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This is the first of a two-case series (IMD-3-1867 and IMD-3-1868). Circuit City in 1990 was doing fine, with good profits on rising revenue. But they saw that this would not last forever, and started searching for new avenues for growth. They believed they were good at selling big ticket items, financing those transactions, and running a ''big box'' retailing business. They commissioned a young employee to find new opportunities for growth. CarMax was born. But CarMax faced early hurdles - how big should the stores be? How fast should they grow? And how should they fight off the threat of Wayne Huizenga''s AutoNation? This case can be used as an example of business model innovation, as an example of a company leveraging its distinctive capabilities in new markets, and as an example of strategic use of information technology.