Circuit City surging

GLEN ALLEN, Va. – The Sony Grand Wega – a monster-sized, high-definition TV – almost didn’t fit into the large SUV idling in front of a Circuit City store.

Nevertheless, the sight of the $2,700-plus television leaving the store cheered company President Philip J. Schoonover. The company’s CEO-elect is counting on booming home-entertainment sales – and namely, those big-ticket flat-panel TVs – to help boost Circuit City Stores Inc.’s revenue.

“I think we plan to be No. 1 in the most important businesses,” Schoonover said during a recent interview at the suburban Richmond store. “We’re making some very big decisions on what we’re not going to be.”

Richmond-based Circuit City will need to ring up many more sales, especially during this critical holiday season, before it can regain ground lost to rivals. And the discounters, led by Wal-Mart Stores Inc., are getting more aggressive.

Once the nation’s No. 1 chain of consumer electronics stores, Circuit City lost its crown in the ‘90s to Best Buy Co. Inc., which had built bigger stores in good locations, achieving economies of scale and sharply focusing on its business. Meanwhile, Circuit City was stuck with older stores and poorer-performing locations.

But Circuit City surprised Wall Street by posting better-than-expected earnings in the second quarter, and then again in the third quarter, which ended Nov. 30. The improvements followed years of relocating poor-performing stores, overhauling merchandising and sharpening the retailer’s focus.

Sales at stores open at least a year – considered a better barometer of a retailer’s performance – rose 13.1 percent in the third quarter, compared with Best Buy’s 3.3 percent gain for the same period. In Circuit City’s TV category, same-store sales rose in the double digits, with flat-panels experiencing triple-digit gains. In the last year, Circuit City has doubled the number of different flat-panel TVs it offers in the average store to about 80.

Meanwhile, Minneapolis-based Best Buy struggled with higher costs associated with its effort to focus on its most profitable customers. Bank of America analyst David Strasser says Best Buy also got a “choppy” start to the quarter because of Circuit City’s and Wal-Mart’s early, aggressive promotions.

Gary Balter, an analyst with Credit Suisse First Boston, said Circuit City is using its smaller stores to its advantage “by focusing on the better growth businesses,” including the latest TVs. “Circuit City is fighting the battle on their terms,” he said in a recent report.

Analysts give some of the credit to Schoonover, a former Best Buy executive hired as Circuit City’s chief merchandising officer last fall. He quickly scaled the ranks, becoming president in February, and Monday, the retailer announced he would become CEO effective March 1.

Schoonover hopes to steer more buyers to Circuit City’s expanded television aisles, where he says the opportunities will be staggering.

As prices of advanced TVs continue to fall, many Americans are expected to upgrade their old tube sets. Over the next eight years, they could purchase as many as 250 million new TV sets, the company estimates. And they’ll be buying installation services, accessories and furniture – areas where Circuit City is also trying to carve niches.

“This is the year you really put the stake in the ground,” said Stephen Baker, an analyst with the research firm NPD Group.