Yesterday electronics retailer Circuit City announced that they were closing 155 stores and laying of 17% of its workforce by December 31.

For fans of the chain this is the beginning of the end.  The company has been mired in a deep sales slump for quite some time and now with cash running out just as the Christmas shopping season approaches this will be one un-merry time for its employees.

I have been shopping at Circuit City for some thirty years now and when I started it was really the first true big box electronics retailer bringing a wide assortment or television’s, computers, phones etc… at prices that were cheaper than the department stores and specialty stores that had dominated the retail sector.

Then came the big blue behemoth from Minnesota otherwise know as Best Buy.  While the two companies had a peaceful co-existence for a number of years, once Best Buy started moving into the City’s territory the balance of power began to shift.

It didn’t help that in an effort to cut costs that Circuit City lopped off some 3,400 long time higher paid employees in favor of inexperienced newbies.  The predictable result was while costs dropped so did sales making the chain worse off.

The Best Buy strategy has worked because even for those that detest the company the marketing and sales strategy is a winner.  When they first launched the Reward Zone loyalty program they charged $10 a year.  After a couple of years they dropped the fee and lowered the benefit levels somewhat to make up for the free membership but that lowered the barrier to increased loyalty.

They also have built large spacious stores that are well organized and although sales associates aren’t always easy to find it generally isn’t difficult to find what you are looking for and checking out in a relatively short amount of time.  Compare that to Circuit City which is plagued with many small cluttered stores with poor lighting  and where checking out can be a disaster when the store gets even slightly busy.  They have a reward program but it’s tied to a credit card and that limits the membership and therefore the loyalty.

How far has Circuit City fallen?  Their stock price was a whopping 36 cents yesterday and the total market cap is now $60.53 million versus Best Buy’s $11.45 billion.

With a tight credit market and a choppy economic picture Circuit City will be lucky to survive the Christmas season.

I will miss the chain that has been a part of my life for so long, but that is how the free market works.  They certainly aren’t the first large retailer to fail nor will they be the last, but there is still plenty of competition with Walmart and warehouse clubs that consumers won’t suffer.

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