Circuit City to Test New Services in Boston Area, Fla.

Initial staff training has been completed at test stores, now being primed by Circuit with Boston Consulting Group, a Circuit spokesman said. The tests will involve “hundreds” of experiments in “changing the way the customer is serviced” as well as “the look and feel of the store”, Pres. Philip Schoonover told analysts in an earnings conference call on Tues. The broader review by McKinsey started recently and will run about 100 days, a spokesman said.

The tests extrapolate on Circuit’s April “Upgrade the Business” initiative, devised to stabilize store performance. The outcome of this fall’s exercised won’t be clear until spring, officials said. Among programs likely to be tested is in-home service of PC and CE products. As construed, the IQ Crew consists of a dedicated PC technician in each store and sales staff trained in software and hardware installations, but analysts have said the concept might be extended to other areas. Circuit is testing in-home services at a handful of stores separate from IQ Crew, a Circuit spokesman said.

As Circuit prepares a new format, it’s continuing to refine its real estate strategy. It shrank the number of new stores planned for the U.S. this fiscal year to 25-30 from 30-40, including 9 to 11 relocations. It also has brought in new management including Real Estate Vp Steve Jackson, established 2 registered master brokers for real estate to cover the East and West Coasts and the last 2 months added a new cadre of local brokers, officials said. “We did pretty well” in the first phase of store relocation when “it was pretty easy picking,” Schoonover said. But now the chain needs to “get more aggressive,” he said. The new real estate strategy could mean a more diverse range of sizes among Circuit City stores, officials said. Indeed, Circuit appointed Global Sourcing Chmn. Brian Levy, who also heads The Source by Circuit City in Canada, to scrutinize a small-store format (CED April 1 p1). Circuit once ran 40 mall-based Circuit City Express stores and opened about 30 small-format stores in rural markets, each about 30,000 sq. ft., during 1995-98.

Meanwhile, Circuit swung to a $1.3 million 2nd-quarter profit from a $11.4 million loss a year ago as revenues rose to $2.5 billion from $2.3 billion on a 5.3% gain in same-store sales. Circuit earnings were buoyed by a “strong performance” by its TV segment, which had double- digit gains in same-store sales, the chain said. The rise was offset partly by double-digit same-store sales declines in camcorders, DVD players and digital video services. Within IT, Circuit posted a single-digit same- store decline due largely to a double-digit drop in desktop PCs, monitors and printers. The mixed same-store sales resulted in a decline in 2nd-quarter gross profit margin to 23.9% from 24.9%. Video tallied 41% of Circuit revenues during the quarter, flat with a year ago, while IT fell to 34% from 36%, followed by audio, 15% (12%); and entertainment, 10% (11%). Extended warranty revenue rose to $97.4 million from $91.7 million, or 4% of total sales, down from 4.1%

U.S. sales rose to $2.4 billion from $2.2 billion, while those in Canada jumped to $143 million from $117.8 million. Total costs at Canadian stores jumped to $52 million from $40.3 million due largely to $9.6 million in expenses tied to rebranding RadioShack stores as The Source by Circuit City.

Circuit is expected to start a 3-year implementation of Retek’s merchandising, purchasing and other software platforms in 2006 and eventually replacing proprietary systems dating to the 1980s, a spokesman said. Circuit postponed until spring tests of a new point-of-sale (POS) system from IBM and several other companies, he said.