Circuit City pins hopes on smaller format

RICHMOND, VA —Coming off another sub-par holiday season, Circuit City is hoping a new, smaller-format store model dubbed “The City” will deliver big returns in 2008 and beyond.

The chain recently opened its first City store in Midtown Manhattan and expects to have 24 stores open by the end of its fiscal year on Feb. 28. And Circuit City is making the format the centerpiece of its expansion in 2008.

“We plan to open 50 to 60 new or relocated stores [in fiscal 2009] and virtually all of them will be in The City format,” said Circuit City spokeswoman Jackie Forman.

The stores are about half the size of standard outlets and feature new signage and scaled-down departments. At about 20,000 square feet, The City gives the chain greater mobility in a marketplace that’s becoming more crowded.

“They’re more versatile and small enough to fit into areas that couldn’t support a 40,000-square-foot store,” said Pacific Crest Securities analyst Andy Hargreaves, who recently toured The City outlet in Manhattan. He said it’s also a good model for a digital era where stores no longer need to dedicate large amounts of floor space to CD and DVD departments. “They’re better equipped for a retail world were physical content is not as high a priority,” he added.

And that’s a key element for Circuit City, which sees online sales as a driver for future growth. During a recent conference call, ceo Philip Schoonover said he considers the Internet “the front door of CE retail,” and that smaller stores will make it easy for customers to “swing by and pick up” their online purchases. “We’re not tied to the legacy of brick and mortar as we upgrade our fleet,” he said. Online sales have been a bright spot for Circuit City. Schoonover said Internet sales could reach $1.4 billion for the year—up 25% from last year—and should account for 13% of total sales, compared to 8% last year.

Circuit City also made some key executive hires last month as it moves forward with its new strategy. It appointed former Tweeter Entertainment president Jeff Stone as its new evp of business development and hired former A&P and Toys “R” Us executive John Harlow as its new coo. The chain is hoping a new retail strategy and new executives will provide a much-needed turnaround.

Circuit City reported a loss of $208 million for its third quarter last year and didn’t fare much better last December, when it reported an 8.9% drop in sales of $1.92 billion and an alarming 11.4% decline in same-store sales. “Our sales performance, while disappointing, was in line with expectations,” said ceo Philip Schoonover. The chain is also expecting to report a “modest loss” for its fourth quarter that ends this month.