Circuit City: Liquidation Sale or Marketing Ploy?

[Kester Pelagius]

If you have access to television, newspapers, or the internet then you've probably heard that Circuit City, one of the larger electronics retailers in the U.S., filed for bankruptcy last year and recently announced it's closing all it's stores and liquidating it's stock.  Or is it?

If you haven't gotten to the Circuit City store in your area yet there's a few things you need to know, because the store I went to had no information posted about sales save for announcements that ALL SALES ARE FINAL. The latter being posted all over the store I recently visited, yet no mention of what sort of SALE was in effect had been posted anywhere. To find out what the sale is you have to go to the registers which, despite everyone I saw walking out empty handed, had long lines. So to save you the headache I've posted my findings at: Cosmic Cinema, Mise-en-scene Crypt, and Mise-en-scene Crypt Archive blogs.

I present that article purely as consumer information.

[Jim H]

I'll just mention that Circuit City hired someone to do the liquidation.  Don't remember what company, but ALL Circuit City stores are going to closed by the end of March.  So I'd say at this point it really is a liquidation sale, just a really crappy one, and they're probably going to gradually increase the percentage over the next month and a half.  It's certainly not worth it at this point though, unless you're planning to buy something which has a set-in-stone price (like recently released video games - $45 is certainly better than $50).

[LilCerberus]

thanks for reminding me

[Torgo]

If they manage to severely mark down their HD TV's, I think I'm going to try to go that route to upgrade my television to HD.

[The Burgomaster]

It is important to remember that liquidation sales are often regulated by the bank the company has loans or lines of credit with.  The store inventory is collateral for this debt, so the bank won't allow the store to just hack and slash prices irresponsibly.  That is why liquidation sales start with low discounts.  Then, as there is less and less stock on hand (especially stock of popular items) the discounts become larger.  There needs to be an orderly progression. 

[CheezeFlixz]

They liquidated the store here before Christmas and the what they (The liquidators) did was to mark everything up to full retail price (MSRP) and then discounted it ... it wasn't until the prices got below 50% that they were cheaper than Best Buy. I didn't buy anything until it hit 75% off.

FYI.

Oh I got a ION turntable and when they were regularly open it was 99.95 at liquidation it was jacked up to 149.95 ... I didn't get one until it was down to $50.00

[Rev. Powell]

Burgo & Cheeze are right.  It's still a liquidation sale, they just try to have to get rid of everything they can at 10% off before they move to 20% off, etc.  That's absolutely the RIGHT way to do a liquidation sale.  They have a trustee has a responsibility to make sure they maximize the value of their remaining inventory so their creditors will get paid as much as possible.   

The liquidation announcement was very well marketed (I fell for it) to make it sound like they're selling at fire-sale prices, when they aren't--yet. 

If you have the patience to wait a few weeks or months, prices will probably drop further, although they will sell out of a lot of the more popular items in the meantime. 

[CheezeFlixz]

When they closed the store here it went like this ...

10%-20% for a week of so
20%-30% for a week or so
30%-50% for a week or so.

The last 5 days of the sale were ...

5th to last day 50% or more
4th to last day 60% or more
3rd to last day 70% or more
2nd to last day 80% or more
last day 90% or make an offer

They have a date to be closed by

[Jack]

According to their website they have to pay all their employees for 60 days, so yeah, good deals around day 59.

Consistent with federal labor laws, Circuit City associates are receiving 60-days notice of the termination of their employment.  Those who stay on to help with the liquidation, of course, will receive pay and benefits. Those who are dismissed earlier will be receiving pay and benefits for the 60-day period beginning January 16, 2009.

Personally I think it's always a mistake to deliberately mislead customers.  They packed the store with people expecting liquidation sales - huge reductions.  Now they're all P.O.'d and won't be back.  That means a whole lot less people will be buying stuff at 20%, 30%, 40% off, etc.  They'll start coming back when the sale prices actually live up to the original hype, which means that a lot of stuff that could have been sold at 20-30% off will be sitting around until it's 40-50% or lower.  That does NOT maximize profits.

[Rev. Powell]

According to their website they have to pay all their employees for 60 days, so yeah, good deals around day 59.

Consistent with federal labor laws, Circuit City associates are receiving 60-days notice of the termination of their employment.  Those who stay on to help with the liquidation, of course, will receive pay and benefits. Those who are dismissed earlier will be receiving pay and benefits for the 60-day period beginning January 16, 2009.

Personally I think it's always a mistake to deliberately mislead customers.  They packed the store with people expecting liquidation sales - huge reductions.  Now they're all P.O.'d and won't be back.  That means a whole lot less people will be buying stuff at 20%, 30%, 40% off, etc.  They'll start coming back when the sale prices actually live up to the original hype, which means that a lot of stuff that could have been sold at 20-30% off will be sitting around until it's 40-50% or lower.  That does NOT maximize profits.

Jack, MAYBE you're right, in theory, but I'm sure whoever's managing the liquidation sale has done plenty of studies on previous sales to come up with the optimal model.  I'm sure plenty of people will buy stuff at only 10% off.  It's always a mistake to mislead customers (and I'm not sure they actually have) if you're a going concern, but they don't have to worry about customer goodwill beacause they won't be around two months from now. 

Bottom line is, if you wait a few weeks, you'll be rewarded with much better bargains.  That just rewards smarter consumers.

[Jim H]

I'll just say the first day a lot of people WERE buying stuff at my CC.  It kind of annoyed me, because it was clear in a lot of cases they were buying stuff they wouldn't have normally.  It bugs me when deceptive practices (like raising a price and then discounting it again, as Circuit City did) tricks consumers.

I left without buying anything.

[Kester Pelagius]

The liquidation announcement was very well marketed (I fell for it) to make it sound like they're selling at fire-sale prices, when they aren't--yet.

My point exactly.  This isn't a liquidation firesale so much as a third party entity taking over the assets of CC and trying to sell them for max profit.  Now I understand the company's goal is to liquidate the stock quickly for as much money as they can get for it, but the way they've gone about it is disingenuous.

I'm sure plenty of people will buy stuff at only 10% off.

Sadly you're probably right.  And it's not even that these people are fools so much as there's probably a LOT of people out there stuck with CC gift cards who will rush to make use of them.  Which is probably what the company running the liquidation is hoping for, knowing that those gift cards probably wont cover the full purchase price of big sticker items.  Problem is no one was buying anything.

With the economy the way it is most people have probably been keeping an eye on prices and are aware they aren't getting any deals at "10%", which reall comes to 2-4% after you figure in sales tax.  These companies view the public as ADD riddled idiots and I, for one, am tired of corporated entities and their sense of entitlement to the money in my pocket.

According to their website they have to pay all their employees for 60 days, so yeah, good deals around day 59.

What employees?

I am not kidding when I say the Circuit City near me has been run like a restroom at a reststop for the last half year or so.  This Circuit City was poorly managed, if you can call their absentee style of customer care/store service management.  If you walked into this particular CC in the past 6-8 moths you'd be in a largely empty store.  (Aside from the one or two guys playing with the stereo equipment in the back of the store who'd disappar if you ever asked them to DO anything.)  The few customers there stood around the unmanned cash registers waiting, waiting, then left.  I know as I walked out several times because there was no one to ring me up, and I was only there because they had something on SALE.  And that's probably the saddest part of all.

I got the impression the CEO's bailed out on their golden parachutes long before the bankruptcy.  In fact I was surprised the closure of the retail chain didn't come sooner.

[Rev. Powell]

The liquidation announcement was very well marketed (I fell for it) to make it sound like they're selling at fire-sale prices, when they aren't--yet.

My point exactly.  This isn't a liquidation firesale so much as a third party entity taking over the assets of CC and trying to sell them for max profit.  Now I understand the company's goal is to liquidate the stock quickly for as much money as they can get for it, but the way they've gone about it is disingenuous.

I get your point and agree that it may be disingenuous.  It's just the lawyer in me that wants to fine-tune the language.  "Liquidation Sale or Marketing Ploy" makes it sound like they're not really going out of business, they're only pretending to be going out of business to trick customers, like that shop on Times Square that was going out of business for over a decade.  (I wonder if they're still in the process of going out of business?)

Bottom line is, they are being somewhat deceptive.  But in the end it means that the more gullible consumers get only 10-20% off, while more savvy consumers may wait and get 50% off or more.  Maybe it's shameful, but I kind of like it--it's like a tax on ignorant shoppers.

[Kester Pelagius]

I get your point and agree that it may be disingenuous.  It's just the lawyer in me that wants to fine-tune the language.  "Liquidation Sale or Marketing Ploy" makes it sound like they're not really going out of business, they're only pretending to be going out of business to trick customers, like that shop on Times Square that was going out of business for over a decade.  (I wonder if they're still in the process of going out of business?)

Bottom line is, they are being somewhat deceptive.

I'm not doubting CC is no more, but that's part of the problem.  The sale is being run by a third party liquidator company/service NOT CC, right?  If so that means CC is already out of business.  There should be a law that requires disclosure of the fact you're no longer dealing with the company who's name is on the storefront.

IBut in the end it means that the more gullible consumers get only 10-20% off, while more savvy consumers may wait and get 50% off or more.  Maybe it's shameful, but I kind of like it--it's like a tax on ignorant shoppers.

Good point.  I never thought of it that way.

[Rev. Powell]

I get your point and agree that it may be disingenuous.  It's just the lawyer in me that wants to fine-tune the language.  "Liquidation Sale or Marketing Ploy" makes it sound like they're not really going out of business, they're only pretending to be going out of business to trick customers, like that shop on Times Square that was going out of business for over a decade.  (I wonder if they're still in the process of going out of business?)

Bottom line is, they are being somewhat deceptive.

I'm not doubting CC is no more, but that's part of the problem.  The sale is being run by a third party liquidator company/service NOT CC, right?  If so that means CC is already out of business.  There should be a law that requires disclosure of the fact you're no longer dealing with the company who's name is on the storefront.

I don't know the details but I'm sure things are being run by a third party, a receivership.

Conceptually this kind of big business bankruptcy can be hard to understand; it's not exactly like a personal bankruptcy.  If a company files Chapter 7 then it continues to exist.  Therefore CC still exists, at least until it pays off all the debts it can. 

The reason a 3rd party is needed is because CC's current management has no incentive to maximize profits.  Their jobs are gone soon, and some of their compensation was probably in stock that's worthless now anyway.  They can't make any profit for themselves or the compnay anymore, because they owe more money to creditors than the value of their entire inventory.  If Circuit City's CEO, President, Vice President has their way they'd just resign and go find a new job as quickly as possible.  They might sell their entire inventory for next to nothing just so they can get the hell out of Dodge and get on with their lives.

That wouldn't make all their suppliers and creditors and the banks that made them loans and are still owed money very happy, though.  So you need a third party company who handles liquidations as their primary business to do it for them.  They have an incentive to maximize profits, because if they do a great job maximizing the value of the liquidation, they'll get hired again to liquidate some other bankrupt company.

So I don't know if that part's exactly deceptive; imprecise, but it doesn't really harm the consumer.  Consumers don't know a lot about business bankruptcy, it's probably just too complicated to explain and likely to confuse them.  Just think of it as the same company, run by new management who came on board specifically to conduct the liquidation.