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Lack of Discounting Hurt Circuit City Sales

8 Dec, 2004 By: Holly J. Wagner

Circuit City executives laid part of the blame for weak sales in its third quarter ended Nov. 30 on a decision not to play the street-date discounting game on DVDs and CDs, which cost stores traffic.

“Our sales performance in the third quarter did not meet our expectations, and the weakness was magnified by a number of factors. First, a strategic decision to be less promotional than last year in music and movie software, coupled with a weaker new release schedule, resulted in lower traffic and sales,” said chairman, president and CEO W. Alan McCollough. “Second, business model changes in digital satellite services and wireless phones and related products negatively impacted sales.”

Decreases in music and movie software sales accounted for about 160 basis points of the company's comp-store sales decline, the company reported, noting the decision to promote and price music less aggressively and to limit quantities of the most promotional offers on Black Friday had a negative impact on that day's sales.

In the entertainment category, comp-store sales slid by double digits in video and music software and single digits in game products. Entertainment accounted for 13 percent of Circuit City's revenue, down from 14 percent in the comparable quarter last year.

Comp-store sales for the third quarter in the video category were relatively unchanged, but that rested on triple-digit comp-store sales growth in plasma displays, double-digit comparable store sales growth of LCD displays and digital imaging products and single-digit comparable store sales growth in digital televisions. The drag was double-digit declines in tube television, DVD player and digital video service comp-store sales and a single-digit decline in camcorder comp-store sales.

For the third quarter, total sales increased 3.8 percent to $2.50 billion from $2.41 billion in the same period last year, with comp-store merchandise sales decreasing 4.3 percent.

The chain opened 18 U.S. superstores, plus a dozen more stores, and it fully remodeled one superstore. The company expects to open nine more superstores and relocate another seven in the fourth quarter.

Circuit City plans to report third quarter results Dec. 17.

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