Circuit's Demise Changes The Rules
By Steve Smith -- TWICE, 1/26/2009
The news about the closing of Circuit City was not a surprise to anyone who has been in the CE industry or who watched the chain's downward spiral over the past decade.
Of course, our thoughts go out to the 30,000 employees who will lose their jobs amidst the worst economic downturn since the Great Depression, but Circuit's fall is not just another story of a company victimized by the economy. Bad decisions and faulty leadership over the past decade made this day inevitable. The economy just made it happen a little faster.
Still, if you have been around this business for a while, you kind of hoped — even during International CES when the news of an auction was going to begin — that a white knight would come along to save the chain.
That romantic idea violated any logic. When a chain like Circuit City falls as far as it did, not even a government bailout could have saved it.
In the past decade Circuit's decisions to invest heavily in the Divx video format, get out of major appliances and replace it with “grab and go” handheld electronics, and fire its best sales associates (not once, but twice) probably helped regional and independent CE retailers more than just about any buying group, distributor or supplier did during the same time period.
Over the short term, the next six months or a year, Circuit's demise will help regional and independent CE retailers. Manufacturers will turn more to those smaller retailers because they don't want to be beholden to Wal-Mart and Best Buy.
Speaking of those two retail giants, Wal-Mart will be a big winner here because ... it's Wal-Mart. That will strike fear into Best Buy because it always said that the chain based in Bentonville, Ark., was its main competitor. And let's not forget Amazon.com, which had a tremendous holiday season in CE.
Manufacturers have to be concerned about being dominated by Wal-Mart, Best Buy and others like Amazon.com.
In our front page story on Circuit City, it is said that the industry will change dramatically since it is the first truly nationwide CE chain to fall.
Maybe top CE brands will go the route of Apple and Sony and open their own stores.
Or maybe we will find a year or two from now, regional retailers such as hhgregg, P.C. Richard & Son, among others, along with Fry's and BrandsMart USA, to name a few, may become more powerful factors and will hopefully resist the idea of expanding well beyond their traditional marketplaces. Hindsight being 20/20, that's how Tweeter, Silo, Highland and so many more got into trouble years ago.
Or maybe Amazon.com and online retailers will become an even larger factor in CE retailing.
No question, this is a watershed moment for the industry during the toughest economy most of us have ever seen.
The CE industry will survive, and eventually thrive once more, after Circuit is liquidated and after we are through with this recession. But the rules have definitely changed.
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