Category Archives: Retailers

Target Stores – An Identity Thief’s Best Friend ?

Is Target Stores, Inc. targeting your sensitive personal data ?  (image from angrywhiteboy.com)

Is Target Corporation targeting your personal data ? Will a data breach make you a victim of identity theft ? (image linked from angrywhiteboy.org)

You might have found this article after asking…

Why did Target scan my drivers license, or

Why did Target swipe my drivers license, or

Is Target collecting personal information from my drivers license, or

What is the Target stores ID policy, and what if I refuse to give them my drivers license,  or

Did a jury award  South Carolina Target shopper Rita Cantrell $3.1 million in a libel case, after she was wrongly accused of trying to pass a counterfeit $100 bill at Target ?

Maybe Eric Arthur Blair was right (you’ll probably know who he was, even if you don’t recognize his name).

We very rarely shop at Target, but happened to find ourselves in a Target store recently.  While our order was being scanned at the register, even before we decided how we would pay, the cashier asked for our drivers license.  When asked why they needed to see our drivers license, they told us that it was because we were buying a package of over-the-counter cold medicine.  Since we are closer to retirement age than we are to the age of majority, we can’t remember the last time a clerk or cashier “proofed” us.  But since we want to do our part to make sure that no minors can get relief from their cold or flu symptoms, we graciously handed the cashier our license.  We quickly regretted complying with their request, when, to our horror, the cashier scanned the barcode on our license with their barcode reader, before we realized what they were doing, and before we had a chance to stop them.  It is worth noting that the last time I checked, this was still America, and there was absolutely no legal requirement for a retailer to scan or swipe your drivers license, or any other form of ID when purchasing medications, alcoholic beverages, etc.  Target appears to have adopted this misguided policy to protect themselves, and to possibly make their job easier (but at your expense).  What’s next ?  Scanning a barcode tattooed on your forehead by the State, or scanning you for the mandatory RFID chip implanted under your skin at birth ?

It seems to us that Target might be capturing at least some the information embedded in the barcode of your drivers license.  If not, then simply having the cashier confirm the date of birth printed on the license would suffice, and scanning the license would serve no purpose.   This makes us wonder what they might be doing with the data.  How long are they retaining the data ?  Do they sell the data, or use it for marketing purposes ?  Will they provide the data to the government, either voluntarily or in response to a subpoena or a National Security Letter ?

As (now very wealthy) South Carolina Target shopper Rita Cantrell can attest, Target can’t distinguish real currency from counterfeit.  Likewise,  we have little confidence that their employees, POS scanners or computer systems would be able to tell a fake drivers license barcode from the real thing.

Are you wondering what information Target (and other retailers) can capture from your drivers license barcode, in this post-9/11, “Homeland Security” driven world ?  The American Association of Motor Vehicle Administrators (aamva.org) publishes the standards that the individual states follow when designing their drivers licenses.  This AAMVA document (in .PDF format) lists 22 mandatory and 23 optional data elements that are encoded into the PDF417 barcode that is used on U.S. drivers licenses.  Did you know that items such as a driver’s race/ethnic group and social security number can be embedded in the barcode ?   The individual states are free to add additional data elements that are not included in the AAMVA standard.

Sample License

We suspect that Target would be happy to sell cold medicine to this fellow, as long as he allows them to scan his drivers license.

Even if Target Stores does not have any ulterior motives, the fact that they are able to capture any or all of the data embedded in your drivers license barcode exposes their customers to the threat of identity theft.  The fact that their name is Target doesn’t help the situation either, if you catch our drift.  I mean, just look at their stores… they put a big red bulls eye right on the front of every store !  If that isn’t taunting all the hackers out there, I don’t know what is.   Maybe we would be less concerned if their name was “Fortress” or something along those lines, and their logo was a bank vault, rather than a bulls eye.  Even their cute mascot, Bullseye, looks like he would rather lick you to death than defend the company’s customer data.  Retailers, credit card companies, banks and other businesses are constantly making headlines because their networks are hacked into, their data stolen, and their customers or employees personal and financial information  compromised.  Sometimes it’s a hacker breaking into a computer network.  Sometimes, it’s a rogue employee inside a company or at a vendor that has access to a company’s systems.  Sometimes, it’s a laptop computer containing sensitive information that is lost or stolen.  Sometimes, backup tapes are lost in transit to an off-site storage location.  There are many ways that customer data can be put at risk of theft.

Now we’re wondering if we will pick up the newspaper one day, and see the headline “Target Stores Targeted By Hackers,  Personal Info From 50 Million Customers Stolen”.  Think it can’t happen ?  Think Again.  It has happened to other large retailers, banks and credit card companies.

How can consumers protect themselves ?  Well, it’s nearly impossible in the age of  The Internet and when “plastic” has largely supplanted the use of cash.  But nothing says that you have to shop at a retailer that unnecessarily places your personal information at risk, even if its only a potential risk.   We doubt that we will be shopping at Target stores again, but if we do, and we are asked for our drivers license in the future, we will refuse and walk out.  If collecting our personal data is more important to Target than keeping us as a customer, we will gladly take our business elsewhere, and patronize a business that does not unnecessarily expose us to the threat of identity theft.  Speaking of Target, we think that letting retailers scan and capture the data stored in your drivers license barcode is a lot like placing a bullseye on your back.

We are normally happy to accomodate a  merchant’s request to provide suitable ID, especially when the transaction involves payment by check or credit card, or we are returning an item, but Target’s policy is unacceptable, and we believe, simply wrong.  And we’re not the only one who feels this way.  This article at informationweek.com echoes our concerns about Target’s policy.  From a purely practical standpoint, we suspect that draconian policies such as the one put in place by Target will backfire, with (even more) people simply deciding to steal the medication.  OTC pharmacy items are already the most frequently shoplifted items (see this list of the 50 most frequently shoplifted items).   And isn’t it just a bit ludicrous (not to mention, rude) to ask a senior citizen buying cold medicine to prove they’re 18 years old ?

As far as we know,  Target customers concerned about identity theft can still do their shopping at Walmart without having to show them your drivers license when buying cold medications.  If you are very obviously over the age of 18, and asked for your drivers license at a Target store, we suggest that you decline.   If they persist, simply tell them that under the circumstances, you have changed your mind and don’t wish to purchase anything.  It won’t take Target very long to realize that their policy is costing them business, and that they need to change it.  They might not enjoy having to put all your stuff back on the shelves after you walk out without buying it, but at least your personal data will be safe.

– Routing By Rumor

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Filed under 9/11, Business, Consumerism, Law Enforcement, Life, Money, Retail, Retailers, Routing by Rumor, Shopping, Technology, Terrorism, Walmart, Your Money

Good News For Costco, Bad News For Consumers !

We must be getting old, here at Routing By Rumor world headquarters, because we’re not spotting deceptive consumer practices as quickly as we used to.  If you’re a regular visitor to these parts, you’ve heard us complaining about manufacturers who downsize their products, and about manufacturer’s practices we’ve termed “deception engineering“.

Case in point…  When last month’s “Costco Connection” advertising and propaganda publication  arrived (they call it a “lifestyle magazine” –  believe that, and we have an “infomercial” we want you to watch), we found great news on page 52  (View the April edition of Costco Connection here).  Costco announced, in a two-page article, that while other brands of tuna fish were shrinking their cans from six ounces to five ounces, Costco was increasing the size of their  “Kirkland Signature” house brand of tuna fish, from six ounces to seven ounces.  You don’t read good news like that every day.  Sounds like they’re making an already good value even better.  Break out the mayonnaise and strike up the band.  Happy days are here again!

Or are they?

It turns out that it’s good news for Costco, but bad news for Costco members (and, we suspect, for those cute little tuna fishies).  While it’s true that they have increased the size of their Kirkland Signature tuna fish by 16.6%, to seven ounces, consumers are not getting more tuna for their money.  The article in their Costco Connection magazine somehow forgot to mention the fact that the price per can actually increased even more than the size of the can!  Bottom line: You get more tuna per can, but the price per ounce has increased.

Silly us.  We thought we might be getting more tuna fish for the same price.  In actuality, while the size of the cans was increased a whopping 16.6%, the price per can has increased an even more whopping 20%.  Packs of eight 6-ounce cans  had sold for $9.99 in area Costco Wholesale warehouses.  Now that they have introduced packs of eight 7-ounce cans, Costco has raised the selling price to $11.99, a 20% increase.  By the way, didja ever notice how most grocery items at Costco seem to be sized so that the average price per package is around $10 or $12 ?  Throw 9 or ten items in your cart, and you just spent at least $100.  But we guess that’s the whole idea of shopping in a “warehouse” club.   And why does the price of everything have to end in “.99”, ie: $9.99, $11.99, $14.99 ?  We realize that Costco didn’t invent that pricing strategy, but if you’re shopping in a place like Costco, which says it caps  it’s margin** (see below) at 14%, it seems like a suspicious practice to cynical little us.  Like maybe if their normal markup dictates a selling price of $12.35, it gets rounded UP to $12.99, just because someone at Costco likes the number 99, and rounding it up to an even $13.00 might seem, well, excessive.  Yes, we know that 13 is not an even number, but you get the point.  Besides, 1300 IS an even number, which is sort of odd, when you stop and think about it.  Then again, maybe we’re paranoid, and when they have an item that should sell for $12.35, they decide to give their members a break, and round the price down to $11.99.  Yeah, right.  All we know is that if you look at your receipt the next time you shop at Costco, just about everything except random-weight packages of meat, poulty, fish, etc., will end in “.99”.  But even those random-weight items will have a unit price ending in “.99”, such as $5.99 per pound.

But then, there are a lot of odd things at Costco, like the fact that they will accept any credit card in your wallet, as long as it is from American Express.  And the fact that they don’t offer grocery bags, so you end up throwing 500 loose items into your car in the parking lot.  And the fact that they won’t accept any manufacturer’s cents-off  coupons, unless they are distributed by Costco themselves.  And the fact that they have pretty limited hours of operation, especially for the lowest-cost membership holders. And the fact (according to this New York Times article), that Costco refuses to accept food stamps (now issued as debit cards) for purchases.  And the fact that you’ll find horrifically environment-unfriendly packaging of many small items (especially electronic items) at Costco, which doesn’t seem to be getting Costco members too upset.  We’re talking huge plastic blister packs (which can’t be recycled, at least where we live), or combination plastic and cardboard blister packs, so that these small items are less likely to be stolen.  In our opinion,  some of the terribly excessive packaging at Costco and other warehouse-type retailers qualifies as a crime against the planet, even if it doesn’t happen to be illegal.

Now, we’ll admit that we aren’t going to stop buying Costco tuna fish.  It’s actually excellent quality tuna.  It is quite possibly the best quality tuna we have ever found, at any price.  But those good folks in Seattle must think their customers are idiots.  To be sure, the price per ounce has increased only slightly, and it’s still a good value.  But shamelessly hyping the increased size of their cans of tuna fish, and not mentioning that it’s now more expensive and was actually a better value before they increased the size of the cans isn’t what we would consider good news or being straightforward with their customers .  In our opinion, it borders on deceptive advertising.  Of course, you can’t  expect that manufacturers will go out of their way to let you know when they raise prices, downsize a product, or substitute cheaper ingredients, either.  What we don’t like is the fact that, in our mind at least, Costco’s announcement paints a picture that it’s now a better value, when the opposite is actually true.

Since when is raising the price (per ounce, per pound, per gallon, etc.) of a product, while at the same time, forcing you to buy more of it at once, a good thing for consumers ?  What ever happened to the warehouse club concept that as package size increases, so does value ?

For us, the appeal of shopping at Costco isn’t so much about price, as it is about quality.  After all, shopping at Costco means an extra shopping trip,  an annual membership fee, not getting your groceries bagged, often waiting in long lines at the checkout, limited shopping hours and very limited product selection.  Indeed,we can buy many identical items for less at the local supermarket, especially when they’re on sale or if we use manufacturer’s coupons.  What we like most about Costco is that the quality of their private-labeled items, such as their tuna fish, is generally superior to not only the national brands, but any brand at any price.  Even Jimmy Kimmel shops at Costco.  Watch Jimmy shopping at Costco on youtube.  We never knew a trip to Costco could be so much fun.

An article entitled “Costco’s Artful Discounts” (Business Week, October 9, 2008), says this of Costco CEO James D. Sinegal… “he’s constantly pushing his buyers to find creative ways to lower prices and add value while getting his managers to crank up their efficiency efforts”.  It seems to us that Costco’s new 7-ounce cans of tuna have failed to deliver the lower prices or added value which Mr. Sinegal is so fond of.  What they do seem to have provided is a lot of hype for Costco’s marketing efforts, and very likely a higher profit margin because a product’s shipping and packaging costs (especially for canned items) decrease (on a percentage basis), as container size increases.  There is very little difference in the cost of manufacturing a 7-ounce tin can, compared to a 6-ounce tin can.  In fact, in the case of Costco tuna fish, the old and new cans use exactly the same size lid; but the walls of the can are slightly taller.  Costco is also very good at finding ways to minimize shipping costs, for instance, by having their vendors redesign packages so that more of them can fit onto a standard shipping pallet.  We wouldn’t be surprised if Costco’s next “improvement” to their Kirkland signature tuna will be to offer it in new and improved square cans.  Think of all the space that will save in the pantry, and the fact that you won’t have to worry about your can of tuna fish rolling away, should you drop it.  That’s always been a big problem for households that live in hilly areas.  Now, if the United States mint would only start issuing square pennies !

1919 Australian Kooka Square Penny

1919 Australian Kooka Square Penny

So, what have we learned today, class?  We’ve learned that you get less for your money when manufacturers shrink the size of their products,  and sometimes, you get less for your money when manufacturers increase the size of their products.  Heads, you lose.  Tails, you lose.

Dear Costco… May we please have our old 6-ounce cans of Kirkland Signature tuna fish back again?  They were a better value.

Then again, maybe we should just pay our money, eat our tuna fish (mercury content and torpedoes be damned), and keep our mouth shut.  Mother always said you shouldn’t speak with your mouth full, and now it’s 16.6% more full.

– Routing By Rumor

**  “Margin” is not the same as “markup”.  For instance, if you buy an item for $1.00, and sell it for $2.00,  your markup is 100%, but your margin (the percentage of the selling price that represents your profit) is only 50%.   We’ve always felt that putting things in terms of profit margin instead of markup, especially as markups become greater, has the effect of making a seller’s prices seem more reasonable.

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Not All Half-Gallons of Ice Cream Are Shrinking !

A Costco Wholesale location (image from schaperco.com)

A Costco Wholesale location (image from schaperco.com)

Amid the pandemic of shrinking products that is sweeping the nation, its nearly impossible to find a half-gallon container of ice cream that is still a full half-gallon, or 64 ounces.

First, manufacturers, including one of the downsizing leaders, Breyers (Unilever), shrunk their half-gallon ice cream containers to 56 ounces. More recently, almost all brands have downsized yet again, to 48 ounces (1.5 quarts). See our previous article about Breyer’s shrinking their ice cream containers. These days, the freezer at Routing By Rumor headquarters usually does without ice cream. Funny, but when we walk down the frozen food aisle in the supermarket and see the miniaturized containers of ice cream, we loose our taste for the product.

By the way, we realize that we may be jumping to conclusions by blaming the ice cream manufacturers for cheating us out of our hard-earned ice cream. It is entirely possible that this is what is actually going on.

But ice cream lovers (and lovers of value) rejoice ! If you shop at Costco Wholesale, you will still find full half-gallons of “Kirkland” ice cream. Sixty-four creamy, delicious, luxurious, decadent, fat-laden ounces. At about $4.50 per half-gallon, it’s less expensive than the anorexic-looking downsized containers of name-brand ice cream at the supermarket, which contain 25% less product. And Costco’s house brand of ice cream is available in any flavor you like, as long as it’s vanilla. That reminds us of what Henry Ford said about his Model T back in 1909. Poor Henry. He never knew the joy of shopping at Costco.

Henry Ford with his Model T Ford

Henry Ford with his Model T Ford

One of the tenents of shopping at Costco is that you sacrifice variety for value. You also have to buy a carton of two half-gallons at a time, but how many people are going to complain that they are forced to fill up their freezer with ice cream ?

One thing you won’t have to sacrifice is quality. Costco branded products have never disappointed us. We have found them to always be superior to the national brands in quality and/or value. Here’s a particularly stark example. Gallon containers of milk are $2.25 at Costco. Many local stores charge more for a half-gallon of milk than Costco charges for a gallon ! There are many items at Costco that are priced at less than half of what you’d pay at your local supermarket.

Lest you think that we are little more than shills for Costco, you’ll want to know that we aren’t crazy about everything at Costco. While many items at Costco might be slightly less expensive than your supermarket’s everyday prices, you’ll pay less, sometimes a lot less, at your local supermarket when it’s on sale. Meat and poultry are perfect examples of this. And when you consider that many items at Costco are sold in huge packages, it won’t be a bargain if you have to throw away half of it because you couldn’t finish it before it went bad. For instance, a 25 pound sack of flour, a gallon of mayonnaise, or a five gallon jug of vegetable oil are just a bit more than we need. An interesting thing about these institutional-sized packages is that in many cases, the price per pound/quart or whatever unit of measure is used, is not significantly different from your normal supermarket-sized packages. With some items, such as Del Monte or Libby ‘s canned vegetables, you sometimes end up paying more per can at Costco, despite having to buy a case of a dozen or so cans of peas or string beans, than you would if buying a single can at the supermarket. Same thing goes for cans of soda (“pop”, for our Southern readers). We think that in some cases (pun intended), Costco hopes you think you’re getting a bargain simply because you’re forced to buy such large quantities at a single time. Call it “warehouse club buying momentum”, if you will. When you get home and start calculating whether that two-gallon jug of mustard that will last you for the next twelve years was really a good buy, you start to have some regrets, even though it was only nine cents an ounce. The bottom line is that you have to keep your guard up at all times when shopping at a warehouse club. For us, we’re better off purchasing many items at a local supermarket.

When you factor in the obligatory ID check at the entrance to Costco, which is guarded by Cerberus himself (good doggie !), and the veritable strip search before they’ll let you leave, a trip to Costco isn’t a bowl of cherries (but it is arguably a bowl of vanilla ice cream). At least Costco doesn’t conduct a cavity search. We get enough of those when we visit our dentist.

Even if you don’t have a Costco membership, you can still do better when you shop at your local supermarket. While most supermarket half-gallon house brands of ice cream have shrunk to 56 ounces, they are still a better value than the 48 ounce containers that have become the new standard among the name brands, and the house brands are usually very good quality.

Now, if Costco can manage to keep their half-gallon containers of Kirkland ice cream a full half-gallon, why can’t all the the other brands manage to do the same ? That has to qualify as one of the great mysteries of the Universe.

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Circuit City Finally Bites The Dust

The news shouldn’t surprise anybody, certainly not readers of this blog.

Richmond, Virginia based Circuit City stores announced today their intention to close their 567 remaining stores and liquidate their inventory.  We predicted that they wouldn’t last much past the end of the 2008 Christmas season.

That means another 34,000 American workers joining the unemployment line.

See our previous posts…

Circuit City Stores Files For Chapter 11 Bankruptcy Protection

One Foot In The Grave At Circuit City

Philip Schoonover Learns That What Goes Around Comes Around

– Routing By Rumor

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Using Website Visitor Statistics As An Early Warning System

Like the canary in the coal mine, warning of the presence of deadly gases, or the seismograph warning of an impending tsunami, website (or blog) visitor statistics provide a valuable early warning system of current events, breaking news stories, and things that will be making news in the days ahead.

Google has known this for quite a while. Google’s Zeitgeist provides statistics that show the latest search trends. You can even go back and see what searches were hot on a previous date.

Like many bloggers and Webmasters, we keep tabs on Routing By Rumor’s traffic statistics. In the past 24 hours, we’ve seen a spike in visits that are related to several of the articles we’ve written in the past. An unusually high number of visitors have landed at our doorstep after doing searches for “Walmart” (or “Wal-Mart” or “Wal Mart”), “Ashley Alexandra Dupre” and “Blackrock layoffs”. We welcome the “business”, but we’re always curious as to why people end up here.

Searches for “Walmart” have always been a top search engine source of traffic to our blog. We’re guessing that a few items related to Walmart that have been in the news in the past few days have a lot to do with the sudden spike in traffic related to Walmart. Perhaps the news coverage of Walmart’s (and other retailers) day-after-Thanksgiving “Black Friday” sales have a lot to do with the increase in search engine traffic.

Ashley Alexandra Dupre is the alleged prostitute allegedly associated with the (alleged former New York Governor) Eliot Spitzer scandal, who received some coverage in this alleged blog a few months back. But why is she suddenly a top search engine topic once again? A bit of research gave us the answer. It seems that Ms. “Dupre” will be interviewed by Diane Sawyer, in a piece that will air on ABC’s 20/20 broadcast this Friday. Who ever said that crime doesn’t pay ?

We were scratching our head on the “Blackrock layoffs” searches that were bringing visitors to our blog. We wrote a piece last winter about layoffs at WCBS-AM, which we titled “Bad Day At Black Rock”. Black Rock is the nickname for CBS’s New York City headquarters building, owing to the dark granite facade of the skyscraper. But we had not heard of any new layoffs at CBS, so why the sudden interest in layoffs at “Black Rock” ?

A bit of digging yielded the answer. There are rumors floating that a round of layoffs are about to be announced at investment company Blackrock, Inc., the largest publicly traded asset management firm in the United States. Nothing to do with CBS, but close enough that it created a spike in visitors to my blog !

So, Webmasters and SEO (Search Engine Optimization) experts take note. If you see unexpected increases in traffic to your site that you can’t explain, dig deeper to find the source. Search engines rarely lie. It may be a case of mistaken identity, as with our “Black Rock” visitors. Then again, it may be an early warning of something you should know about, possibly relating to your website, your company, or a competitor.

We wonder whether mainstream media has caught on to this as a news gathering tool. It is no secret that journalists often “find” stories because they have already been covered by another newspaper, TV or radio station. Search engine statistics should be able to scoop other sources of news. The statistics are real-time, not requiring the printing of a newspaper, or the taping and editing of a television or radio news report. We would like to think that if the Internet existed back in the days of The Daily Planet, that cub reporter Jimmy Olsen would be using his computer and Google to scoop the other reporters.

We were wondering if we would get credit for coining the term “zeitgeist journalism“, so we decided to Google the phrase. Edward Rothstein, for one, used the term in this New York Times article about trend-spotting a dozen years ago, although obviously not in reference to Google, so we probably can’t claim ownership. Maybe we’ll just call it “Google journalism“.

Great Caesar’s ghost !

– Routing By Rumor

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Circuit City Stores Files For Chapter 11 Bankruptcy Protection

This morning, Circuit City filed a bankruptcy petition (see bloomberg.com article), In Re Circuit City Stores Inc., 08-35653, with the U.S. Bankruptcy Court for the Eastern District of Virginia. If you’ve been following this blog, you won’t be surprised by today’s filing. Circuit City has had one foot in the grave for a while now (see our article from last week). See additional coverage of this story by Forbes, The Associated Press, The New York Times, Barron’s and Reuters.

The Richmond Times-Dispatch reported that last Friday, up to 800 employees at Circuit City’s corporate headquarters (more than a third of the workers there) received pink slips.

Circuit City owes well over half a billion dollars to suppliers including Hewlett-Packard, Samsung, Sony, Zenith, Toshiba, Garmin and Nikon. With bankruptcy looming, more and more vendors have refused to extend credit to Circuit City. With today’s filing, we’re pretty sure their ability to obtain terms from vendors is now pretty much non-existent. It probably also ensures that the New York Stock Exchange will de-list Circuit City, as they have already warned, if their share price doesn’t make a sustained recovery to above $1.00 a share. In early trading today, Circuit City shares have lost more than 90% of their value, falling from a lofty $0.12 per share when the market opened, and now sitting at an embarrassing two pennies a share (but that’s at least twice as much as we think its worth, so you could say its overvalued).

11/11/2008 Update…

Well, that didn’t take long. The latest milestone on the devolution of Circuit City has occured. Circuit City shares have been delisted from the New York Stock Exchange (NYSE), and are now trading on the Pink Sheets.  With all these pink slips and pink sheets, maybe pink is Circuit City’s new color.  Circuit City is now what is referred to as a “penny stock”. That light you see at the end of the tunnel just may be the oncoming Best Buy Express. Click here to get a quote on Circuit City shares (CCTYQ.PK)

Things have gone steadily downhill for Circuit City since they made the absolutely brilliant business decision in March of last year, to fire 3,400 of their most experienced employees. Consumerist.com has posted
this excellent timeline of Circuit City’s decline, titled “How Circuit City Came Undone”, which shows their declining stock price in relation to various events in their demise. The graph looks a lot like a ski slope. It’s the sort of thing they’ll probably use in business schools, when teaching a course in how to destroy a successful company.

Perhaps the saddest part of this modern day Greek tragedy is the fact that the executives who were the architects of this debacle earned millions of dollars for their role in the company’s failure. Perhaps the new scrutiny that the country’s economic meltdown is focusing on executive compensation will cause the directors of corporations to hold their executives responsible for the bad decisions they make. Here’s a suggestion… Instead of simply lavishing millions of dollars in company stock on executives, how about adding the condition that they won’t be vested unless there is a certain number of quarters of future growth. For instance, Mr. CEO, that five or ten million dollars worth of company stock won’t be yours unless the company makes money over the next two years. No more “take the money and run”. For too many corporate executives, it has been a game of “heads I win, tails I win”.

Given Circuit City’s history and reputation, the decrepit state of the U.S. economy, and the competition that exists in the consumer electronics space (especially from competitors Best Buy and Walmart), we think it’s a safe bet that Circuit City will never emerge from bankruptcy, and that’s, as Martha Stewart would say, “a good thing”. Last week, they announced the closing of many of their stores, and we wouldn’t bee surprised if more closings follow before the end of the year.

Coming at the beginning of the holiday shopping season, the closings and the bankruptcy filing might attract some bargain hunters, but let’s be honest… Who wants to make a major purchase from a retailer who may very well not be around, should you need to return an unwanted or defective purchase. It pretty much goes without saying that anything purchased at a going-out-of-business sale is sold as-is, no returns, no refunds. Caveat emptor.

We’re going to go out on a limb here, and make the following prediction; Circuit City’s Chapter 11 bankruptcy will become a Chapter 7 filing (liquidation) within six months, perhaps much sooner. Check back here to see how our prediction fares.

– Routing By Rumor

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One Foot In The Grave At Circuit City

With just three weeks to go before most of the nation’s retailers enter their busiest time of the year, Circuit City stores have announced their latest brilliant plan. They are closing 155 of their locations, spread across 28 states (Reuters and Associated Press, 11/03/2008). The going-out-of-business sales at these locations will reportedly start tomorrow, November 5th. This is the latest bit of bad news from the nation’s #2 electronics retailer, which has had mass layoffs, sales declines, and received a lot of negative publicity in the last few years (see our previous articles about Circuit City’s problems, here, here, here and here).  With the closing of these Circuit City locations, thousands more Circuit City employees will join the ranks of the unemployed.

This should be viewed as an emergency amputation, as opposed to a pruning. When you have a healthy core, but too much growth in the branches, you prune, to keep the rest healthy. When there is systemic disease that causes necrosis at the periphery, you amputate. Other large retailers that have been proactive in difficult times tend to close just a handful of their worst performing locations, and they’ll do it after their peak selling season. Retailers that make ill-timed cuts, and who do it with an ax instead of a scalpel, tend to suffer from poor management or a lack of management. They usually don’t act until it’s too late. We believe the current debridement occuring at Circuit City falls into this category.

The fact that Circuit City could not wait until after the holiday selling season to close these stores speaks volumes about just how bad things are at the Richmond, Virginia-based electronics retailer. Indeed, with a stock price that has traded as low as 17 cents a share in recent days, and notification last week from the New York Stock Exchange that their stock is subject to de-listing, things can’t get much worse. Some of their suppliers, fearing that Circuit City is on the verge of bankruptcy, are refusing to ship merchandise to Circuit City unless they are paid cash up front. Consumers, hard hit by the recession, and disgusted with Circuit City, are spending any money they may have, elsewhere. Even with the announced closings, some analysts are predicting that Circuit City will be forced to liquidate or file for bankruptcy by January.

As bleak as things are at Circuit City, you still hear people saying that they are exploring “strategic alternatives” (see Business Week, 11/03/2008). We will submit to you that when you’re on the verge of bankruptcy, sales have dried up, vendors are demanding cash, your stock price is measured in pennies rather than dollars, you’re forced to close hundreds of stores, and the nation is in the grip of a deepening recession, you don’t have any “strategic” alternatives. The choices seem to be declaring bankruptcy now, or trying to hang on a little longer and declaring bankruptcy a few months from now. If Circuit City is pinning their hopes for survival on having a banner Christmas season, they’re in for a terrible shock. Even relatively healthy retailers are bracing for a dismal end to a dismal year, and the U.S. economy doesn’t seem poised to roar back to life anytime soon.

Circuit City’s woes spell opportunity for it’s competitors. It appears that the nation’s largest electronics retailer, Best Buy, will likely snap up some of the locations being vacated by rival Circuit City.

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