BUS520 Strayer University Leadership and Organizational Failure Discussion Organizations that fail to innovate find themselves in a situation where they ha

BUS520 Strayer University Leadership and Organizational Failure Discussion Organizations that fail to innovate find themselves in a situation where they have to restructure themselves to stay afloat. Choose 1 of the companies listed below. Use the provided articles to support your understanding of the company’s situation.

BlockbusterView Article(s)
Circuit CityView Article(s)
Toys R UsView Article(s)

Based on your chosen company, discuss how
reorganization of its business structure would or would not have helped
them meet new market challenges. In your response, address the
following: Specify at least 2 reasons why you think reorganizing was or was not necessary, and provide an explanation for each reason.Suggest 2 strategies you think could have improved the company’s
efforts to meet current market challenges and remain sustainable. Blockbuster’s 20-Year Odyssey
Arnold, Thomas K
Home Media Retailing; Jun 26-Jul 2, 2005; 27, 26; US Newsstream
pg. 1
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Tiny Redbox’s DVD Kiosks Grow
Pruitt, Angela . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]27 June 2007: B.5D.
ProQuest document link
ABSTRACT (ABSTRACT)
Redbox also has kiosks located in some 2,600 grocery stores, including Supervalu Inc.’s Albertsons and Royal
Ahold NV’s Giant and Stop &Shop chains. Wal-Mart Stores Inc. is testing the Redbox kiosks in at least 10 cities and
Puerto Rico. In Denver, Redbox has seen its market share rise to about 20%, second only to Blockbuster, in just
three years.
A unit of McDonald’s started the concept of Redbox in 2001 amid a push to drive traffic into the restaurants. It also
included “convenience store” kiosks that didn’t take hold. The fast-food chain later partnered with Coinstar Inc.,
which owns a 47.3% stake of Redbox. The company’s focus remains on DVD rentals, but [Redbox] said it will
continue to explore other categories.
“Most of the consumers in Blockbuster want to rent about 100 new release titles. Most of Blockbuster’s square
footage is wasted on older titles, which often sit unrented,” Mr. [Gregg Kaplan] said. Redbox also offers the option
of ordering rentals online. The kiosk holds 500 of the latest movie titles. They have to return the DVDs to any
Redbox location in a day or incur another $1-a-day charge on their credit card.
FULL TEXT
As Blockbuster Inc. and Netflix Inc. duke it out for dominance in the video-rental industry, a tiny company called
Redbox wants to jump into the ring.
With about 4,000 automated DVD kiosks scattered across the country, Redbox has emerged as the nation’s fourthlargest renter of DVDs since it starting testing in the market in 2002.
Right now, Redbox is still a relatively small threat. But its growth comes as Blockbuster is fighting to remain
competitive. The dominant player in the market is closing unprofitable stores, propping up its online business and
undercutting the prices of Netflix, its chief rival.
Besides, Redbox has a formidable partner that knows something about growth by spreading out: McDonald’s Corp.
has a 47% stake in the closely held company. And the fast-food chain has a multiyear revenue- sharing pact that
puts the kiosks in its restaurants, about 1,400 currently.
Redbox also has kiosks located in some 2,600 grocery stores, including Supervalu Inc.’s Albertsons and Royal
Ahold NV’s Giant and Stop &Shop chains. Wal-Mart Stores Inc. is testing the Redbox kiosks in at least 10 cities and
Puerto Rico. In Denver, Redbox has seen its market share rise to about 20%, second only to Blockbuster, in just
three years.
The battle for customers is “really going to be location driven,” said Michael Pachter, an analyst at Wedbush
Morgan Securities, of Redbox’s growth. Redbox might gain marginal market share at Blockbuster’s expense in
PDF GENERATED BY SEARCH.PROQUEST.COM
Page 1 of 4
select locations, he said. The $1-a-day price point benefits consumers who pass a kiosk and make the impulse
decision to rent a movie, he added.
And they become repeat customers. Doug Adcock, owner and operator of eight McDonald’s restaurants in
Houston, said the kiosks have helped increase traffic. “When customers are making another visit to return a movie,
they make food purchases,” he said.
A unit of McDonald’s started the concept of Redbox in 2001 amid a push to drive traffic into the restaurants. It also
included “convenience store” kiosks that didn’t take hold. The fast-food chain later partnered with Coinstar Inc.,
which owns a 47.3% stake of Redbox. The company’s focus remains on DVD rentals, but Redbox said it will
continue to explore other categories.
Convenience aside, analysts say that both Blockbuster and Netflix offer a better deal if the consumer is able to
keep the rental for a week without late fees.
Redbox, of Oak Brook Terrace, Ill., projects that it will beat Blockbuster, which has more than 5,000 stores in the
U.S., on number of locations in coming months. Redbox already has almost three times as many locations as
automated DVD-rental companies The New Release and DVDPlay.
Redbox Chief Executive Gregg Kaplan said the company has been “growing under the radar” at a rate of 300% every
year during the past few years.
Mr. Kaplan, a former investment banker, said Redbox retooled Blockbuster’s model by cutting the price, focusing
on just the top new releases, and replacing a 6,000-square-foot physical store with a 15- square-foot automated
kiosk.
“Most of the consumers in Blockbuster want to rent about 100 new release titles. Most of Blockbuster’s square
footage is wasted on older titles, which often sit unrented,” Mr. Kaplan said. Redbox also offers the option of
ordering rentals online. The kiosk holds 500 of the latest movie titles. They have to return the DVDs to any Redbox
location in a day or incur another $1-a-day charge on their credit card.
Redbox’s operational costs include the DVDs, payment-processing costs, distribution to the kiosks, customerservice expenses and revenue-sharing costs with the host retailer. After five to six months, the DVDs are sold back
to the distributors.
Sean Bersell, vice president of public affairs at the Entertainment Merchants Association, said kiosks make sense
where space is at a premium. Mr. Bersell added that he anticipated Redbox will expand its kiosks to markets where
Netflix has made heavy inroads such as the East and West coasts and among upscale suburban and urban
consumers.
Mr. Kaplan says the company will continue to examine its strategy in the next seven to 10 years. One big challenge
ahead: the expected growth of movie downloads and video-on-demand on cable.
The emergence of the new Blu-ray and HD DVD disc formats could “expand the lifespan of packaged media, and
that’s good for us,” he said. Mr. Kaplan declined to comment on whether the company would consider going public.
Blockbuster concedes that the vending concept is convenient. But “they don’t generate significant revenue. They
PDF GENERATED BY SEARCH.PROQUEST.COM
Page 2 of 4
don’t have the capacity to do that,” said Randy Hargrove, a Blockbuster spokesman. The company offers 70,000
titles between its stores and online operations. “We think it makes more sense to invest our money where the
majority of customers want to rent,” at stores and online, Mr. Hargrove said. He noted that 70% of the U.S.
population is within a 10-minute drive of a Blockbuster store.
Netflix spokesman Steve Swasey said that unlike the focus of Redbox, the bulk of its business isn’t in new-release
rentals. “The breadth and depth of Netflix’s catalog is what consumers really want,” he said, noting that 70% of
shipped movies aren’t new releases.
DETAILS
Subject:
Rentals; Competition; DVD
Company / organization:
Name: Redbox; NAICS: 512120
Classification:
9190: United States; 8307: Arts, entertainment &recreation
Publication title:
Wall Street Journal, Eastern edition; New York, N.Y.
Pages:
B.5D
Publication year:
2007
Publication date:
Jun 27, 2007
Publisher:
Dow Jones &Company Inc
Place of publication:
New York, N.Y.
Country of publication:
United States, New York, N.Y.
Publication subject:
Business And Economics–Banking And Finance
ISSN:
00999660
Source type:
Newspapers
Language of publication:
English
Document type:
News
ProQuest document ID:
399084396
Document URL:
https://search.proquest.com/docview/399084396?accountid=30530
Copyright:
(c) 2007 Dow Jones &Company, Inc. Reproduced with permission of copyright owner.
Further reproduction or distribution is prohibited without permission.
PDF GENERATED BY SEARCH.PROQUEST.COM
Page 3 of 4
Last updated:
2017-11-02
Database:
US Newsstream
Database copyright  2018 ProQuest LLC. All rights reserved.
Terms and Conditions
Contact ProQuest
PDF GENERATED BY SEARCH.PROQUEST.COM
Page 4 of 4
ECONOMIC HISTORY
The Rise and Fall of Circuit City
BY J E S S I E RO M E RO
The Richmond-based retailer
became wildly successful — and
then disappeared
ne of the great success stories of American retailing, Circuit City got its start in 1949 as a tiny
storefront in Richmond, Va. From that modest
beginning, founder Sam Wurtzel quickly built the company
into a national chain, and his son Alan turned it
into a household name. By 2000, Circuit City employed
more than 60,000 people at 616 locations across the
United States.
Circuit City is also one of American retailing’s great failures. In November 2008, the 59-year-old company filed for
bankruptcy. Within months, it closed its stores and liquidated more than $1 billion worth of merchandise, and on March
8, 2009, the last Circuit City store turned off its lights for
good. Today there are few reminders of the groundbreaking
retailer; the company’s 700,000-square-foot headquarters
complex outside Richmond is filling up with new tenants,
and the empty stores have been taken over by new retailers.
In part, Circuit City was just one of the many victims of
the financial crisis and recession, which also brought down
other large national retailers such as Linens ’n Things and
The Sharper Image. And businesses fail even during the
best of economic times, as part of the natural process of
“creative destruction” that is the engine of capitalism. But at
business schools across the country, Circuit City’s story is
taught as an example of what can happen when success
breeds complacency.
O
PHOTOGRAPHY: COURTESY OF AL AN WURTZEL
From Tire Store to Fortune 500
In 1949, New Yorker and serial entrepreneur Sam Wurtzel
was having his hair cut in Richmond on his way to a family
vacation in North Carolina. The barber mentioned that the
first television station in the South had opened in Richmond
less than a year earlier. Wurtzel, fresh from a failed importexport business, thought this new entertainment device
might be his next opportunity.
The first experimental television stations began operating in the early 1940s, and commercial broadcasting began
after World War II. Few households owned sets at the time
of Wurtzel’s barbershop visit, but the medium was growing
rapidly: The number of TV stations in the United States
nearly tripled in 1949, from 27 to 76. Through a friend,
Wurtzel knew someone at Olympic Television, a small
manufacturer in Long Island City; through relatives, he had
connections to bankers and businesspeople in Richmond.
Within a month, Wurtzel had moved his family from New
Circuit City got its start as Wards TV, which had a
bustling showroom in Richmond, Va., in 1960.
York to Virginia and was selling televisions out of the front
half of a tire store on Broad Street, a few blocks west of
downtown Richmond.
Wurtzel thought his last name might be hard for people
to pronounce, so he named his store Wards, an acronym for
his family’s names: W for Wurtzel, A for his son Alan, R for
his wife, Ruth, D for his son David, and S for Sam. Rather
than try to compete directly with the big department stores,
he catered to lower-income consumers by offering installment payment plans. He also developed a unique sales
technique: free in-home demonstrations. A salesman would
drop off a television at a customer’s home for the night, free
of charge, and offer to pick it back up the next day. Once the
set was in a family’s home, they nearly always bought it.
Wurtzel had correctly foreseen the growing consumer
demand for televisions — the number of households with
sets grew from under 1 million in 1949 to 20 million by 1953
— and Wards TV grew quickly. In 1952, Wurtzel started
selling appliances to capitalize on the post-war demand
for refrigerators, washing machines, and electric stoves.
Richmond was soon home to four Wards TV locations.
Wurtzel soon decided to join another retail trend: discount stores. The first discount store — a huge retail space
offering a smorgasbord of merchandise below the manufacturer’s list price — opened in New England in 1953, and the
format spread quickly. In 1960, the discount chain National
Bellas Hess invited Wurtzel to open a store-within-a-store
called a “licensed department” at their new Atlanta location.
Wurtzel quickly followed up with licensed departments in
Norfolk, Va., and Camden, N.J., and in December 1961 he
took Wards TV public to finance a nationwide expansion.
Excited by its success, the company embarked on a brash
ECON FOCUS | THIRD QUARTER | 2013
31
expansion strategy and nearly went bankrupt in 1975. But led
by Wurtzel’s son Alan, who had become CEO in 1972, the
company closed or sold a number of unprofitable outlets,
and by the late 1970s it was ready to start expanding again.
It did so with a new name and a new retail model inspired
by the early discount stores: the Circuit City “superstore.”
The superstores featured a large showroom attached to an
even larger warehouse, with custom-built display areas to
show off the merchandise. Most significantly, there was no
central checkout area and customers couldn’t pick up
merchandise themselves. Instead, there were multiple sales
terminals throughout the store and commissioned salespeople helped the customers make their purchases.
Those sports-jacketed salespeople were central to
Circuit City’s business model, which depended on selling
big-ticket, high-margin items and lots of extended service
plans. They were also what customers wanted at the time.
“Circuit City was at their strongest when consumers didn’t
really understand what they were buying and were nervous
about it,” says Doug Bosse, a strategy professor at the
University of Richmond. “When my family bought our first
VCR, it was $600. That was a pretty big chunk of a family’s
discretionary budget. You would go into Circuit City and
talk to a salesperson and ask for advice, and have them teach
you on the floor how it would work in your family room.”
Circuit City superstores, which sold both electronics and
appliances, spread rapidly, from just eight in 1983 to 53 by
1987, in addition to the company’s 37 smaller electronicsonly stores.
Just like Wards TV, Circuit City was in the right market
at the right time. As the baby boomers came of age and the
country entered the 1980s boom, consumer demand for
VCRs, CD players, and microwave ovens exploded. Factory
shipments of consumer electronics doubled between 1980
and 1986, and the share of households with a VCR grew from
1 percent in 1980 to nearly 70 percent by the end of the
decade. As Alan Wurtzel wrote in his memoir Good to Great
to Gone, “I often thanked my lucky stars that Sam had
decided to go into the retail electronics business and not the
retail shoe business.”
Wurtzel stepped down in 1986 and was succeeded by
Rick Sharp, an executive vice president, who served as CEO
until 2000. During Sharp’s tenure, sales increased from
$1 billion to $12.6 billion, earnings increased from $22 million to $327 million, and the number of stores increased
from 69 to 616. In 1995, Circuit City entered the Fortune
500 at number 280, climbing as high as 151 by 2003. Circuit
City was so successful that management expert Jim Collins
featured the company in his 2001 book Good to Great, a study
of the country’s most profitable companies.
But Sharp championed two projects that might have
been the beginning of the end, according to Collins,
who wrote about Circuit City again in his 2009 book
How the Mighty Fall. The first project was CarMax,
which applied “big box” retailing to used-car sales.
The initial CarMax opened in Richmond in 1993 and was
32
ECON FOCUS | THIRD QUARTER | 2013
immediately successful, and the chain expanded to 40
outlets by 2000. Circuit City spun off CarMax in 2002,
and today there are more than 120 locations.
Less successful was a new DVD technology, called
DIVX, which launched in 1998. The premise was that
consumers could buy a DIVX-encrypted movie and then
watch it on a special DVD player as many times as they
wanted within a 48-hour period. In theory, DIVX was more
convenient than renting tapes from a video store, but consumers didn’t like it and other electronics stores refused
to stock DIVX movies. Circuit City abandoned the idea
within a year.
The issue was not the success or failure of these projects
per se; CarMax was a great move, and DVIX was “costly
but not critically wounding,” according to Wurtzel. But in
Collins’ analysis, the attention paid to these projects meant
that the management team and the board weren’t paying
attention to the company’s core business — or to the growing threat of Best Buy.
Sacking the City
Best Buy got its start in 1966 as Sound of Music, an audio
specialty store with several locations in Minnesota. In 1981,
the Roseville, Minn., store was destroyed by a tornado, so
founder Richard Schulze and his employees gathered up the
merchandise, stacked it on tables in the parking lot, and
advertised a huge “Tornado Sale.” Customers lined up
around the block, and the success prompted Schulze to
pursue a discount sales strategy. Sound of Music changed its
name to Best Buy in 1983 and opened its first of many superstores in Burnsville, Minn.
While the basic model was similar to Circuit City, Best
Buy stores had a central checkout and allowed customers to
pick out their own merchandise on the floor. And unlike
Circuit City, Best Buy carried a wide variety of low-margin
products to get customers in the door, such as computer
peripherals, videogames, and CDs. Best Buy’s store and
staffing models were a better fit for consumers’ changing
preferences; as consumer electronics became cheaper and
more ubiquitous, customers no longer needed or wanted a
salesperson to help them with many of their purchases.
Circuit City, on the other hand, stuck to its commissionbased sales force and its reliance on high-margin products,
and watched Best Buy take over its market share.
But Circuit City didn’t see Best Buy as a threat. “We
thought we were smarter than anybody,” says Alan Wurtzel,
who remained on the board of directors until 2001. “But the
time you get in trouble is when you think you know the
answers.”
In 2000, Circuit City’s earnings and stock price were at
their all-time high — but Best Buy’s earnings were higher,
and it was also beating Circuit City in profit per store,
total sales, and U.S. market share. Under the new CEO,
Alan McCollough, the company began making changes, but
the moves appeared to backfire. For example, in 2001
Circuit City stopped selling appliances, which made up
between 10 percent and 15 percent of the business.
Appliances were expensive to move and store, and getting
rid of them freed up space for new products. But getting
rid of them also meant Circuit City missed out on the
residential real estate boom, when appliance sales soared.
In addition, the move was confusing to both employees
and customers, and it might have helped the competition.
“Best Buy still sold major appliances, and guess what, they
also had TVs and computers and videogames,” says Tom
Wulf, a former Circuit City manager and trainer who
directed the 2010 documentary A Tale of Two Cities: The
Circuit City Story. “We were basically pushing our customers
out the door, saying we don’t want to sell to you anymore.”
In 2003, Circuit City finally decided to eliminate its commissioned sales force. In one day, the company fired 3,900 of
its highest-paid salespeople, with plans to replace them with
2,100 hourly associates. The move crushed employee morale
and productivity. “Anyone who was working in the store
thought, gee, if I’m too successful they’re going to f…
Purchase answer to see full
attachment