November 03, 2008

Circuit City: Did Multichannel Best Practices Make A Difference?

Circuit City will close 155 stores. Here's how folks on Digg feel about the news.

Circuit City is loved by multichannel experts, pioneering buy-online-pickup-in-store programs that allegedly fuel the "clicks and bricks" advantage for retailers. Check out this presentation from March 2008, promoting "How Web Savvy Customers Are Radically Transforming Retail". In the presentation, Circuit City is lauded for a smart integrated channel strategy.

On the Circuit City homepage today, you'll find free shipping or twenty-four minute in-store pickup. And the brand offers the same price across channels, a strategy the experts love.

Circuit City is doing so many of the things that the experts tell us we must do --- this leader tells us that Circuit City generates an additional $154 from each of these wonderful cross-channel customers. And yet, comp store sales are awful. Online, however, traffic is comparable between Best Buy (via Quantcast) and Circuit City (via Quantcast).

So how is it that all of these brilliant strategies, promoted by so many smart people, result in a brand that generates half the sales per square foot of Best Buy, leading to a decision to close 155 stores? Heck, from 2004 until recently, Circuit City was led by a former Best Buy VP of Customer Segments, and the brand struggled long before deciding to can the 3,400 highest paid employees in 2007.

How does a brand fail when it essentially sells the same merchandise as a key competitor, and executes the multichannel strategies demanded by industry leaders while competitors do not execute similar strategies? Either the strategies don't work, or the strategies have little relevance compared with in-store execution and customer service and store location. Either way, why invest all this effort if it doesn't translate into measurable sales per square foot increases, online conversion improvement, or comp store sales increases?

Now somebody might say "Yabut Circuit City comps would be really bad without these strategies". And that person might be right.

But isn't it time to question what we're being sold? Isn't it prudent to question established best practices? Might it make sense to question the motives of the folks telling us what multichannel best practices are?

Multichannel Forensics studies suggest that multichannel marketing strategies are less important than customer migration patterns across channels. If channel migration patterns result in the customer landing in a channel (retail) that does not resonate with the customer, then the entire multichannel ecosystem (and corresponding strategies) break down. We just don't think about the entire ecosystem often enough, we don't think about the consequences of a hole in one part of the ecosystem.


This isn't about me, however, and it isn't ultimately about Circuit City --- it is about you.

What do you think about the multichannel strategies we're taught to execute? Do they matter? Have they been proven to increase comp store sales, online conversion rates, sales per square foot, or spend/profit per customer? Would you execute multichannel strategies, or would you pare them back in favor of brilliant merchandising and execution and expense management and customer service?

What would you do to re-invigorate Circuit City business performance?

6 comments:

  1. As you suggested, I would definitely focus on the service and streamlining the operation before pouring huge resources into multichannel marketing efforts.

    I believe the cause for Circuit City's difficulties lie primarily on one thing. And that is the product.

    The best marketing in the world will not make an inferior product (that is the combination of offerings, distribution system and customer service) compete effectively over the long term. Though I have seen numerous examples of superior products failing due to inappropriate or inadequate marketing support.

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  2. Kevin - I think it starts with the brand. There are lots of smart people there that think (or have somehow been convinced) that their brand experience and promise is different/better than the thousand other places people can by wires, connectors and equipment? Why be disintermediated by the hundreds of comparative shopping sites where Circuit City is competing next to Abe's of Maine for a no-margin digital camera sale? Abe's has a lot less overhead and retail space to manage. Take control, and innovate that shopping/comparison experience and use your market strength to promote that innovation.

    http://seekingalpha.com/article/64864-circuit-city-schoonover-s-brand-disconnect

    One price across channels is not a brand promise. That is table stakes! I hadn't thought of it before, but that ticks me off that product pricing would ever be any different?

    Also, having a surgical e-commerce site is great for maximizing items-per-sale, average sale, et al.; but without brewing up some demand from new customers and customers talking to customers, they can't grow. How does Engadget know more about electronics that Circuit City (and get the unbelievable amount of traffic and loyalty)? Produce that content and give it away. If the lawyers don't like that, then they will like it even less when they have to close another 155 stores.

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  3. Gentlemen, how would one explain that Best Buy, with largely the same items and prices and channels, maybe slightly better ratings for service, generates double the sales per square foot of Circuit City?

    They have to compete against Abes of Maine. And yet, Best Buy is wildly successful using the same techniques Circuit City uses.

    My point --- multichannel marketing, as a marketing discipline, generates very little incremental sales, and ultimately has very little relevance among customers --- if it did, Circuit City would be doing much better.

    My readers are seldom able to craft an argument that defends the benefits of multichannel marketing, as described by industry consultants and research organizations.

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  4. Anonymous6:22 AM

    Hey Kevin,

    Great post.

    Most strategists make recommendations on the back of “ecommerce facts” (for example, according to Forrester 83% of shoppers place greatest trust on friends or acquaintances who have used a product or service) yet these statistics change over relatively short time-spans. I am included in this group, before I read your books I would often tell customers “a multichannel customer spends more” and that line has been permanently dropped from my conversations.

    Best Buy and Circuit City are so similar that by just being a little better Best Buy gives customers no reason at all to visit the competitor. No doubt Circuit City has its evangelists and I would devote a big chunk of my marketing budget to talking to these folk and understanding their “unarticulated needs”. I grossly simplify this but I have the luxury of not being part of Circuit City’s strategy team.

    I would also argue that closing 155 stores is not necessarily a bad thing. In the long run it might turn out to be a great strategic move. If Circuit City spends 25% of its marketing budget implementing the “let a thousand flowers bloom” strategy and another 25% observing and measuring each one of these thousand flowers I believe things will turn around for them.

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  5. Kevin - Multichannel Marketing as a discipline should have a significant impact on the bottom line. Not a debate. Comparing CC and BB marketing tactics broadly and then isolating multi-channel marketing as a non-factor is tough for me. The level of sophistication, the amount and degree employed are all crucial factors.

    So in making comparisons of the 2 strategies both have the dominant purchase points of website and retail locations. Both are using in some way the channels of catalog, direct mail, broadcast advertising, in-store promos, OOH, website merchandising, online advertising (banners, comparison engines), paid and natural search, telemarketing, CRM, affiliates, manufacturer coop, mobile (device apps, WAP site, advertising), social networking and microblogging.

    The mix of those channels getting customers and prospects to a purchase point and then getting them back should have a significant impact on incremental sales.

    Maybe BB has been managing this science better and therefore is currently wildly successful? (I'm not sold that they will continue to succeed). Maybe BB is using more channels and making better connections between them?

    I don't believe that CC has done either. They are still stuck in multi-channel marketing circa 1996.

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  6. Thanks for your thoughts, folks!

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