The Company That Wouldn’t Die

Actually, Circuit City is already dead; it’s more like the Company That Wouldn’t Go Away, but that didn’t look as good at the top of the post. By now most of the bankruptcy proceedings are over, customers around the country have figured out where they’re going to get their electric and electronic consumer products, and most of the assets that Circuit City had left have been sold off to pay their creditors. But it turns out that they’re just getting around to the intellectual property this week, and that means that anyone who thought they were all done with Circuit City’s mailing lists are about to get a surprise…

An article posted online in Richmond BizSense.com notes that the Massachusetts-based advisory firm called Streambank, which controls the rights to Circuit City’s customer contract database, including the service contracts for their Firedog technical support service (the inspiration for Best Buy’s Geek Squad Service) is holding an auction for the customer information, which is expected to bring in at least $10 million, and possibly more than the $14 million that the rights to the Circuit City name fetched at auction earlier this year. Of course, that really depends on how much meat is still left on the company’s bones…

Before it finally went under, Circuit City managed to sell approximately 30 million Firedog contracts, each one of which is theoretically a separate name, address, telephone number and email address available for direct mail and direct email advertising. In practice, we should probably assume that at least some of the Firedog contracts are duplicates (e.g. people with Firedog contracts covering more than one purchase), and there’s some question as to how much use the government will allow the new buyer to make of the contacts, since none of those people officially consented to have their information given to whoever buys the database. A more pressing question, at least to me, is how much use those contacts are going to be even if you do buy them…

For the most part, people don’t like getting telemarketing calls; it’s why the “Do Not Call” list is so universally popular. People are even less fond of “spam” emails”, and while direct mail marketing isn’t as universally despised, it’s also much more expensive, both to make and to send. How many of these people are going to appreciate being contacted in this fashion is an open question, especially considering that some of them undoubtedly harbor some hard feelings toward Circuit City (and by extension to whoever bought out their assets). Which means it’s difficult to say exactly how much this database information is really worth in the first place…

Let’s suppose that there really are 30 million potential customers connected to these files. If the buyer manages to get a one-half-percent purchase rate from its direct mail and email advertising (which is about standard), that equates to about 150,000 sales. If each of those purchases exceeds $100 in net profit, then the database information was worth the projected $15 million sale price. But you’d have to sell a lot of consumer electronics to have any realistic chance of netting $100 per sale, given how low the profit margin is on some classes of product, and you’d need still more sales to make back the cost of the advertising itself. Unless each of those successful contacts results in repeat sales over an extended period, it would be difficult to justify paying that much for the information. And, even then, you will still have to deal with the bad feelings generated in the 99.5% of the population that does not choose to purchase anything from the new owners…

If I had to make the decision, and assuming I ran a company with both the need for this information and also the money to buy that information, I’d certainly consider putting in an offer. But if it was my business, I would not count on either the sales rate or profit margin the people selling the databases are suggesting ever coming to fruition – which means I wouldn’t be offering anything like $15 million for those contacts. Of course, we’ll have to wait and see how well the actual buyers do with that information…

Assuming anyone makes a bid, of course…