Circuit City woes mirror industry challenges

Circuit City is facing an uncertain future — and so is their Canadian operation The Source by Circuit City. If recent retail predictions are to be believed, more electronics retailers both online and off may be fearing a similar fate.

Common Cutbacks

America’s second largest electronics store announced plans to file for Chapter 11 bankruptcy protection. The news came just one week after the company decided to shut down 155 of its locations, eliminating somewhere in the vicinity of 8,000 jobs. The announcement also indicated more cutbacks could be on the way.

How serious could those cutbacks be? Just ask Circuit City’s competitors. Electronics chain Tweeter is in the process of closing its remaining stores right now, about one year after it filed for bankruptcy. And CompUSA closed most of its stores at the start of the 2007 holiday season. Only 16 locations remain open today, following a sale to Systemax subsidiary TigerDirect earlier this year. Sharper Image, Mervyn’s, and C-Mart have also shuttered their businesses in recent months, and even Best Buy — the relative winner in its league — has seen shares drop more than 50 per cent this year.

Troubling Trends

Some players, including Circuit City, point to the current economic climate as being the catalyst for the electronics retailing meltdown. Others blame increased competition from general discount stores such as Wal-Mart, while others yet point the finger back at the struggling retailers’ own strategies. Each contention has its own merit — and, in reality, the problem is likely a combination of all three.

On the economic end, some analysts say this holiday season may be the worst since the 1980s as a result of people’s wariness to open their wallets. The high price items, they say, are the most vulnerable — so it’s no surprise electronics sales are in a slump. Supporting that notion, recent data indicates the high-end electronics business is down by at least 15 per cent overall this year.

Some new numbers released by electronics matching service Retrevo suggest demand for digital cameras, TVs, and gaming consoles are all slipping, even as the items’ prices are heading south. All three technologies have seen falling prices since at least October.

The Silver Lining

It’s not all bad news. Cell phone interest is starting to rebound, Retrevo found, perhaps because of the attention brought by the new BlackBerry models and Google’s G1 Android phone. Of course, the G1 is now being sold in select Wal-Mart stores for 17 per cent less than the retail price, so any implications for the non-discount retailers may be limited. (Fittingly, Wal-Mart reported sales gains in the month of October and is expecting a strong holiday season.) Other technologies still showing a steady demand, Retrevo says, include digital photo frames, DVD players, and laptops.

Amidst the mixed data, the Consumer Electronics Association predicts strong sales between now and New Year’s. A CEA study released last month suggests 40 per cent of an average adult’s holiday wish list is made up of items in the consumer electronics category this year.

So what’s it all mean?

The data, as far as I can tell, appears to leaves only one logical conclusion: People still want this stuff — but may or may not be able to afford it themselves. The future of electronics retailers, it would seem then, lies in the hands of Santa. And Circuit City, one can only assume, is sure hoping the big man doesn’t do his shopping at Wally World.

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Jim Love, Chief Content Officer, IT World Canada

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