Saturday, February 16th, 2008

Circuit City: Schoonover's Brand Disconnect


If an interview in the Wall Street Journal is any indicator, the latest demonstration of this inability to grasp the obvious comes from the Chief Executive of Circuit City Stores Inc. (CC).

Too often, the new CEO of an under-performing company focuses first on cost-cutting rather than revenue growth. The reason is that cost-cutting is easier than increasing sales. A cost-cutting plan may also be more quickly implemented, telegraphing "action" to a quarterly-focused Wall Street.

In contrast, developing a plan to build sales while increasing margin is more difficult, and more time consuming. It requires the CEO to ponder why their organization and products matter in a competitive marketplace.

To effectively drive sales, the CEO and his/her team must be able to define why they are, so that they become the only logical choice for what they offer. For many an otherwise certified smart CEO, it is a counterintuitive task at which many languish and even fail.

In the Wall Street Journal Q&A with Circuit City's CEO, Philip J. Schoonover offers this:

WSJ: How is Circuit City's multichannel approach — store, Internet and call centers — any different from the approach of its two bigger rivals, Best Buy and Wal-Mart Stores Inc.?

Mr. Schoonover: We have a culture that is beginning to cooperate and work together to provide a customer experience that is different and better. One example is our 24/24 promise. Order online, and we'll have your purchase ready for you at a store in 24 minutes. If not, we'll give you a $24 gift card. Our technology is unique and allows us to make that promise. Another is content. We have product reviews by leading consumer magazines. We have a whole explanation on what you need to make this new digital entertainment world work.

Mr. Schoonover claims Circuit City is different by being "unique" and, well, "different." Instead, he would do well to look at the recent experience of another CEO who failed to understand the importance of articulating a simple brand promise demonstrating a memorable point of difference, and the predictable result.

The story of Paul Pressler's reign at The Gap (GPS) offers a cautionary tale of what happens when a CEO fails to think of brand strategy as business strategy. It is a lesson best illustrated by the backstory of Mr. Pressler's failed development of a new Gap Inc. retail concept, Forth & Towne:

Gap designed Forth & Towne to offer baby boomers a miniature version of the department stores they grew up with, stocking four different labels under one roof...

Forth & Towne, or F.A.T, ...never developed an engaging story to support the concept. And it never settled upon a single point of difference to set it apart from competitors. Forth & Towne tried to be too much for too many audiences.

How did this happen?

In a stunning display of corporate homogeneity, the suits at The Gap failed to articulate a simple guiding promise for the new brand, as demonstrated by how they settled upon a name for the new concept which offered no clue of a reason to care about it. The team at Gap Inc. thought they were playing it safe, when instead their decision had the effect of issuing an execution order for the new concept before it was launched.

Circuit City's CEO makes the same mistake, as he fails to articulate what about Circuit City is truly different when compared to competitors such as Best Buy (BBY), Costco (COST), and Wal-Mart (WMT). By speaking in platitudes, Mr. Schoonover fails to demonstrate why Circuit City exists, so that they become the only logical choice for what they offer.

This failure to focus on brand has been devastating.

Mr. Schoonover became CEO at Circuit City in March of 2006. Three months later Circuit City shares traded at a high of $30.49. Since then the stock has fallen to $4.79 per share at market close on February 15, 2008, a decline of 83% in some 20 months.

Yet a turnaround could be achieved with an effective rethink of the Circuit City brand.

But that takes guts, and appropriate leadership.


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