Circuit City: R.I.P.

So as I’m sure everyone knows by now: Circuit City is going out of business and is going to liquidate it’s remaining stores. At this point I don’t have much more to say on the subject aside from the following:

The consumer loses by only having one major consumer electronics retailer left in the marketplace, as it leaves Best Buy without a competitor for many of its higher-end offerings and may very will give the consumer fewer choices product wise.

Bad management is the true culprit: while the credit crunch and competition from discounters were indeed factors, I believe they were minor factors in the end because CC’s problems pre-date the credit crunch and circuit city sold a host of products you couldn’t find at the discounters anyway. Not to mention the fact that the typical consumer is going to have more faith in CC supporting a big ticket electronics purchase, than the local Wal-Mart. At the end of the day CC died because it has been a poorly managed company for nearly a decade (if not longer), all the credit crunch and the discounters did was to hasten it’s demise by a few quarters or more.

Name recognition does not a strong brand or solid investment make. A little over a year ago there were a couple of articles touting Circuit City as a strong buy (in spite of its troubles), base on the idea that the company had too strong a brand (based on name recognition to fail), therefore management would either turn it around or someone would be willing to buy the company.

The thing is a strong under-valued investment is one where the market is either undervaluing a deceptively strong company, or simply doesn’t recognize the company’s strength, not a company that simply has a stock price that is mathematically cheap.

Brand strength doesn’t come from name recognition, it comes from the consumer’s faith in the ability of a company to produce superior products, deliver high quality services, etc, when compared to its competitors. Just think about it: Chrysler is a very well known brand name, but do the majority of car buyers believe they produce a better car than the typical Honda? Better yet, you have a strong brand when people are willing to pay more for your product than a lower priced competitors, because they believe they’re getting more for their dollar despite the higher price.

Does any of the above sound like the now defunct Circuit City? Of course not.

Don’t get fooled by investment analysts touting a company as a buy based on name recognition because a lot of formerly well known names are no longer with us, when is the last time any of you shopped at a Montgomery Wards?

In the end this is a very sad story and my heart goes out to the people whose livelihoods are being affected by this, it really didn’t have to be this way and wouldn’t have been if certain individuals had simply faced reality, studied their competitors and executed appropriately.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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