The rise and fall of Circuit City: How a $12 billion empire vanished
The video narrates the complete history of Circuit City, beginning with Sam Wurzel’s 1949 TV shop in Richmond, Virginia, and his innovative free‑trial, financed TV sales model. Under Alan Wurtzel in the 1970s, the company transformed into a superstore chain, scaling to over 600 locations and $12 billion in annual sales by 2000, driven by a high‑touch, commission‑based sales force and economies of scale that boosted supplier leverage and profitability. The 1980s saw the stock soar 80‑fold. In the 1990s, consumer preferences shifted toward lower prices and self‑service; Best Buy capitalized on this with a no‑frills model, while Circuit City clung to its high‑commission approach, even rejecting a $30 million offer to buy Best Buy in 1998. Leadership changes—Rick Sharp’s retirement in 2000, Alan McCullough’s appointment, and later Philip Schoonover—brought a series of strategic missteps: exiting the appliance business at the height of a housing boom, selling the profitable CarMax spin‑off, eliminating commissions (draining knowledgeable staff to rivals), refusing a $1.5 billion CompUSA offer, and pursuing unrelated acquisitions (DVD format, RadioShack franchise, online music). The company ignored e‑commerce, allowing Amazon to dominate its online sales, and spent over $1 billion on share buybacks that drained cash reserves. The 2008 Great Recession triggered supplier tightening, empty shelves, and a death spiral. Circuit City filed Chapter 11 in November 2008, liquidated in January 2009, closing 567 stores, laying off 34,000 employees, and erasing a $10 billion market value. The video concludes with a cautionary lesson: hiring the right person for the right job and board accountability are critical to corporate survival.
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Circuit City. Welcome to Circuit City, where service is state of the art. Circuit City went from a single TV store founded in 1949 in Richmond, Virginia, to an absolute behemoth in the world of electronics and home appliances. By the year 2000, they were operating hundreds of stores doing $12 billion in sales. And during the 1980s, they were the highest performing stock in the entire stock market, with their stock going up over 80 times during that period. But fast forward a few years later in the late 2000s, the chain suddenly and quickly declared bankruptcy. Hundreds of stores closed and tens of thousands of people lost their jobs. This video is the story of the rise and the fall of Circuit City. And if you stick around to the end, I'll explain to you why I'm recording the introduction to this at a car store called CarMax. There is a big part that this place plays in the rise and fall of Circuit City. If you're new here, my name is Michael. I make videos about the rise and fall of iconic companies. If you're interested in that sort of stuff, please subscribe. I've also taken the 10 lessons I've learned from making all these videos and put 'em into one document. You can download it for free, and there's usually a link as the first comment below. Just kind of put your email address in and go from there. In 1949, a young man named Sam Wurzel was on a road trip through the South, and he stopped in Richmond, Virginia, and somebody talked to him in a barbershop about a new thing that had just happened, and it was a TV station. And this was the first TV station to be opened in the South. So Sam, being an entrepreneur, he saw an opportunity and he moved his family, picked them up, moved to Richmond, Virginia, and opened up a TV shop there. And he named it Ward's after his family's initials. TVs were new and exciting since, and Sam hustled to get them into people's homes. And he came up with a really unique innovation. He would give people free trials of TV sets. And these were expensive. They're very different than the TVs are today. Big, expensive, and heavy. But what he discovered was he would put them in people's homes, and once they tried them, they knew they didn't want to bring them back. So they kept them and bought them. And they accelerated all that adoption of TVs and the sales by also financing them for people. The chain chugged along through the 1960s. They eventually grew to 4 locations. They reached $12 million a year in annual sales. And believe it or not, they were struggling. Sam, it turned out, was better at selling than he was at operating a business. Enter one of the heroes of our story, Alan Wurtzel, his son. He joined what would become Circuit City in 1972. The first thing he did was start to try to turn around the business. He ran a classic turnaround play. He reduced costs, he closed stores that weren't working out, and he tried to grow revenue. And he saw something was happening in the world around him. He decided that was the way he was going to grow the business. The 1970s were the decade that superstores emerged. We saw them for toys, books, all that kind of stuff. And it was time for the same for electronics and appliances. So Alan ran the same play. He transformed the chain from these tiny little TV shops to big superstores. Stack them deep, sell them cheap. And well, that's what they did— stocking VCRs, radios, appliances. Everybody was hungry for electronics, and they also needed help with how to buy them. And look, if you're going to spend $600, which was a lot of money back then, on a VCR, you're going to want somebody knowledgeable and trustworthy to help you through the process of buying the thing. Getting it set up and making sure it would work for you. And this high-touch model, well, it worked perfectly for the people at the time. Under Alan's leadership and then under his successor, a guy named Rick Sharp, the chain just kept growing. They had found something that worked and they were just doing more of that thing that worked, which turns out to be a pretty good idea because finding stuff that works in business is pretty hard. Once you find it, you just lean in and do more of that stuff. And that's what these guys did. The chain sales reached $1 billion by 1980, then by 2000 they were doing $12 billion a year in sales at their stores, and the store count jumped to over 600 locations for Circuit City nationwide. Superstores were immensely powerful because they brought a thing called economies of scale. And economies of scale are the idea that certain things get easier and better for your business as the chain or the business gets bigger. So in this case, you can imagine all the things that got easier as Circuit City got larger. They had more leverage over their suppliers. They knew what people wanted. They had better data, and they could train their people better to help them help the customers and have them leave happy. And the whole thing was immensely profitable. And the stock market noticed. In the 1980s, the stock went up over 80 times. So if you put a dollar in their shares in 1980, by 1990, each one of those shares would be worth $80. Super. As the 1990s came to a close, the chain was sitting pretty. They had dominated these local rivals. They were having stores across the country. They had been making a ton of money. And, well, it was easy to get complacent. And kind of that's what they did. And that's when cracks started to appear and things started to go wrong for Circuit City. The first thing was that electronics started to change in the '90s and started to look more like they are today. Uh, electronics started to get better, so they were easier to use. The second thing that happened was people didn't need as much education on how to use stuff. Like, by the time you bought one VCR, you don't need somebody to teach you how to use it a second time when you buy a second one. Uh, customers more and more were looking for the cheapest price at which they could get stuff and less and less asking for somebody to help them through the sales process and learn how to use the thing they were buying. While Circuit City ignored this change in the world, another chain recognized it and decided to exploit it. And that chain was Best Buy. They took a different approach than Circuit City did. Whereas Circuit City had highly paid, highly commissioned, knowledgeable salespeople, Best Buy took a no-frills, kind of low-pressure approach. You could go in, pick up what you wanted off the shelves, and if you did have a question, you could find somebody. But by and large, it was more of a self-service environment. And that lower cost structure, well, it gave Best Buy an environment or an advantage in the new world that was happening. Best Buy also was able to stock things that Circuit City couldn't. Remember, Circuit City was this model based on highly commissioned salespeople, and it was difficult to stock things like CDs or accessories and stuff like that because, well, how are you going to pay a salesperson when you're selling a $12 CD at a 10% margin? Well, Best Buy could do that. Circuit City couldn't. And suddenly customers who wanted that kind of stuff knew that, well, they would go to Best Buy and they didn't go to Circuit City. Leadership at the time at Circuit City, they gravely underestimated Best Buy. Circuit City is the nation's leading retailer of value-added consumer electronics. Even though Circuit City was performing better than it ever had in terms of same-store sales, sales per square foot, throughput, all that kind of stuff, Best Buy, it turns out, was performing even better. And in fact, in 1998, Circuit City actually had the opportunity to buy Best Buy for $30 million, and CEO Rick Sharp turned it down. And his logic at the time was they would do better competing on their own rather than to bring in this totally foreign and different model. So while the core business started to get threatened in the 1990s, Circuit City started to just kind of play around with other stuff. They invested in a new DVD format that ended up costing the company $200 million. And then hilariously enough, they started and incubated CarMax. They got in the car business. And well, that will be pretty interesting later on as we go through the story, because the existence of CarMax helped kill Circuit City. Rick Sharp retired in the year 2000. It was time to age out. He'd been a great operator of the chain, done well, though we've talked about some of the things he did wrong. And they brought in a new guy, a guy named Alan McCullough. And Alan was not a retailer type guy. He hadn't grown up with that kind of intuition the way, say, his predecessors had working at Circuit City. Instead, he was a numbers and operations guy. He had an MBA and he brought that kind of mindset to how he was going to run the business. So it was clear at the time in the late '90s and going into the 2000s for Alan McCullough, and he was hearing it from everybody, you guys need to figure out how you're going to compete with Best Buy. And remember, at this time we're not even talking about the emergence of the internet yet. We're just talking about a competing chain that was eating their lunch. And so Alan and his team decided they were going to compete with Best Buy by copying Best Buy to the letter. In 2000, one of Alan's first decisions was to get out of the appliance business. This had been a minor part of the Circuit City business, 10 to 15%, but it was steady. And it turned out this was also the worst possible timing to do this due to cheap money and easy interest rates happening. It was about to be the greatest housing construction boom almost in the history of the United States. You know what happens when people build houses? They buy a lot of appliances. And it turned out Circuit City got out of that business right at the perfectly wrong time. After they ceded the appliance business to Home Depot and Best Buy, bad luck happened for them because of this timing. In 2003, 2003. That was an all-time high of appliance units shipped in the United States. Nearly 74 million appliances were shipped and sold that year, which is almost a 10% increase year over year. Turned out they've made a bad decision. Next, in 2002, they made another decision, which was to get out of the CarMax business, and they went and sold the whole thing off, which was great for the balance sheet. They brought in some cash and they were able to fortify the company But at the same time, this was a rapidly growing and kind of amazing business that they had created with CarMax. And today, if you look at CarMax, it's a Fortune 500 company. It outlasted even Circuit City, and today it's— well, it's thriving. Later in 2003, Alan made the next decision, and this would be more damaging than all the ones that had been done so far, which is he decided to eliminate commission salespeople from Circuit City. Circuit City had fundamentally worked because you could go in there and somebody would handhold you through buying something. But Alan, in one fell swoop, he and his team got rid of all of that. And to make it worse, they went and laid off a bunch of those people. And guess where they went to go work? Best Buy. And many of those people had relationships with customers, and they took their customers with them to Best Buy. It was just insane. But wait, it gets worse. In 2003, basically heading for oblivion, they got an offer from CompUSA to sell for $1.5 billion. Did they take it? No, they turned it down. And instead of doing that or focusing on the core business, they went and did some, like, wacky acquisitions. They went and bought, like, the RadioShack franchisee and Canada, played around with like an online music service, like just anything to stop the ship from sinking, they were messing around with it. Then in the mid-2000s, online shopping was starting to become a real thing, especially for electronics and even for appliances. And at this time, Circuit City had basically ignored the internet. The idea of e-commerce was totally foreign to them, and they had basically thrown in the towel on even being in e-commerce. From 2001 to 2005, they had let Amazon power their electronic shopping, basically doing what Toys "R" Us had done. And you can see my other video on that. That basically abdicated the space entirely and handed the power to them. By 2006, the board couldn't hide from the bad results that were happening, and they had Alan McCullough step down. And fundamentally, Alan, not being an intuitive retailer like the Wurtzels and, and Mr. Sharp, right, he had fundamentally copied Best Buy's strategy but not understood what made it work. See, Best Buy worked because it had great culture. It worked because it had scale and great supplier relationships. On the other end, Circuit City had worked really great because it had great people who were there very helpful and able to guide you through your process. And so by just copying the surface level differences with Best Buy, he had basically gone through and killed Circuit City just by not truly understanding what was going on very well. In 2006, the board replaced Alan with a man named Philip Schoonover, and he came from Best Buy where he was a mid-level executive. He had never run a turnaround and he had never run a company of this size. And that's one of those things to think about, like when you're hiring people and you have a job that you just absolutely want to get done, The best person to hire is somebody that's done it before, and the chain so far had been just copying Best Buy's strategy, and now they brought in somebody who basically only knew Best Buy's strategy. It was kind of crazy. In 2007, Philip led them to do more of the copying of Best Buy that hadn't been working over the past 7 years, and almost inexplicably, they did a whole nother round of layoffs to get rid of more educated salespeople. This went so far as to just piss off the customer base, and even so, it got so bad that sales went down 12% year over year after this particular move. By the late 2000s, if you walked into a Circuit City, it felt noticeably bad. The shelves were relatively empty, the vibe in the stores was not good, the energy was bad, and a lot of longtime knowledgeable employees were nowhere to be seen. And I remember going into Circuit Cities at this time. You know what we did? We went across the street to Best Buy because it felt like they were winning, and at the time it felt like Circuit City was a store in decline. It showed in the results. In 2006, the stock had been trading at $30 a share. By 2008, it was trading at $5 a share. Profits were operating, competition was eating their lunch, and things were not going well for Circuit City. Even still, Circuit City, after all these mistakes, was running 550 stores, pulling in $11 billion in revenue each year. But it wasn't that profitable, which made the next move all the more confusing. Pressured by activist investors— so people that own the stock and wanted to see it go up— the board had spent over $1 billion in safety fund cash on buying shares in the open market and retiring them. And they did them typically at on average around $20 per share. They were taking their rainy day fund and they were basically handing it over to some noisy shareholders. Those dollars could have been used to modernize stores, beef up the IT systems, or like stock more better merchandise. Instead, it was going straight into the pockets of the shareholders who were only thinking short term. The thing about being a public company is all your financials are, well, they're public. And as the Great Recession started to happen in 2008, Circuit City really couldn't have been in a worse position. They— everybody saw like they were burning cash and sales were decreasing. And when suppliers see that kind of stuff, well, the first thing they start doing is tightening up terms, or even worse, they won't send you merchandise. And if you're a retailer and you don't have merchandise for the holiday season and for Black Friday, man, the death spiral will start and the end will come soon. And vendors, scared that the end was soon for Circuit City, did exactly that. They stopped shipping merchandise, demanding upfront payment. And look, if they'd have had their rainy day fund instead of heading it back to the shareholders, they could have weathered this. But instead they said, huh, we can't pay. And then when they looked up around the holiday season, there wasn't anything on the shelves. With consumer spending going through the toilet because of the Great Recession that was in full force, in November of 2008, Circuit City filed for Chapter 11 bankruptcy with the hope they would be able to find a white knight. To come in and save them. Circuit City is done. The second largest electronics chain in the world is going out of business. By January 2009, fresh off a horrible holiday season and nobody stepping up to help, it was clear that things were over. The bankruptcy judge ordered the remaining assets liquidated. 34,000 people lost their jobs. 567 stores closed forever. And Circuit City, well, it never opened up again. To give you a sense of how rapid the fall was, in 2000, the stock market valued the business at over $10 billion. By 2009, it was worth zero. Another fun fact about this story is that Blockbuster stepped up and tried to buy Circuit City at the last minute, but they couldn't get the deal done and it fell apart. And of course, we all know what happened to Blockbuster eventually too. The lesson for me, this story is about the right person for the right job. And look, I think every CEO job, every executive job, even every individual job is different company by company. And if you look at the fatal flaw of what the company did, it was not truly understanding this concept and hiring guys like Mr. McCullough and Mr. Schoonover who may have been confident in their previous roles and competent in their previous roles, but when asked to do something that was outside of their competence, they totally flailed. And I think that's the important lesson here. If you're going to be hiring people, they truly have to be the right person for the right job. And who's to blame for that? Well, ultimately, responsibility flows up and eventually it's got to reach the people above the CEO and who decided to hire those two people. And that's the board of directors. Ultimately, like, they didn't understand the business as well as they should have, and they certainly didn't make the right choices to hire the right people for the task to be done. All right, so that's the end of this video. By the way, thanks for being here. I did rock my Perrot 92 t-shirt, which is one of my favorites. And let me know what you think of this video below. If you liked it, it, please tell me. That encourages me to make more. Uh, if you think my beard looks great or funny, tell me that too. Or tell me how you would have saved Circuit City and what your takeaway was from this video. I try to read all your comments. Catch you next time.
