Circuit City 1998 Annual Report Download - page 6

In positioning itself as a "corporate supplier", the Company has consistently expanded the breadth of its product offerings in order to fulfill an
increasingly wide range of business product needs. In total, Global offers over 40,000 brand name and private label products.
Computer sales include a wide array of private label PCs complimented with offerings of popular brand named PCs and notebook computers.
The Company's computer related products include: supplies such as laser printer toner cartridges, ink jet printer cartridges, and paper; media
such as floppy disks and magnetic tape cartridges; peripherals such as hard disk drives, printers and scanners; memory upgrades; data
communication and networking equipment; ergonomic accessories such as adjustable monitor support arms and anti-glare screens; and
packaged software.
The Company's industrial product lines focus primarily on storage equipment such as metal shelving, bins, lockers, light material handling
equipment such as hand carts and hand trucks and consumable industrial products such as first aid items, safety items, protective clothing and
OSHA compliance items. Office products include furniture, chairs, small office machines and related supplies. The table below summarizes the
Company's mix of sales by product category:
PRODUCT TYPE - YEAR ENDED DECEMBER 31 (PERCENTAGE OF TOTAL SALES)
Historically, the Company focused primarily on non-branded or private label products. In 1993 the Company expanded its offerings of brand
name computer related products, including peripherals, data communications and networking equipment, software and supplies. In 1995 the
Company further expanded its offering of brand name products to include notebooks, desktops and servers. In addition, in 1997 the Company
entered the "build to order" PC market through the acquisition of Infotel, Inc. (now Midwest Micro Corp.). In 1998 the Company focused its
efforts on the expansion of its "build to order" PC business by substantially increasing its PC assembly capacity at Midwest Micro's facility.
These strategies have impacted the Company's overall gross profit margin percentages as sales of PCs typically have lower gross profit margin
percentages than many of the Company's other products. A significant amount of this decrease in gross profit margin has been offset by
reduced catalog production costs resulting from increased levels of vendor supported advertising, improved catalog management, and increased
cost efficiencies.
SALES AND MARKETING
Global has established an integrated three-prong system of direct marketing designed to maximize sales. The Company's traditional method of
frequent catalog mailings generating inbound telephone sales has been complemented by more personalized "relationship marketing" to larger
business customers and the availability of interactive Company web sites which allow customers to purchase products directly over the
Internet. The Company believes that the integration of these marketing methods will enable it to more thoroughly penetrate the customer base.
Increased Internet exposure, for example, should lead not only to more Internet sales but can also generate more inbound telephone sales; and
catalog mailings which feature the Company's web sites can result in greater Internet sales.
CATALOGS
The Company produces a total of 44 "full-line" and targeted specialty catalogs under distinct titles. "Full-line" computer product catalogs offer
products such as PCs and hardware, peripherals, magnetic media, data communication, networking and power protection equipment,
ergonomic accessories, furniture and software. "Full-line" industrial products catalogs offer products such as material handling products and
industrial supplies. Specialty catalogs contain more focused product offerings and are targeted to individuals most likely to purchase from such
catalogs. Global mails multiple catalogs to many individuals at each location, providing the Company with multiple points-of-entry into a
business location. Once a prospect purchases a particular product, however, the Company's customers have exhibited strong brand loyalty
resulting in limited customer overlap among the Company's various catalog brands. This multiple brand strategy, with the accompanying
customer exposure to the Company's products, is a crucial factor in the Company's strategy to increase sales volume through broader market
coverage and improve the productivity of its customer file through more focused marketing.
During 1998, the Company distributed approximately 179 million catalogs of which approximately 144 million catalogs were mailed in North
America and approximately 35 million catalogs were distributed in Europe. At December 31, 1998, the Company had 1.8 million "active"
customers (defined as individuals who have purchased from the Company within the preceding 12 months).
In its mailings, the Company seeks to maximize the response rates of its catalogs. The Company calculates response rate as the total number of
orders entered for the period divided by total catalogs mailed for the same period. The following table shows the approximate number of
catalogs distributed by the Company and the catalog response rates:
CATALOGS DISTRIBUTED
1998 1997 1996
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Computer and Computer Related Products ........... 84% 80% 75%
Industrial Products and Office Products............ 16 20 25
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Total ............................................. 100% 100% 100%
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