Cicuit City and Celebrity - Are There Parallels?

[RLM77]

Circuit City declared bankruptcy today. While they plan to remain in business during their reorganization, my personal belief is that they will be forced to liquidate before the end of March.

 

IMO Circuit City will best be remembered for one of the most "questionable" (ahem) business decisions of the decade. So focused were they on cost cutting that at the beginning of 2008 they fired their most experienced sales personnel in favor of inexperienced, but lower paid, replacements. Not only did the company endure a wave of negative publicity that has not yet entirely subsided, but the replacement sales staff was unable to move product as effectively as the experienced team they replaced. Talk about cutting off your nose to spite your face!

 

Celebrity, which touts itself as "...comfortably sophisticated, upscale..." has also recently been focused on a high profile cost cutting exercise. Other threads on this board appear to leave little doubt that the recently implemented menu changes were used to reduce both the quality and quantity of main dining room meals. It also appears from some posts that the number of sommeliers, wait staff, and cabin stewards have been reduced -- noticeably.

 

In addition to the cost cutting measures described above, there have also been reports of "nuisance" revenue-raising strategies. Two that I have heard of are a near doubling of specialty coffee prices and the institution of a $5.00 fee to eat at the Bistro on Five aboard Solstice. (Maybe they should change the name to "Bistro for $5:rolleyes: )There may be other such changes of which I have not yet heard.

 

The fact that Celebrity is reducing costs is not necessarily wrong or even unusual. Royal Caribbean International, Celebrity's sister line, has also been reducing costs. The difference is that RCI does not bill itself as "comfortably sophisticated, upscale". Celebrity, however, does market itself in that manner. If you choose to present your product in this way, it had better meet that expectation. And, although Celebrity has been chipping away at some of its upscale touches for years, it seems like this time they used a jackhammer.

 

Do I really think that X will go the way of Circuit City? No. RCCL has a smart management team. I expect that they will soon recognize that they went too far with Celebrity's cost cuts and address the most glaring concerns. Additionally, cruise lines in general move in and out of favor with the public over time. After years of high regard, for example, many were ready to write off Holland America as a mediocre niche player (grandma's cruise line) early this decade. But with new ships and the 2004-2006 Signature of Excellence improvements, HAL has made a comeback. Celebrity can do the same and likely will.

 

Nevertheless, Circuit City presents companies, including RCCL, with an important lesson. Never become so focused on cost cutting that you lose sight of what brought you customers (and revenue) in the first place.

 

Rich

[Host Kewlguy]

Great post. Hopefully the powers that be read it.

[cpj]

I agree with your post. Sometimes in the corporate world when mistakes are made they will never be admitted. until its to late. there are plenty of suckups around to agree with the management. Hopefully this is not the case with RCCL

[ugen512]

Royal Caribbean International had a 3rd quarter profir of $395,000,000. You would need their ships to be less than 90% capacity for months before it would phase them. I applaud what you are saying but just giving you the numbers.

[lysolqn]

Come on now...I look to Cruise Critic for temporary relief from the never-ending bad news of the day, not confirmation of it! Seriously though, good post. Thanks.

[JanineM]

Circuit City has been a poorly run business for over a decade. I don't think you can say their filing was caused by changes in management in the last year - or last few years.

 

I'm not suggesting that all vacation entities are immune to financial difficulties, but RCCI is relatively strong.

[amarillocruisecat]

Rich,

 

Great post. I always enjoy and respect your perspective on the business side of cruising. We thoroughly enjoyed both our Celebrity and HAL cruises this year, but based on our limited experience with the two lines would give a slight edge to X. I am anxious to see how the Celebrity experience has changed in the past year when we take our cruise on Infinity in April.

 

Thanks.

[Silvery Seas Cruiser]

RLM77, that is a very interesting perspective and I enjoyed reading it. One thing, however, your post made me wonder. How many other cruise lines are cutting costs? Surely almost all would have to be taking some measures in this economic environment, although the measures may be more subtle or less discussed.

 

The only other alternative to cost-cutting for a cruise line would be to raise cruise fares in an effort to maintain the same level of service and amenities. That is a slippery slope too. It would certainly crowd out the marginal consumer who can afford a particular cruise line, but suddenly finds the prices too high.

 

One has to ask, is it better to cut services and amenities or to raise prices? Surely every cruise line is dealing with this very difficult challenge right now. After all, cruise lines are in business to make a profit at the same time that they offer an attractive service consumers will want to patronize.

 

My son is in management at a luxury land-based resort. Word came down from corporate last week to make floor-by-floor cuts in every conceivable manner. It isn't just the cruise industry pressured by the economy.

[Tranquil Waters]

The main problem - as I see it - the ever invasive idea of "now", "today", "instant gratification". And corporations are no different. CEO and top level management are paid those excessively high salaries to show a profit TODAY. And their bonuses are tied to those numbers.

 

It is not in management's interest to worry about long term success of the company. Make policies that help the bottom line today. Draw the big bonus and salary. Then move on in a couple of years to do the same thing to the next company. You are gone (or have already made your millions/billions) by the time the long term effects are realized.

 

This has been going on for the past decade or more. And now we are all seeing the consequences of this encouragement to only look at the short term for a valuation of the "success" of something.......

 

I do think Celebrity and it's parent company will suffer long term with all the changes today. But those making the changes today will not be around to worry about it. :(

[jt1120]

Circuit City has lousy balcony suites, and their food sucks. On the other hand, I never did get the washer and dryer that I ordered from Celebrity.

:D

JK.

[seekatz]

One should look at the debt loads of the cruise industry. Based on current economic conditions are new builds really needed? Think of the housing crisis, it is a matter of supply and demand, we had an oversupply. I think we will see the slow down of new builds and the continued retirement of ships. With the debt carried on the company balance sheet reduced we would see more free cash flow to improve what the customer sees.

[hermang]

The main problem - as I see it - the ever invasive idea of "now", "today", "instant gratification". And corporations are no different. CEO and top level management are paid those excessively high salaries to show a profit TODAY. And their bonuses are tied to those numbers.

 

It is not in management's interest to worry about long term success of the company. Make policies that help the bottom line today. Draw the big bonus and salary. Then move on in a couple of years to do the same thing to the next company. You are gone (or have already made your millions/billions) by the time the long term effects are realized.

 

This has been going on for the past decade or more. And now we are all seeing the consequences of this encouragement to only look at the short term for a valuation of the "success" of something.......

 

I do think Celebrity and it's parent company will suffer long term with all the changes today. But those making the changes today will not be around to worry about it. :(

 

The instant gratificaton is introduced by the Stock Analysts and Wall Street in general.

If for example Carnival has a bad quarter - with out waiting for RCL or others to report - they trash the industry. They will say their PROFIT is NOT what we anticipated so lets trash the stock. Sooo management says how can we bring up the stock prices so our credit rating improves and we can borrow money cheaper. Gee lets cut a corner or two or lay off some people.

 

Yes some companies are greedy - Look at AA - their CEO says we are going to continue to nickle an dime you because we can and besides we lost money so we are going to make it back on your backs.

 

The airlines are reducing fuel charges BUT adding them back as base price.

 

I don't know about you but my TA next year has a base price of $1179 pp for what is now a 1B cabin - moved us because of the reclassification. 14 nights mind you.

 

Adding a $5.00 pp charge for Bistro while it looks like a "ripoff" - how about waiting til you cruise on Solstice before making the comment. RCL did that for JohnnyRockets and while we get a coupon for one visit - ( thats all we would go anyhow) the crowds are now managable.

 

Here is another thought - It seems to me that the biggest whiners about nickle and diming are the folks who book CC or suites. If you can afford that - and then try to cut costs by smuggling your booze aboard arent you part of the problem??

 

Just my opinion

[Tranquil Waters]

The instant gratificaton is introduced by the Stock Analysts and Wall Street in general.

If for example Carnival has a bad quarter - with out waiting for RCL or others to report - they trash the industry. They will say their PROFIT is NOT what we anticipated so lets trash the stock. Sooo management says how can we bring up the stock prices so our credit rating improves and we can borrow money cheaper. Gee lets cut a corner or two or lay off some people.

 

Yes some companies are greedy - Look at AA - their CEO says we are going to continue to nickle an dime you because we can and besides we lost money so we are going to make it back on your backs.

 

The airlines are reducing fuel charges BUT adding them back as base price.

 

I don't know about you but my TA next year has a base price of $1179 pp for what is now a 1B cabin - moved us because of the reclassification. 14 nights mind you.

 

Adding a $5.00 pp charge for Bistro while it looks like a "ripoff" - how about waiting til you cruise on Solstice before making the comment. RCL did that for JohnnyRockets and while we get a coupon for one visit - ( thats all we would go anyhow) the crowds are now managable.

 

Here is another thought - It seems to me that the biggest whiners about nickle and diming are the folks who book CC or suites. If you can afford that - and then try to cut costs by smuggling your booze aboard arent you part of the problem??

 

Just my opinion

 

I will agree that there may be other factors at work leading to the concentration on profits today at the expense of long term success of a corporation. However, there is no way that the temptation of all that money doesn't color the decision making process for these corporate bigwigs. If Wallstreet and shareholders support that process - so much the better for them.....

[lysolqn]

Circuit City has lousy balcony suites, and their food sucks. On the other hand, I never did get the washer and dryer that I ordered from Celebrity.

:D

JK.

 

Does Circuit City have a dress code?

[FinelyCruising]

Here is another thought - It seems to me that the biggest whiners about nickle and diming are the folks who book CC or suites. If you can afford that - and then try to cut costs by smuggling your booze aboard arent you part of the problem??

 

I tend to think that people who count their pennies are the one that are the smartest. If those who have never thought about the dollar here and the dollar there stopped and thought about how much they have given away for something insignificant, I think the totals would be large enough to make one think they have been doing something wrong.

[Tranquil Waters]

I tend to think that people who count their pennies are the one that are the smartest. If those who have never thought about the dollar here and the dollar there stopped and thought about how much they have given away for something insignificant, I think the totals would be large enough to make one think they have been doing something wrong.

 

So true! Maybe the reason they can afford to book CC or suites is becaused they watched those nickels and dimes...... ;)

[kennetro]

Does Circuit City have a dress code?

 

No dress code, but it's a heck of lot easier to sneak a bottle of liquor into Circuit City!!! LOL

[Sky Sweet]

Does Circuit City have a dress code?

 

No, and that is probably the reason for its downfall...LOL :)

[AtlantaCruiser72]

No dress code, but it's a heck of lot easier to sneak a bottle of liquor into Circuit City!!! LOL

 

ROFLMAO!!!!!!!!!!! :D I almost wet myself ........

[Sky Sweet]

I tend to think that people who count their pennies are the one that are the smartest. If those who have never thought about the dollar here and the dollar there stopped and thought about how much they have given away for something insignificant, I think the totals would be large enough to make one think they have been doing something wrong.

 

aka - the latte effect :)

[hermang]

aka - the latte effect :)

 

One of the arguments I hear from friends of mine is why take a balcony cabin in the first place - How much time do you really spend in the cabin anyhow. First cruise we took was an OV on the Soverign - having nothing to compare it with - I would have to agree - BUT on the next cruise our TA got us a balcony - smaller to be sure than todays ships and we were hooked - and we have introduced many people to cruising who started out with a Balcony and never looked back.

 

It's all about what is important - I could care less if I had a fancyier robe - but I like the idea of having a robe. So I like middle of the selection - while not the most expensive not the cheapest either. As many folks have stated - if I want to spend the $5.00 for Bistro on 5 I will - just like I am willing to pay for coffee at Cova or a night in Murano. Not going to do it every night so a ten dollar bill is not going to make or break me - worse case its one less drink.

 

If Management of a company chooses to nicke and dime the customers to line their pockets - shame on them - But I also believe that Celebrity may change this policy many times. I still think cruising is a great bargain - and as much as I would like to do land tours of Europe - I am not gonna spend that kind of money between VAT, outrageous hotel bills and we are not talking about major corporations either owning the hotels - just becasue they think All americans are loaded with money

[Fredr]

Hello,

 

You cannot compare a company like Circuit City which to me was one of the worst run companies that I have ever seen with Celebrity.

 

I have been on 26 cruises the most recent was a cruise on the Mercury to Hawaii on 10/22/2008. This ws our 5th cruise on Celebrity and our third on the Mercury. In both my wife's and my opinion which was shared by our table mates (both of whom are outstanding cooks and one was in the food industry for many years) we agreed that the food was excellent.

 

We also noted that the service was as good as ever. Our cabin was kept in excellent condition and our cabin steward was very responsive to our requests...no different than our other, earlier cruises. Further, that the entertainment on this Mercury cruise was among the very best that we have seen on a Celebrity ship.

 

There have been changes though and this may be bothering many Celebrity fans. In years past, the cruise staff on Celebrity ships was mostly young men and women from such countries as Poland, Hungary Croatia, Romania and Turkey. The Greek officers were out and about the ship. Today however, the cruise staff is largely made up of young persons from the Phillipines, Indonesia, and India. The latter are very hard working, exceptionally pleasant, and great fun. They are, however, from countries that are not part of Europe and this I believe changes Celebrity. To some degree the European ambiance of a Celebrity ship is no longer there.

 

Secondly, the passengers have changed as well. Please do not take my comments negatively but from the first day that Celebrity began business, the goal was to attract passengers who knew something about travel and the world. That is why John Chandris emphasized European cuisines as he believed it was of the best ways to build his X brand. Today because cruising is so popular, Celebrity is attracting passengers of all kinds including those who want to wear their bathrobes to the buffet and so on.

 

As I have been on all of the major cruise lines except NCL, there is very little that separates one major cruise line from another in terms of food, service and entertainment. To me, all are very good and money well spent. We will continue to go on Celebrity cruises based on itinerary and price and on other cruise lines for the same reasons.

 

Fred

[Sky Sweet]

One of the arguments I hear from friends of mine is why take a balcony cabin in the first place - How much time do you really spend in the cabin anyhow. First cruise we took was an OV on the Soverign - having nothing to compare it with - I would have to agree - BUT on the next cruise our TA got us a balcony - smaller to be sure than todays ships and we were hooked - and we have introduced many people to cruising who started out with a Balcony and never looked back.

 

It's all about what is important - I could care less if I had a fancyier robe - but I like the idea of having a robe. So I like middle of the selection - while not the most expensive not the cheapest either. As many folks have stated - if I want to spend the $5.00 for Bistro on 5 I will - just like I am willing to pay for coffee at Cova or a night in Murano. Not going to do it every night so a ten dollar bill is not going to make or break me - worse case its one less drink.

 

If Management of a company chooses to nicke and dime the customers to line their pockets - shame on them - But I also believe that Celebrity may change this policy many times. I still think cruising is a great bargain - and as much as I would like to do land tours of Europe - I am not gonna spend that kind of money between VAT, outrageous hotel bills and we are not talking about major corporations either owning the hotels - just becasue they think All americans are loaded with money

 

Hi Hermang :)

 

I feel the same way about cabins. We usually book sky suites or aft concierge class cabins on M class ships. Having a balcony, as well as a little more space, makes a cruise more enjoyable for us but I am not willing to pay for Celebrity's most expensive suites.

 

Actually, choosing something in the middle that I consider to be "good enough" is what I do for most things

 

My comment about the "latte effect" was more about people who think they don't earn enough to save or live nicely, but really could if they realized how much they actually spend on little things such as a latte at Starbucks.

[RLM77]

RLM77, that is a very interesting perspective and I enjoyed reading it. One thing, however, your post made me wonder. How many other cruise lines are cutting costs? Surely almost all would have to be taking some measures in this economic environment, although the measures may be more subtle or less discussed.

 

The only other alternative to cost-cutting for a cruise line would be to raise cruise fares in an effort to maintain the same level of service and amenities. That is a slippery slope too. It would certainly crowd out the marginal consumer who can afford a particular cruise line, but suddenly finds the prices too high.

 

One has to ask, is it better to cut services and amenities or to raise prices? Surely every cruise line is dealing with this very difficult challenge right now. After all, cruise lines are in business to make a profit at the same time that they offer an attractive service consumers will want to patronize.

 

My son is in management at a luxury land-based resort. Word came down from corporate last week to make floor-by-floor cuts in every conceivable manner. It isn't just the cruise industry pressured by the economy.

 

HeavySurf, you pose a very tough question for both the industry and its customers. Not so coincidentally, it is similar to the issues with which the airlines have been wrestling. Both the air and cruise lines are capital-intensive industries, requiring major investments in hardware to offer service. To add capacity requires a significant outlay of cash. To reduce capacity requires walking away from what are effectively sunk costs (though they are carried as fixed assets on the balance sheet).

 

Both the airlines and cruise lines face unpleasant realities. After years of pricing to fill available seats the airlines finally decided that their only option was to offer fewer seats in order to command higher prices. It seems to have helped, though an enormous challenge lies just ahead.

 

So far, the cruise lines are not reducing capacity (berths). In fact, it is growing. That means that in hard economic times like these the result is lower prices that need to be offset by lower costs. So the berths are filled but quality suffers. Problem is, the trend may not reverse itself when the economy (and revenue) improves, as managements try to make up for the lean quarters/years with fatter margins.

 

As cruise passengers, we need to decide whether or not we would be willing to pay up for continuation of the product quality to which we are accustomed. That's a tough proposition in difficult times. But I do agree that it's not realistic to expect the same quality when prices for berths are falling.

 

I think there is room, even in this economy, for a company to run 2-3 ships at a price point somewhere between the mainstream lines and Oceania. The price gap between X and Oceania is considerable. I think that there are enough people who value experiences like those Celebrity used to offer to keep a small number of ships filled at fares 10%-20% higher than X's fares today. In order to justify the additional revenue, though, these cruises would have to offer value that clearly exceeds that of today's mainstream lines.

 

Whether this ever comes to pass or not, the mainstream lines may ultimately respond to the pricing challenge the same way the airlines have. If so, that mean the worst of all worlds -- fewer berths, higher fares, and reduced quality. Let's hope the management teams at CCL and RCL are able to think more creatively than their airline counterparts.

Rich

[FinelyCruising]

Rich I have commented frequently to remind here that the airlines are a transportation industry and cruise lines are a destination/vacation industry. Airlines need only focus on getting from point A to point B.

 

They do each need to work hand in hand to support the others efforts for continued revenues as a segment travel partner, and there may be some cross over in challenges, but each has a zone of lost profit tied to non-essential services to the public.

 

So if the airline makes it hard for a customer to get to a port, and cruise lines make it unattractive for a spender to want to reach the ultimate destination, then it is Game Over for a lot of paying customers who have been linked up for a good run.

 

Because airlines enjoy this game of dollar here/ dollar there these days, I truly don't think the cruise lines will succeed with the same idea they have taken up. Not to be obnoxious and repeat myself, I will again say, the intangibles of bend over backward service and exceptional experiences will be what elicits the current and future success of a cruise line.

 

Right now everyone seems to be fighting to be ordinary. Ordinary is mediocre. Not my idea of the kind of the kind of achievement levels I want to participate in or to contribute to. My hard earned dollars do not obligate me to keep that kind of ideal floating, viable and in business.