All Eyes Are On Circuit City, Tweeter
Store closings could flood market with fire-sale inventory, pummeling prices
By Alan Wolf & Steve Smith -- TWICE, 10/28/2008
NEW YORK — While the CE industry is already holding its collective breath over the coming holiday season, the wild cards that are Circuit City and Tweeter are adding to the anxiety.
The fates of the No. 2 CE specialty chain, and to a lesser extent Tweeter, could have far-reaching effects on their suppliers and competitors, and hasten an industry-wide restructuring anticipated by some industry observers.
An immediate concern is that possible store closings and fire sales by Circuit City, suggested in a Wall Street Journal report last week, would flood the market with deeply discounted product and put added promotional pressure on retailers.
With credit markets frozen, Circuit might be forced to close more than 20 percent of its stores and liquidate $350 million in inventory to keep the company afloat through Christmas, the article quoted sources as saying.
Jim Ristow, executive VP of Home Entertainment Source (HES), the specialty A/V division of the Brand Source buying group, outlined three possible scenarios for the chain during a fourth-quarter Webinar presentation for members last week:
• the retailer could restructure under Chapter 11 bankruptcy protection and emerge as a different company, although obtaining a bridge loan in this environment is difficult;
• Circuit could be acquired after entering Chapter 11, allowing the new owner to close 300 to 400 of its approximately 700 stores, including those with poor locations and bad leases, or;
• management could opt for liquidation.
The last alternative would displace billions of dollars in CE merchandise and further squeeze manufacturers, who are already contending with high inventory levels and lowered forecasts from big-box customers, Ristow said.
While Circuit City is still reportedly paying vendors and receiving shipments, he said he expects the chain to be “the most predatory” in its fourth-quarter pricing and to do “more unnatural things” during the holidays.
Richard Sharp, former chairman, president and CEO of Circuit City, acknowledged “the company's recent struggles” during his induction into the CE Hall of Fame last week. (See p. 22) Sharp, whose day-to-day involvement with the chain ended in 2000, hopes that “Circuit City survives and prospers” and that “the industry gives them a chance” to turn things around, because the CE business will be hurt “if we lose a chain like Circuit City.”
Gary Shapiro, president/CEO of the Consumer Electronics Association (CEA), spoke with TWICE at his event last week and downplayed the impact of a Circuit City failure. “I like a lot of people at Circuit City and I know that a lot of suppliers are focused on them now,” he told TWICE in an upcoming interview. “Everyone wants competition at retail. Even some retailers want that competition.
“Whatever happens to [Circuit City] will happen to them, but it will not make or break the consumer electronics industry in the long term. Circuit City is a painful moment for the industry because it has such a legacy, but it is a short-term painful moment. [The industry] will survive no matter what happens with Circuit City, and five years from now we will be hearing about another retailer having another painful moment.”
Tweeter, which earlier this month replaced CEO George Granoff with an outside chief restructuring officer, is facing similar choices, HES's Ristow said.
Neither George Schultze, principal of the eponymous investment group that owns Tweeter, nor Granoff's interim successor, Craig Boucher, would comment for this article.
Contributing to CE retail's woes is an over-stored marketplace, which has grown more crowded as Best Buy accelerated its build-out and discount chains like Wal-Mart, Target and Costco expanded and upgraded their CE assortments, observers say. This, plus the precarious economy, could lead to another retail shakeout akin to the early 1990s.
“Weaker dealers will go out of business or consolidate, and vendors will cut production or restructure” during a downturn that will last quarters rather than weeks or months, HES's Ristow told dealers.
But a shakeout could also create opportunities for new businesses and models. “There were a lot of retailers around 20 or 25 years ago who are not around now,” said CEA's Shapiro. Since the turn of the century, the industry has seen “Amazon and eBay come onto the horizon,” along with “independent retailers with custom installers, wireless retailers ... as new technologies come up so do new types of retailers.”
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Its official Circuit city will be closing 155 stores immediately, to pay the rent. And will decide what steps to take next.
Im not saying but I know - 2008-2-11 21:32:00 EST -
It's now official. Tweeter will start liquidating as of tomorrow.
wouldja blowme - 2008-31-10 10:33:00 EDT -
DONE. INTRA COMPANY EMAIL IS GONE. They must not want those in the know to spread the word. I have heard that 47 stores will remain open for the liquidation sale. Everyone else is cooked, probably today. In typical fashion, this is not official. Yet.
Santa - 2008-31-10 05:41:00 EDT -
TWEETER:
Cash and carry only!
NO more installs after 11/15!
ITS OVER.
Hulk Hogan - 2008-30-10 15:19:00 EDT -
I guess I'm just another disgruntled former Tweeter employee. But I wasn't laid off. I saw this coming many many months ago. I worked at a store in PA and it was honestly so slow in there that I spent most of my time watching videos on youtube and searching for a new job, which thankfully I found and am now gainfully employed with a new company. In any case, I'm saying all this to say that business is BAD at Tweeter and the decisions that were coming from above were doing nothing to actually help the situation.
The companies policy was to shift mroe and more responsibility to the people in the stores while the people in corporate who are running the company into the ground are making more money than everyone in any given store put together.
Honestly though they aren't 100% to blame. The dropping profit margins on home electronics combined with a stagnant economy created an environment where there aren't enough Americans who can honestly afford to purchas luxury home electronics in the quantities neccessary to keep a company like tweeter in the black. However, they certainly dont seem to be showing a great deal of concern for the people working on the store level making the least money and getting paid on a broken commission structure. I was there during the first bankruptcy when the CEO's who wrecked the company made sure that their bonuses were protected in the bankruptcy at the same time as they denied retail employees severance packages. This time it seems to be more of the same. Complete dishonesty from corporate management and an unwillingness to face the realities of the situation on the customer level. Perhaps if they'd been more upfront about the situation they could have found a more reasonable way to deal with it then denying it and going about business as usual.
In any case, all Tweeter has now is a boatload of understaffed stores, burnt out and underpaid employees, no cash and now they're closing the distribution centers. If there's any people who work for Tweeter currently you need to do yourselves a favor and get out NOW! Find new jobs Elsewhere because by the beginning of next year you wont have jobs anymore. Trust me, I've seen this before. There is no point in sticking it out until the bitter end. You're not going to get severence packages so why on Earth should you stay?
This is not a rant, this is a call to reason. The company is going to try and get every last bit of work out of you they possibly can and then they're going to fire you and give you nothing for it. It's happened several times before with them and it's going to happen 1 last time. Just a fair warning.
Former Employee - 2008-30-10 02:52:00 EDT
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