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Tweeter, Circuit City Aftermath

Well, November finally arrived, as I indicated in my print Viewpoint column yesterday, but as the cliché goes, “Watch out what you wish for.”

Right before October ended, Tweeter and its almost 100 remaining stores were sold to a liquidator. And then yesterday news broke that Circuit City would close 155 stores and leave 12 markets in an effort to save cash.

News of Tweeter’s demise kind of went under the radar in terms of national news Friday since it hasn’t been a public company for some time and its owner, Schultze Asset Management Group, never issued a statement about the chain’s sale.

But Circuit City’s store closings was news nationwide, since it is a public company with coast-to-coast reach, and was played by some as an illustration of a weakened economy.

In some cases I saw on TV last night, locally here in New York and on national broadcast and cable news networks, the Circuit City story was played as a black eye for the entire CE industry. Those of us in the industry know this is less about a black eye than it is about the well-documented stumbles and problems of this once-proud chain experienced during the past decade. The current economic crisis has pushed it to the brink.

The possible fire sales by Circuit City and Tweeter and a glut of inventory hitting the market right before Black Friday, which we discussed in a report last week, is now a reality.

Black Friday was going to start early, with subsequent hits to margins for everyone, even if Tweeter wasn’t sold and Circuit City didn’t close stores. But Tweeter’s demise and Circuit’s store closings add insult to injury.

The only possible positive news in all of this is that maybe store traffic will increase for all as consumers will be out looking for bargains. Maybe the inventories of Tweeter and Circuit City aren’t as deep with popular SKUs as many fear. And maybe the DTV transition will generate more profitable sales than we expect right now.

But that’s a heck of a lot of “maybes” for retailers and suppliers to hope for during a season when it has to make profitable sales.

I still agree with Gary Shapiro, Consumer Electronics Association president/CEO, who told us recently that if Circuit City leaves the industry, “it will not make or break the consumer electronics industry in the long term.” If Circuit City goes the way of Tweeter and all those aforementioned chains, it will be “a short-term painful moment.”

It’s the “short term” of this holiday season, which stretches usually to Super Bowl Sunday, and this year the DTV transition in February that everyone has to be concerned with.

If you’ve been around this business for a while you’ve seen the “painful moments” of Montgomery Ward, Lechmere, Highland Superstores, CompUSA, Silo, The Wiz, Luskin’s, Newmark & Lewis, Crazy Eddie, The Good Guys and so many more depart the industry.

But in recent memory we haven’t had a chain like Tweeter exit the business, or a national player like Circuit City shut down that many stores during a holiday selling season… at the same time.

Consumers still love CE, and may love it even more so this holiday season with all the deals out there. But the question for the industry is: How much profit will be sacrificed to move the merchandise?

That’s a question keeping many industry executives up at night.