Store Closings: Some See Negligible Effect On Sales

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Liquidation sales at one-fifth of Circuit City's store base and all 94 Tweeter locations are having a negligible effect on the marketplace, retailers and vendors said, although Best Buy is expected to be the biggest beneficiary of an estimated $2 billion in lost volume that will be up for grabs.

Dennis May, president/COO of hhgregg, which overlaps with 30 of Circuit City's targeted stores, said his chain has seen no significant volume shift or impact on margins as a result of the fire sales. "The inventory is liquidated quickly and not discounted much," he said during a conference call with analysts earlier this month.

Gary Balter, a retail analyst with Credit Suisse Securities, confirmed in a research note that prices at Circuit City's 155 liquidating stores was actually higher than those at the chain's remaining locations.

Dave Workman, executive director of the Progressive Retailers Organization (PRO Group), concurred. "I have not heard of any marketplace disruptions," he told TWICE. "Going-out-of-business sales are usually a short-term situation. The 'A' goods get picked over pretty quickly and the leftovers quickly become less of an issue."

The impact to vendors will also be minimal, Workman said, since the consumer isn't going away. "There will still be the same number of consumers out there wanting to buy electronics. They'll just have one less place to shop. PC sales still grew without CompUSA."

Jay Vandenbree, Sony SEL sales president, agreed. "If consumers can't find something at a Circuit City, they will go somewhere else to buy it, or if they can't find it at Wal-Mart, they go somewhere else to buy it," he told TWICE. "I don't know any consumers who go to one retail store and postpone their plans to purchase a product if they can't find it there," Vandenbree said.

But other buying group executives do anticipate problems, if only temporary, from the retail consolidations. "In the short term, there will be a great deal of product dumped into the market," said Bob Lawrence, CEO of Brand Source. "This will clog an already-overstocked industry."

Likewise, Ed Kelly, president of Nationwide Marketing Group, believes that "in the beginning it will have a negative effect on pricing, service issues, customers not being taken care of, and so on."

Eventually, they said, the demise of competitors will present new opportunities to grow market share, although how the pie is divided remains to be seen.

Sony's Vandenbree observed, "The question becomes do they shop at Sears? Do they go online? Or do they go to a smaller independent retailer for their shopping experience? It will be interesting to see which value equation they do choose. But they are going to choose to buy nevertheless. I have that much faith in consumers that they will continue to do that."

Workman believes that "everyone will pick up some of the business" depending on the demographic subset of shopper, although Wal-Mart, online retailers and Costco will be major recipients, with Best Buy benefiting the most.

Credit Suisse's Balter expects Best Buy to capture "well above" its 21 percent CE market share from Circuit City's 155 liquidating stores, aided by the chains' close proximity within the affected markets and a consumer bias toward CE specialty stores, he said in a research note.

Should Circuit City fail, which he expects it will in the near term, Best Buy could conceivably capture 30 percent to 40 percent of its approximately $10.5 billion in sales. Other chief beneficiaries would include Wal-Mart, Costco, hhgregg and Sears, he projected.

Michael Lasser of Barclay's Capital specifically pegged Best Buy's gains at about $450 million in incremental sales for each additional 100 Circuit City stores that are closed.

Best Buy president/COO Brian Dunn confirmed last month that his company is ready to "jump in" and take advantage of real estate opportunities and "connect with consumers" after storefronts close.

Similarly, Jerry Throgmartin, chairman/CEO of hhgregg, told investors, "We're aggressively competing in the marketplace to get our share." — Additional reporting by Greg Tarr and Doug Olenick

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