The Real Lesson Behind The Circuit City Failure

It sure gets your attention when one of the two largest US electronics retailers melts down over night.  You have to ask yourself: what is happening here?  Just another victim of this Great Disruption, or is something else going on? 


On Friday, Circuit City announced that it plans to liquidate the assets of its company.  The company, which filed for bankruptcy late last year, said in a statement that its efforts to sell itself fell through. The company will now close its doors, eliminating 30,000 jobs.  Tough luck for all those employees and tough luck for other unrelated stakeholders, like my son Sam.  Let me explain. 

A year ago Sam, seeking to avoid the long queue at the Apple store, decided to buy himself an iPod.  He purchased the player online from Circuit City’s website with provision for immediate pickup.  The transaction process worked well–Sam knew what he wanted, saw that the price was competitive, and the purchase was ready for pickup as promised within 24 minutes.  Problem was, the iPod was a dud.  He had got himself that rare iPod with an inexplicable battery defect.  No problem, he figured, it was covered by Apple warranty and he just needed to return it to the Circuit City location for a replacement.  

But that was not so easy, as it turned out.  After a miserable 30 minutes explaining the problem to the Circuit City customer service phalanx,  Sam was told that his unit would have to be shipped back to Apple for repair and refurbishment.  His other option, the manager told him, was to pay $50 bucks for the Circuit City Extended Warranty package–the phoney-baloney (and extremely lucrative) insurance scam many retailers try to push on customers.  If he paid the money, they would replace his iPod on the spot with a unit from stock. 


Pawning off unneeded warranties is one thing–but this was extortion.  But, being 15, Sam was impatient to to get his music back in his ears and he acquiesced glumly.  For my part. I decided never to shop at Circuit City again.  Now it doesn’t matter–and of course, there is no one to make good on Sam’s warranty if it’s ever needed.

No, this giant chain, a market maker in many ways, wasn’t taken down (just) by a tough economy; it was felled by its own intrinsic failings.  It was always a place that made you cringe when you entered because you could feel the desperation in the gauntlet of salespeople you ran through to get to your desired displays.  It was an outfit that tolerated staff indifference and often a lack of product knowledge.  It was a situation where you somehow felt cheated when you left, no matter how good the deal you got.

No, Circuit City fell to its own failure to understand that experience is everything today.  As Mike Malone and I recently wrote in the Wall Street Journal, today the Internet is for inventory; brick and mortar stores are for experiences.  A physical location is a place where consumers can engage with the products and decide if they want to buy based on the quality of the experience.  That is the essential edge the meatspace retailers have over the Net — and Circuit City squandered its advantage by giving customers poor experiences. 


Rest in pieces, Circuit City.


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