Circuit City's CE Stance Gets Good Reviews From Trade

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Richmond, Va. -- Now that news of Circuit City's appliance pullout has had time to sink in, the industry is casting a cold, hard eye on the specialty chain's CE-only future. And for the most part, it seems to like what it sees.

Although majap makers are scrambling to find new homes for the merchant's appliance allocations, CE suppliers largely lauded the move.

"This is very significant," said Gary Lafferty, senior VP/sales of Philips Consumer Electronics. "In my mind it is an extremely bold move. This [decision] recognizes digital and advanced technology as well as the opportunity with content and services. This is a bold business decision on how to take this technology to the consumer. It's extremely good for those companies that are emphasizing digital technology, like Philips."

Lafferty also commiserated with Circuit's majap concerns. "Stores are only so big, and costly to build," he acknowledged. "The appliance business has become more difficult and expensive to ship and service products. Trade that off with cash-and-carry digital products, and this is a good deal. And it positions Circuit City as a digital leader."

John Kelly, senior VP of Sharp Electronics' CE Group, observed that "Circuit City is refocusing on those categories that they can get the maximum amount of business in." He expressed concern, however, over the impact that Circuit's decision will have on CE pricing. "In consumer electronics, with Circuit City emphasizing it, it will make a competitive business a very competitive business. There will be more competition and more price sensitivity."

Kelly also noted that Circuit City's vendor notification process was nil. "We were never officially told," he said. "We found out on the Internet. We are in the budget process [for shipments] so we can change our fourth-quarter and first-quarter manufacturing. The timing was good for us, from that standpoint."

The view was different at Panasonic, which supplied vacuum cleaners and microwave ovens to the chain. Said sales and marketing VP Fred Towns, "We were disappointed to hear that Circuit City opted to exit the appliance industry. It further limits in the large superstore [format] what's available, and it cuts down on the options for the consumer. It's sad, because they were pretty well known for having a nice selection of appliance-type products."

But Wall Street, after first punishing the specialty chain for the short-term disruptions that liquidation sales and store renovations will bring, generally praised Circuit City's sea change

"I have no qualms with the strategy per se, and getting out of the appliance business has its benefits," said Aram Rubinson, a managing director at PaineWebber. "But the transition won't be easy. Although they have a healthy underlining business, it's capital intensive."

Rubinson added that the retailer's new direction clearly borrows from the Best Buy playbook. "They're absolutely realizing that the Best Buy model has some economic merit," he said. "It allows merchandise to move faster. It's a rational decision, but I would have preferred to see it carried out in a more measured fashion. I think they have too many balls in the air."

David Schick, a senior analyst at Robinson-Humphrey, believes that Best Buy's CE business could benefit near-term as Circuit's electronics traffic is diverted during the height of store remodeling this fall. Long-term, however, he expects the No. 2 CE chain to "create more competition in the PC and electronics market as such products fill in the space that appliances leave vacant." -- Additional reporting by Steve Smith & Greg Tarr

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