Systemax Weighing ‘Alternatives’ For Its Circuit City Brand

Systemax will consider “alternatives” for the Circuit City brand as it seeks to bolster flagging Internet sales, Chief Financial Officer Larry Reinhold said Monday at the Sidoti & Co. conference in New York. Systemax, which also operates stores and Web sites under the CompUSA and Tiger Direct banners, hasn’t finalized its options for Circuit City, Reinhold said, but Systemax has been asked about franchising and licensing the brand for products in an approach reminiscent of Sharper Image. “We're looking at other alternatives to monetize it other than just as a shopping site,” Reinhold said.

Systemax bought the rights to the Circuit City brand out of bankruptcy in May 2009 for $14 million. But unlike with the CompUSA trademarks and leases to 16 stores it purchased earlier in 2009, the Circuitcity.com Web site had languished for five months as the Circuit City chain liquidated, Reinhold said. Since Systemax bought the Circuit City name through bankruptcy, it wasn’t able to conduct due diligence and “we really didn’t know who was still an active customer” since the site was shut down for five months, Reinhold said.

Buying the Circuit City name and the listings of 14 million Circuit City customers for $14 million was “still a good deal” for Systemax, Reinhold said. While it “isn’t hard to earn back” the purchase price, Circuitcity.com has so far come in “at the lower end of our expectations,” Reinhold said. “It hasn’t succeeded our wildest expectations,” he said. Systemax hasn’t released recent data on the number of weekly visitors to the Circuitcity.com site. Circuitcity.com had 700,000 weekly visitors in Q1 (CED May 14 p6), versus 1.8 million Tigerdirect.com visitors in Q2 and Q3, the company said.

Systemax also is moving to vary the assortment of products carried by Circuitcity.com to differentiate it from CompUSA.com, Reinhold said. While Reinhold declined to release details, the first evidence of the change will appear during next week’s Black Friday sales, he said.

The company also has shifted to co-branding the Tiger Direct and CompUSA sites and stores in an effort to drive more customer traffic to retail, Reinhold said. The co-branding effort, which began in late summer, has succeeded in increasing store traffic, Reinhold said. But Systemax, which is planning to open a 33,000-square-foot Tiger Direct and CompUSA location in Vernon Hills, Ill., in Q1, is limiting expansion next year to existing markets, Reinhold said. Systemax’s largest markets are Florida and Texas, where it has 18 and 6 locations, respectively. While Systemax has opened several 30,000-to-33,000-square-foot locations to accommodate product returns from surround stores, its emphasis largely will be on opening locations averaging 22,000 square feet in size, he said.

Each store contains Systemax’s Retail 2.0 format that features 300 Internet-connected devices designed to display product information. There also are “waterfall” displays that enable customers to try out digital cameras, camcorders, GPS devices and cellphones. Systemax’s six Tiger Direct stores in Canada were converted to the Retail 2.0 format in the past three months, including a new 16,000-square-foot location in London, Ontario.

Systemax’s Q3 net income narrowed to $8.6 million from $12.6 million a year earlier as it took a $2.9 million charge against earnings for severance costs at its W Store commercial business in France and the U.K. Systemax acquired W Store last year and has consolidated its operations with those of its business-to-business unit, the company said. Systemax also incurred costs for the opening of a new warehouse in Georgia that’s expected to hit “peak efficiency” in 2011, the company said. The new facility is designed to save Systemax shipping costs to East Coast stores. Systemax’s other warehouse is in the Chicago area. Systemax’s Q3 sales rose to $863 million from $754.4 million a year earlier driven by a 30 percent gain in business-to-business revenue, the company said. Technology revenue, which includes retail, rose 13 percent, it said.