With the recent announcement by Circuit City to close 20% of their stores, there will be quite a bit of discussion about their reason for failing. Typically when a chain the size of Circuit City begins to fail, there aren’t just one or two factors but there are typically one or two that stand out above the rest. This is especially the case with Circuit City where competitor Best Buy continues to thrive in spite of difficult economic times.

I had the opportunity to meet with Circuit City in 2004 when they were considering the purchase of a company I helped start. Having the opportunity to sit in a room with senior executives gives you a unique view into the culture of a company. After 15 minutes of discussion, it become very clear that Circuit City was too busy trying to figure out how to match and follow Best Buy at their every move versus leading the industry. Granted, paying attention to your competition is important but if all you do is follow in their footsteps, you are at a competitive disadvantage. Meanwhile Best Buy was busy reinventing their company.

While things were going well for Best Buy, they realized that several things were happening in the marketplace. Margins for TV’s, computers and other electronics were shrinking while CD music sales were also seeing a decline. Pressure from internet based companies and the scariest competitor of them all WalMart made Best Buy realize they needed to adapt and change to stay competitive. One of the most visible things Best Buy did was buy a little company called Geek Squad for $3 million in 2002.  By beafing up services offered within stores, Best Buy was able to take a low margin sale like a PC and add services or additional components to the sale via Geek Squad staff within a store. This not only added money to the bottom line but it also improved service to a customer by adding additional value. Today the Geek Squad name is also used in audio, video and business services offerings with revenues exceeding over $1 billion a year for Best Buy with excellent margins. Best Buy also implement a customer centric initiative that was highly successful where stores were tailored towards certain customer segments based on location demographics. These innovations coupled with Circuit City’s slow to follow culture and failure to innovate on their own have put us where we are today, significant store closures for Circuit City. Sure they have Fire Dog today but will they be enough to put out the fires within the Circuit City brand? I doubt it.