Worst Fears, Bad Timing

By Steve Smith -- TWICE, 11/17/2008

The worst fears of many in the consumer electronics industry were realized within days of each other as we entered November.

Tweeter filed for Chapter 11 protection and is undergoing a liquidation sale at its remaining 100 or so stores. Then Circuit City first said it would close 155 stores and exit 12 markets, and then days later it filed for Chapter 11 protection.

P.S. — This wasn't a real surprise to anyone. But why, many had to ask, did it have to happen at the beginning of the holiday selling season?

I don't know what observations I can add concerning the state of affairs that Tweeter and Circuit City finds itself in. It seems to be "Topic A" in and around the industry, if you ignore discussions about Panasonic trying to make Sanyo a subsidiary or Directed dropping Sirius XM, and, oh ... a little story on Best Buy's comps being down.

If you look in this issue, and in previous print editions, you will read measured opinions by manufacturers and competing retailers and financial analysts.

And, of course, you can check the Talkback section of our Web site, www.TWICE.com, and read the passionate, insightful and sometimes profane comments of now-former Tweeter employees (and some Circuit City workers).

Tweeter's demise somewhat went under the radar in the consumer media. You've probably heard and read stories from general consumer media reporters who've only gone into a Tweeter or Circuit City before as consumers. So for them Circuit City is a major story that, in their view, is a black-eye for the industry. Wither CE? I think not.

As many of us know, Circuit City's problems have been ongoing for years. The economic crash pushed it into Chapter 11 protection.

If you've been around this business for some length of time, you've seen Montgomery Ward, Silo's Lechmere, Highland Superstores, CompUSA, The Wiz, Luskin's, Newmark & Lewis, Crazy Eddie, The Good Guys, Brick Church Appliance and many others leave the scene.

But I don't remember a national electronics chain and a major regional player have liquidation sales during November.

Of course, Circuit City is continuing to operate under Chapter 11 and, like everyone in the industry, we still hope that new management there can stabilize the operation and finally turn it around.

But I agree with the opinion of analyst Gary Balter of Credit Suisse Securities who told our senior editor Alan Wolf, "We have not seen a consumer electronics retailer successfully reorganize in Chapter 11 in our 24 years in this space."

With the economy the way it is and the many challenges Circuit City is facing, I hope Gary and I are wrong, for everyone's sake.

As for the effect this will have on CE sales and margins this holiday season, many experts say it won't have a serious effect.

We will see how the industry reacts if Black Friday traffic is down considerably and that continues for the following weekend or two.