Circuit City: Due for a Change?

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In fact, Schoonover worked for a couple of retailers before he got to Circuit City, including Best Buy. But at Best Buy he had been in charge of the much-talked-of customer segmentation program, in which the company used customer data to focus on key segments of its shoppers and devise better ways to serve them. Schoonover came to Circuit City in October, 2004, as chief merchandising officer and executive vice-president. Shortly after that, Circuit City was the target of another shareholder uprising: a February, 2005, takeover bid by hedge fund Highfields Capital Management, which offered to buy Circuit City for $3.25 billion in cash. The bid was rejected, and shortly thereafter Schoonover was named president and then CEO a year later. He declined to comment for this story.

Smaller Stores

Schoonover has in recent months started focusing his energies on smaller stores in more urban areas—about a third of the stores that the company is opening are 20,000 sq. ft., compared with the 30,000 sq. ft. that Circuit City normally operates. Schoonover hopes to generate more sales per square foot from these smaller formats, partly because they will be located in more densely populated areas.

The smaller stores are still few (25 so far) and far between. Boosting sales at 650 underperforming large-format stores will be much tougher. In a prepared statement, Circuit City spokesman Bill Cimino said: "During the third quarter, we generated a 29% increase in Firedog [its technology installation and fixing service] sales and 31% increase in our direct channel sales. We are on track to reduce expenses by $150 million in fiscal 2008 and by $200 million annually beginning in fiscal 2009."

Meanwhile, the pressure is mounting. Schoonover made it onto The Wall Street Journal's "Worst CEOs of the Year" in December. And soon rumors started floating in blogs that the company's board has been pursued by major shareholders to look for a replacement. "I can't understand why Schoonover continues to occupy his position as CEO," says Peter Cohan, president of management consultancy Peter S. Cohan & Associates and management professor at Babson College, who writes an investment blog.

Now there's Wattles to contend with. He is founder of the video-rental chain Hollywood Entertainment, and his investment company owns Ultimate Electronics, which has 32 stores. Three years ago, Wattles bought a 12% stake in Tweeter and tried to change the board structure there, too, but failed after engaging in a battle of words with CEO Joe McGuire. Last June the beleaguered Tweeter filed for Chapter 11 bankruptcy protection.

Gogoi is a contributing writer for BusinessWeek.com.