CarMax 1999 Annual Report Download - page 8

The industry also continues to work on the development of
multi-functional set-top boxes that can deliver a variety of entertain-
ment, information and transactional services to the home. Again, we
have taken a lead in this product’s development by working on several
fronts to help create a competitive retail marketplace for digital cable
set-top boxes by July 2000.
In summary, I believe that we are on the brink of an exciting new
era in consumer electronics–an exciting era for our customers, our
Associates and our stockholders. We are committed to the high stan-
dards of customer service that have made us the nation’s leading retailer
of new technologies in the past and to the ongoing refinements needed
to keep us in that position in the future.
Sincerely,
W. Alan McCollough
President and Chief Operating Officer, Circuit City
April 6, 1999
6CIRCUIT CITY STORES, INC. 1999 ANNUAL REPORT
MORE OPPORTUNITIES
We believe that our sales results and the merchandising initiatives under-
taken in fiscal 1999 only scratch the surface of the exciting opportunities
emerging in our retail segment. Direct broadcast satellite systems now
reach approximately 9 million households. Since the introduction of
DVD only two years ago, DVD player sales to date have reached an esti-
mated 1 million units. The success of both these products demonstrates
the consumer’s enthusiasm for high-quality video and audio when it is
offered at an attractive price.
Additional products are on the horizon. During fiscal 1999, we
were able to conduct live demonstrations of high-definition television
in selected markets around the country. In every case, consumer
enthusiasm for the product was unmistakable. The first production
model digital televisions began to arrive in stores in late fall but are
available only at relatively high price points and remain in short sup-
ply. We anticipate that additional product will arrive throughout the
coming year, although sales will be constrained by prices and a limited
amount of programming. We commend DIRECTV for their plans to
offer HDTV, including HBO, in the coming year.
In 1991, Circuit City began to examine
opportunities that would take the com-
pany’s growth beyond the geographic
expansion potential that remained for the
core Circuit City business. That search
led us to another industry – the $650 bil-
lion automotive retail segment. It is a seg-
ment where consumers are frequently
dissatisfied, prices are negotiated and quality, for used cars, is often
questionable. We saw an opportunity to create a more pleasant experi-
ence for both used- and new-car buyers. Our consumer research and
our unit volumes clearly indicate that we have achieved that objective
for many consumers. Nevertheless, we have not met our overall sales
and profit targets in the time frame we initially set.
FISCAL 1999
Our fiscal 1999 results reflect the impact of storing decisions made in
prior fiscal years as well as current industry trends. We have determined
that most of our multi-store markets need more, but smaller, stores to
achieve the market volumes and operating efficiency we require. In
these markets, larger competitors and greater traffic congestion appar-
ently limit the effective trade areas served by each CarMax. In addi-
tion, we competed with record-breaking rebates and financing rates on
new cars. Research from Morgan Stanley Dean Witter shows that aver-
age incentives offered by the Big Three U.S. automakers doubled from
almost $850 in winter 1997 to approximately $1,650 by the summer of
1998. As a result, unit sales of new cars, which were in the 15 million
per year range through most of fiscal year 1998, significantly exceeded
that mark throughout much of fiscal 1999.
PRESIDENT’S LETTER—CARMAX