Tuesday, December 16, 2008

Circuit City Advertises From the Terminal Ward

Back on November 10, Circuit City filed for chapter 11 bankruptcy. This is a long time coming for the retailer who has seen competition spring up from big boxes like Best Buy, Target, and Walmart and countless numbers of online retailers.

What I find surprising is the stream of ads coming from the company as it teeters on oblivion. Obviously, if they hope to survive reorganization then they will need to keep consumers coming into the store. But, spending $405 million in fiscal 2008 - 17% of gross profit - on marketing seems a little overboard.

Moreover, here in the Chicago Metroland Area the company is running cheaply made "we're liquidating" ads on top of the current ad campaign on the same television stations. These mixed messages are poison to the company.

First, if I actually had money to spend in this economy and I was looking to make a purchase of some high end product then I would not want to go to a retailer who might not be around in a few months. In the event something goes wrong with my purchase my first preference is to go to the retailer for a return or an exchange, rather than try to contact the manufacturer through a warranty.

This leads me to my next point: warranties. Retailers like Circuit City have based large portions of their business models selling extended warranties. If they're going to continue to push these on consumers who's going to be dumb enough to gamble on the company's existence?

Finally, unlike other companies that have successfully gone through recent reorganizations, Circuit City lacks defacto traffic like the United Airlines. UAL was able to advertise in the same manner as they had prior to bankruptcy because people still needed to travel to areas where they were the main operator and planes weren't falling out of the sky. Circuit City does not have the luxury of running ads with blinders on.

If they continue to advertise this way, then they must pick separate channels to advertise the liquidation and the stores that are going to survive the current cut. Otherwise, they are going to be closing the rest of their outlets in the near future.

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