It’s hard to explain in simple terms why Circuit City whimpered quietly into bankruptcy this month, but the root causes go back more than 2 decades. Circuit City appears to have continued with a faltering strategy which major competitors like Best Buy did well to avoid.

Once upon a time, you either bought your electronics, cellphones, games and movies from a retail outlet or on rare occasions through a Direct Mail catalog for a value price.

Then came the internet, with wildly overconfident expectations at first, followed by the bubble bursting, and then a more progressive sea change to sold sales, transforming websites like Amazon from loss leaders into major empires of corporate success.

Sometimes the obvious has to be stated in even more obvious terms. You are Circuit City in the 1980s, and you base your concept upon being able to offer less than retail prices by locating your mega stores in less than convenient places - away from high traffic Mall locations. In the 80s and 90s Circuit City’s strategy worked great - customers did travel those few extra miles, and as the gravy rolled in they quickly expanded the model throughout the US.

However, as consumer purchasing trends changed, so too should have the strategy behind their now 700 outlets and 20,000 employees. Staying still with the same 80s model proved to be both short sited and suicidal.

Their inability to solve fundamentals such as basic inventory management was another nail in a slowly descending coffin. Had the recession not hit them so hard, Circuit City may have gone on for a few more painful  years. If they had possessed a management team less motivated by short term cost cutting, Circuit City may have made the fundamental restructuring necessary to compete with the likes of Amazon and New Egg.

   New Egg is everything that Circuit City should have been in an era of rapidly growing internet electronics sales.

With about 200 employees operating from two 300,000 square foot warehouses on the outskirts of L.A and N.J, New Egg is about as lean as an egg white.

Contrast this with Circuit City’s blubber of 20,000 employees and 700 stores (that’s about 14 million square feet of retail priced real estate) - who do you think is going to be more competitive as more and more customers turned to the convenience of the internet.

As profits began to fail, instead of turning on the key problems of a changing environment, CEO Philip Schoonover decided to turn on his staff instead, replacing key sales staff with cheaper workers. Cutting staff whilst keeping with their traditional strategy also helped to cut customer loyalty.

While New Egg developed their internet site and used offshore programming and database centers in China (Where the very top programmers work for under $5 an hour instead of the average $50 enjoyed in Silicone Valley), Circuit City’s own investment into a more cutting edge e-commerce solution was put aside in favor of a $7 million compensation package to the CEO for his short term cost saving.

When a CEO is awarded options of which the value is directly influenced by short term swings in stock prices, it is hardly surprising that Philip Schoonover and his executives avoided any prickly measures which might damage the value of those stock options.

With hindsight, long term positive measures would have included slashing the 700 stores to perhaps 200 in primer locations alongside rival Best Buy, now the undisputed No.1 electronics retailer. Another positive measure would have been to reinvest Philip Schoonover’s $7M stock options award into a e commerce site which Customers could gravitate to.

Perhaps the most crucial would have been to invest in a state of the art warehouse comparable to Amazon or New Egg, whose low costs enable them to beat their high street competitor. Used as a hub, their crippling inventory management issues would have been solved in an instant.

By ignoring the internet, retailers who rely on offering cheaper prices by locating in secondary tier retail locations are shooting themselves in both feet: On the one hand they lack the convenience of primary tier high street competitors, whilst on the other they cannot hope to compete with internet based giants like Amazon and New Egg, who carve an ever growing market share out of their demise.