CarMax 1999 Annual Report Download - page 5

Our strengths are evidenced by our fiscal 1999 sales. As Alan
McCollough, Circuit City’s president and chief operating officer,
notes in his letter, we were the leading retailer in key categories that
are contributing to industry growth. Our strength in products like
direct broadcast satellites, digital camcorders and DVD players are a
direct result of investments we have made for the past 20 years–
investments in sales counselor training; in systems that streamline
sales transactions and ensure timely delivery of inventory; and in
state-of-the-art merchandising, including the recent addition of kiosks
that expand our selection to include on-line custom orders direct from
vendor inventories. These are examples of our commitment, not just
to customer service, but also to continuous improvement.
With the introduction of digital technology into more product
areas, the industry is poised for exciting growth. We believe that
Circuit City can capture a significant share of this growth, but we also
recognize that the market will remain intensely competitive. We must
continuously perform at a high level, and we must always be alert to
new modes of competition.
Today, electronic commerce represents less than 1 percent of all
retail sales. However, it is one of the fastest growing retail channels in
the nation. At Circuit City, we are committed to providing an elec-
tronic commerce offer that complements the service, selection and
information available in our stores. This offer will take advantage of
our nationwide store base and our distribution, delivery and service
capabilities. It will build on the exceptional consumer awareness of the
Circuit City name.
With a presence in virtually all of the nation’s top 100 markets,
our expansion will focus on smaller markets and “fill-in” stores in exist-
ing markets. Our primary focus will be on maximizing the sales oppor-
tunity in our existing stores. We continue to believe that we ultimately
can operate approximately 800 Superstores in the U.S. In fiscal 2000,
we expect to open 35 Superstores and remodel another 50 to include
our most recent merchandising innovations.
It has been several years since the consumer electronics business
has offered such outstanding prospects for growth. I am convinced
that by holding firm to our high-service, product-knowledge-based
sales strategy we have kept Circuit City poised to maximize this
opportunity for our shareholders.
DIGITAL VIDEO EXPRESS REVIEW
Four years ago, we began to explore a business opportunity that would
offer exceptional benefits to home video consumers. Digital Video
Express has developed a highly convenient rental system for watching
digital movies at home. The Divx system includes DVD players with
the Divx feature and Divx discs. It provides consumers the high-quality
video and sound of DVD at a more economical price than sell-through
DVD and a much more convenient rental option than VHS tape or
DVD. Although DVD players with the Divx feature arrived in stores
late in the selling season, holiday results exceeded our expectations.
We believe the results indicate that Divx is highly appealing to
consumers who participate in the enormous video rental market
and that Divx can expand the overall market for DVD by adding
consumers who want the combination of quality, convenience and
price that only Divx can deliver.
The market for at-home movie viewing is huge. In calendar
1998, consumers rented an estimated 3.6 billion videotapes and pur-
chased an estimated 600 million. They purchased more than 200 mil-
lion movies via pay-per-view. The VCR, today’s primary mechanism
for viewing movies at home, is present in approximately 90 million
U.S. households. Movies can be delivered via cable to approximately
65 million households. The young and rapidly growing direct broad-
cast satellite business has already reached 9 million homes, and as of
year-end 1998, consumers had purchased 1 million DVD players, the
newest video delivery mechanism. Divx offers a unique combination
of benefits not available in any of these existing options.
After passing key technological tests and securing agreements
with consumer electronics manufacturers and major motion picture
studios, we introduced the Divx concept in September 1997. The
system was launched in two markets in June 1998 with Zenith-Inteq
brand players. National rollout began in late September with the
introduction of the RCA brand player. The addition of ProScan
and Panasonic players gave us four brand selections by early
December. Approximately 250 titles were available, plus more than
2,500 basic DVD titles, all of which can be played on Divx-
equipped players. Divx-featured players and Divx discs were avail-
able in approximately 800 retail stores.
With product in place, sales exceeded our expectations. During
CIRCUIT CITY STORES, INC. 1999 ANNUAL REPORT 3