Circuit City, the hip spot for boomboxes and VCRs in the '70s and '80s and an East Coast presence for a half-century, is struggling to give itself a makeover and meanwhile keep from losing customers.
It's proving difficult. Not only have U.S. consumers slowed spending in general, but the electronics retailer is competing on a crowded field of players that includes Best Buy Co. Inc., RadioShack Corp. and Wal-Mart Stores Inc.
A week ago, Circuit City Stores Inc. had bleak news. Sales have slowed since the end of September. For the three months that ended Nov. 30, the company is projecting a drop in sales at stores open at least a year and a loss of 5 cents to 10 cents per share.
After the announcement, shares plunged 36 percent, closing at $13.81 per share. On Friday, Circuit City stock closed at $11.75 per share, down 12.5 cents per share.
Analysts agree that the problems stem from a slowdown in the economy as well as the chain's store remodeling to get out of the home appliance business, which might be turning off some shoppers. It doesn't help that chief rival Best Buy already outsells Circuit City in consumer electronics and plans to double its store base in the next five years.
But analysts also see brighter days ahead for the second largest U.S. electronics chain.
"We think things are as bad right now as they're likely to get," said Kenneth M. Gassman, a retail analyst with Davenport & Co. "I don't see Best Buy putting Circuit City out of business, but I will say this, Circuit City needs to come into the 21st century, and they have begun to do that."
Circuit City's revised earnings come just three months after the company announced a comprehensive restructuring, including departing the cutthroat home appliance business to focus on booming, and faster turning, digital entertainment products.
Under a three-year strategy announced July 25, Circuit City hopes to transform itself into an exclusive retailer of consumer electronics, with plans to partially remodel its 573 superstores, close eight distribution centers and eliminate 1,000 jobs.
The company has finished partially remodeling 383 stores, selling off appliances and replacing them with computer accessories, video games, software and digital cameras, said spokeswoman Dandy Barrett. Stores in the Baltimore area, six of 15 statewide, were completed earlier in the month, with the rest in Maryland to be finished by the end of the month.
Circuit City is not blaming the remodeling for the slowdown, but it's also not speculating as to the cause. The chain had expected modest sales disruptions, and had estimated that the cost of full and partial remodels and markdowns on appliances would hurt profit by 23 cents a share.
But sales have softened "significantly" in all categories, including those not affected by the remodeling, W. Alan McCollough, president and chief executive officer of Circuit City Stores Inc., said in announcing the revised earnings expectations. That's true even of popular digital products - televisions, camcorders and cameras - though those products remain the strongest sellers, McCollough said.
"It's been a ratcheting down," Barrett said. "Obviously, we're relatively early into this and taking a look at what might be the causes. Our obligation to stockholders if we see things changing is to say what we see."
Regardless of the effect of remodeling, the chain also faces an overall slowdown in retail spending, a slowdown in the consumer electronics sector and a lack of new electronics products to capture shoppers' attention, analysts say.
"Clearly, there's been a slowdown in the consumer [market] over the last few months," said Peter Benedict, director of equity research for CIBC World Markets in New York. "We've seen scores of retailers preannounce weaker-than-expected sales results."
Consumer electronics, which has for much of the year fared better than apparel, has nonetheless experienced a slowdown, said Michael P. Niemira, a vice president with Bank of Tokyo-Mitsubishi Ltd. The pace of spending on personal computers, for instance, has slowed over the past few years. In 1997, consumer spending on computers increased 16.8 percent. That annual increase dropped to 11 percent in 1998 and 10.3 percent in 1999. As of August, consumers spent 6 percent more than in August 1999.
"That clearly has taken its toll on Circuit City," Niemira said.
But for all the economic factors contributing to Circuit City's problems, some competitors have yet to feel the pinch. RadioShack Corp., which runs 7,100 stores, said last week that profit rose 29 percent for the third quarter ended Sept. 30, and Wal-Mart has said its consumer electronics remain strong as well.
