After declaring bankruptcy in November, Circuit City announced that it is officially closing its doors and going out of business. Only a couple years ago companies could not grow fast enough, but now most real estate projects have been canceled, stores are closing everywhere and many retailers are in danger of succumbing to the same collapse as Circuit City. The Washington Post reports that the current economy has made restructuring company debt more difficult and that this could merely be the first wave of many U.S. business closures in 2009.
It is true that poor debt related decisions by companies several years back compounded by the current economy is the driving factor for corporate failures such as Circuit City, but I believe there is another subtle shift occurring that touches all companies regardless of their industry or their current financial standing. Bill Clinton’s 1992 campaign can be summed up in one phrase, “It’s the economy, stupid.” It was simple, direct and highlighted the country’s shift in focus from foreign policy to the recession. The economy is bad, real bad, but while to some it may sound unbelievable, many companies will fall this year because they were four years late in developing a viable online business model. Predictably, “It’s the internet, stupid.”
Consumers’ desire to shop and more importantly buy at brick and mortar retailers is fading. Online retail spending dipped three percent this past holiday season, but more and more people are growing comfortable with online shopping and the superior prices found there. Specifically, electronics are a popular online purchase through sites like Amazon.com and NewEgg.com. While this is not surprising news, it is arguably the reason why Circuit City failed and why companies like Blockbuster who were slow to adapt and implement an online strategy may be on borrowed time.
It is a shame to see Circuit City go. It was where I bought my first computer, but unfortunately is where I previewed my new computer and TV before purchasing them at Newegg. For nostalgia sake, here is a memorable commercial that was probably my first exposure to “The Circuit”