just a more expensive version of
a discount store. They cut out their own heart
to lose a few pounds. And that leads us to the
inevitable end, the death spiral. So now we have
a company with no appliances, bad real estate,
and a demoralized, inexperienced workforce. We
are entering 2008 and 2009. The collapse. And
the warning signs are just everywhere. CEO turnover.
Highfield Schoonover resigned in September 2008.
The stock was tanking. And then there was this
bizarre incident in August 2008 involving...
Mad Magazine. Mad Magazine. What did Alfred E.
Neumann have to do with Circuit City? Mad Magazine
ran a parody piece calling the store Sucker City.
It poked fun at how they had so many locations
right next to Best Buys and how the service had
declined. You know, it was a cartoon. Great.
It's Mad Magazine. They make fun of everyone.
That's their whole thing. Exactly. But corporate
leadership at Circuit City was so thin skinned,
so panic stricken, that they ordered all the
stores to destroy the issue. They literally ordered
employees to rip the magazines off the racks
and throw them in the trash. They ordered the
destruction of a comic magazine. That just screams
panic. That is a company that has completely
lost its grip on reality. It screams a company
that knows the criticism is true. And financially,
the walls were closing in. In early 2008, Blockbuster,
of all companies, made a bid to buy Circuit City
for a billion dollars. Blockbuster trying to
buy Circuit City. It's like watching two people
who are drowning try to hold on to each other
to stay afloat. It really is. It was a desperate
move by Blockbuster to get into retail and a
desperate move by Circuit City to find any savior.
But even Blockbuster withdrew the offer in July
2008 because of market conditions. They basically
looked at the books and ran away screaming. And
then November 2008. November 10th, 2008. Circuit
City filed for Chapter 11 bankruptcy protection.
OK, let's explain that term for a second. Chapter
11 usually isn't the end, right? I mean, airlines
file for Chapter 11 all the time and they keep
flying. Right. Chapter 11 is a reorganization.
It's a timeout. You go to a judge and you say,
look, we have too much debt. Protect us from
our creditors while we close some stores, fix
our operations and come up with a plan to be
profitable again. The goal is to emerge as a
leaner, healthier company. So why didn't that
happen here? Why couldn't they fix it? They just
ran out of time and trust. This was late 2008.
The global financial crisis was in full swing.
Credit was completely frozen. And Circuit City
owed massive amounts of money, $119 million to
HP, $116 million to Samsung. And if you're Samsung
and Circuit City already owes you over $100 million,
are you going to send them more TVs on credit?
Absolutely not. Cut them off. The vendors were
scared to ship any new merchandise because they
didn't think they'd get paid. So the shelves
went empty. Yeah. And if you have no product,
you have no sales. It's a death spiral. They
tried to find a buyer, though, right? They did.
There was some interest from a Mexican retail
tycoon, Ricardo Salinas Pliego, and a few others.
But the numbers just didn't work. The hole was
just too deep to climb out of. So on January
16th, 2009. They announced the end. They converted
from Chapter 11 reorganization to Chapter 7 bankruptcy.
And Chapter 7 means? Liquidation. It means game
over. We aren't fixing the company. We are selling
off the parts. The fixtures, the inventory, the
real estate, everything must go. 30 ,000 employees
lost their jobs immediately. And it wasn't just
the Circuit City employees, was it? No. You have
to remember, they had partnered with Verizon
Wireless to run the mobile shop inside the stores.
45 % of Verizon's entire sales force worked inside
Circuit City locations. They were all laid off,
too. It just rippled through the economy. That
is massive. The final day was March 8, 2009.
Yeah. I remember driving past the store that
week. The signs were already being torn down.
And if you went to their website, it was just
replaced with this simple, stark message. Circuit
City would like to thank all of the customers
who have shopped with us over the past 60 years.
Unfortunately, we announced on January 16th,
2009, that we are going out of business. 60 years.
From a vision in a barbershop to a liquidation
sale. Just gone. But the name didn't completely
disappear, did it? This is the weird afterlife
of the brand. In the modern corporate world,
brands rarely die. They just become zombies.
The intellectual property, the name, the logo,
the customer list, that still has value. In May
2009, a company called Systemax bought the brand,
the trademarks, and the website for just $14
million. $14 million. That is less than half
of what they could have bought Best Buy for back
in the 80s. The irony is just inescapable. And
Systemax already owned CompUSA and TigerDirect.
So for a few years, from 2009 to 2012, CircuitCity
.com was basically just a clone of those other
sites. It was the skin you were buying from TigerDirect,
but the banner said, circuit city but then it
tried to come back again it keeps trying to come
back in 2016 a retail veteran named ronnie schmoll
acquired the brand and there have been various
announcements since then kiosks store within
a store concepts a powered by circuit city initiative
that was announced in 2023 but for the average
consumer the circus city we all knew the red
tower the warehouse showroom that's history it's
a ghost okay let's unpack all this we've gone
from The barbershop in 1949 all the way to the
liquidation in 2009, it has been a roller coaster.
What are the big takeaways here? What do we learn
from the fall of the Red Tower? I think there
are three really critical lessons that apply
to almost any business. First, the danger of
looking backward. Circuit City was so obsessed
with cost cutting on their legacy business, the
appliances, that they completely missed the housing
boom. They were fighting the last war. They were
worried about Home Depot when they should have
been worried about relevance. Second has to be
the human capital. I just can't shake that story
about the layoffs. You cannot fire your experts
and expect to maintain an expert brand. Absolutely.
You cannot strip mine your own culture to save
a few dollars on the balance sheet. They treated
their best employees as expenses to be cut rather
than assets to be invested in. And the customers
felt that immediately. The moment that trust
is gone, the brand is just a logo on a building.
And the third. The failure to adapt to media
and openness. They bet on a proprietary, restrictive
format like the IVX instead of embracing the
open standard of DVD. They tried to control the
consumer rather than serving the consumer. They
tried to lock people in. And people hate being
locked in. It's a tragedy of errors. But here's
where it gets really interesting to think about
the alternative timeline. And this is the thought
I want to leave our listeners with. It's a CarMax
question. Exactly. Circuit City had the internal
invitation to create CarMax. CarMax is a company
that is still around. It's still thriving. It's
worth billions of dollars. They had the future
inside their own building. They did. They incubated
their own replacement. The question is, if Circuit
City leadership had simply recognized that their
future was in their innovation, in the CarMax
model, rather than in their legacy electronics
stores, would the name Circuit City still be
a ticker symbol on the NYSE today? Did they just
cling to the store concept for too long when
they had already invented the next big thing?
It's possible. Or maybe, just maybe, every retail
giant eventually runs out of space to grow. Maybe
the Red Tower was destined to fall so that something
else could rise in its place. Like a spirit Halloween
store. Laughs like a spirit Halloween store.
On that spooky note, that's it for this deep
dive into the rise and fall of Circuit City.
Thanks for listening, and we'll catch you on
the next one.