US financial analysts this week were writing off the chances of Circuit City ever coming out of Chapter XI bankruptcy in both the US and Canada, and instead banking on a bumper Christmas for its rivals, picking out Best Buy and Wal-Mart to each take a chunk of Circuit City’s $10 billion in annual sales, with something over 40% of it in consumer electronics goods.
The company’s last quarter reported on September 29 showed a loss of some $239 million on sales of $2.39 billion with weakness across the board in flat panel TV sales, camcorders, DVD hardware, notebooks and desktops, MP3 players and home audio products, which all declined by double digits. Pretty much the only thing that went up were sales of digital converter boxes. There were also falls in video gaming products, video software and music software. Retailing high tech to consumers is really not a space to be in right now.
The company filed to Chapter 11 a week after closing 155 stores, and said it was having a tough time getting inventory.
One of the big problems for the entire US consumer electronics space is that customers faced with journeying further afield for their devices, may just choose to keep the cash, and the $10 billion spent at Circuit City last year may end up staying in US families’ bank accounts, further depressing CE suppliers such as Sony and Panasonic.
While the company is clearly aiming at doing a quick re-organization and then coming back out of bankruptcy, there are a few key hurdles. On the plus side store leases can now be got out relatively easily, and it now has debtor in possession financing, which may re-assure some suppliers. On the negative side there will be a growing perception by consumers that warranties are not worth the paper they are written on from the store. In answer to this Circuit City said that its warranty and service plans are sold on behalf of unrelated third parties who are the primary obligors, so these plans are not subject to change. But it will be lucky if the public reads the small print, and the situation could implode rapidly. Circuit City has already cut its HQ staffing levels by a total of 700 jobs