An Associated Press article says industry analysts suspect the cure for what ails Circuit City Stores, Inc. (NYSE: CC) may be a private equity takeover.
There's no doubt in my mind that Circuit City is one sick puppy. The biggest problem I see is that the recent cost-cutting program has ousted salespeople who bring in the customers. And the comments on my posts provide concrete evidence of this dynamic in action.
But at $15.53, CC is valued below the $17-per-share buyout offer that Circuit City rejected in 2005 from Boston hedge fund Highfields Capital. Although some analysts think CC is worth $22 to $24 a share, its April 30 profit warning -- that its loss would rise from about $50 million to $100 million -- makes that price target harder to hit.
So at today's low price, some think a buyout could be a great way to speed up store renovations or relocations and shut down at least 100 less productive stores. Other electronics retailers, including CompUSA Inc. and Tweeter Home Entertainment Group Inc. (NASDAQ: TWTR) -- which may file for bankruptcy -- have announced hundreds of store closings.
With $4 a share in cash and the potential sale of its Canadian operations likely to add another $1 a share, Circuit City is not in imminent danger. But it's at a significant competitive disadvantage -- Circuit City generated an average $593 in sales per square foot last year, compared with $942 at Best Buy Co., Inc. (NYSE: BBY).
Until Circuit City starts taking better care of its employees and customers, I doubt it will see those numbers improve. And a private equity deal might help with that focus.
Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
Reader Comments (Page 1 of 1)
5-25-2007 @ 11:35AM
JN said...
Exactly on-the-money! Yielding one of the worst or sub-par upper management teams ever, CC is a nightmare for its customers and employees. Not much different then say what United Airlines is doing to its customers and employees with a similar sub-par management team using the same stragedy.
5-25-2007 @ 1:09PM
Sonny Hulsey said...
Several times I have gone into CC to purchase an electroinic item. The sales staff just walks around and does not pay any attention to the customers.
If you don't chase down a sales persons and hog tie them, you can't obtain any help with the item that you wish to purchase.
I have stopped going to CC for my purchases of anything.
I like the theory that "why should you give a customer help when they need it. It might increase sales" Duh!!!
P.S. I think that Best Buy is just as bad as CC. I don't go there either, in my home town.
5-25-2007 @ 1:06PM
Mark said...
as a previous employee, what made us different was our knowledge and training. We had incentive to be beterr than the next company was the pay. We were paid commission and we worked hard to learn the difference in product and service. We passed this unique knowledge on to our customers. We strived to be experts and not just another paid employee. Technology requires knowledgeable people.