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Circuit City and Mervyns: Economy Or Destiny?
Let me begin this post by making it clear that I feel nothing but empathy for those who are losing/have lost their jobs in the shutdown of these two companies. I also feel some regret for the families of the founders as in both cases they remained part of the business until the very end.
I also certainly agree that the economy played a role in the shutdown and just to satisfy the anti Bush crowd that his policies contributed to the economy (with that I hope we can save the ‘who is responsible for the current economy debate to another column).
However in looking at these two businesses I cannot help but reflect to what degree they contributed to their own demise. When I was a kid (not that long ago) I remember my mom regularly taking us to Mervyns for school clothes. She did so because they provided reasonably good quality products for a decent price.
Similarly, as I got older and into my own mode of buying I made a habit of going to Circuit City because they were well stocked, efficient and knowledgeable about the products. The prices were not spectacular but they were good enough.
However over recent years both companies had a serious decline in quality. Well before the economy started to slide these places started to sell poorer quality items and their pricing did not adjust to reflect that. Also the quality of service dropped off a great deal.
I’m sure there were many reasons for this and perhaps that reflects a broader switch to more of an internet economy (after all Tower Records shut down when the economy was booming).
But it is worth reflecting to what degree these places shut down because of their own failings, if for no other reason that because when the economy improves we will want to try and cull these problems from other companies.
6 Responses to “Circuit City and Mervyns: Economy Or Destiny?”
Circuit City actually made a conscious decision in early 2007 to fire all of its high-performing sales personnel. It was a cost-saving measure and resulted in the collapse of the company. What you noticed was real: the company's service really did plummet.
http://www.bloomberg.com/apps/news?pid=20601087…
The executives of Circuit City should be in jail.
I was going to give the exact link Elrod did.
Here are two quotes, first about how questionable that strategy was:
Second, what the CEO got paid for making that decision:
The Glazer's in Tampa, a sports team owning family, are also in financial trouble. The new coach and GM were picked for financial reasons, not because of qualifications. Like many in the commercial development sector, they borrowed money with many strings attached like the subprime loans. A 14% interest to stoke their egos to own A SOCCER TEAM.
It is destiny. It is the destiny of companies run by people who understand numbers but nothing about their employees or their customers. It is the destiny of companies who put their executives and their stockholders so far ahead of everything else that in fact they forget the purpose of the business, that they either produce a product that people must buy or a service that is needed and wanted. They listen slavishly to Wall Street analysts who somehow fail to understand that cheering on every mass firing and “cost cutting measure” that lays on the backs of the employees will eventually result in an economic downturn because the public has no money to spend and it spreads throughout the economy. I have no doubt that virtually no MBA program, executive training session or corporate boardroom has learned a thing, either.
I used to like Circuit City years ago, but the past few years have been different…. The sales people were all morons (to begin with). Their closing does not surprise me at all.
Jim Satterfield: I agree with you… it is destiny and many (of not most) public companies out there place their measure of success on how much they can reward their shareholders and top executives rather than how they can best serve their customers and rank and file employees. If upper management serves their customers and treats their employees fairly, then the rewards to their bottom line (and to the shareholders) will follow.
I think most corporate boards take their responsibility to their shareholders too seriously. Companies' boards should be ensuring that upper management is effectively meeting the needs of their customers.
As far as layoffs…. sometimes they are necessary for the survival of the company…..
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