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When Circuit City filed for bankruptcy, it was easy to see who the obvious winners are: Best Buy (NASDAQ: BBY) and Wal-Mart Stores Inc. (NYSE: WMT) stood to split the market share previously occupied by the second largest electronics retailer in the country.But then a funny thing happened: Much of the sales volume that Circuit City was doing simply vanished. The Wall Street Journal reports (subscription required) that The Census Bureau's estimate of electronics and appliance store sales -- which include Best Buy -- fell just 0.9% in February. But they dropped an average of 11.2% over the next three months. Overall retail sales declines actually narrowed slightly over that time. . . Best Buy has increased revenue through store expansion, but traffic has declined even after Circuit City's liquidation."
It's possble that the decline in consumer spending is accelerating too rapidly for there to be a visible boost from Circuit City's demise: Best Buy's traffic may have just been less bad instead of the better that so many were expecting.
In the long run though, there's no question that Best Buy will be made stronger by the demise of Circuit City. The Journal suggests that "If electronics-store sales don't improve, it may be hard to justify paying 12 times this fiscal year's consensus earnings for Best Buy shares." But given how depressed this year's numbers are, that doesn't seem like such a high multiple at all.
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Reader Comments (Page 1 of 1)
7-06-2009 @ 5:38PM
fly4vino said...
No question they( electronics sales) are down. But look at new car sales. Consumers are making do wiht their big ticket items and having the newest is not in style.
Also electronics (other than large screen TV) are ideal for purchase via the internet and a number of states have increased their sales taxes, significantly.
For the past 5 years HELOC financing and conventional refinancing has provided excess cash for consumer spending. Not only has that ended but consumers are also struggling to repay some of that debt.
Add to this the disappearance of trillions from stockmarket accounts and home values and it is amazing that there are any sales at all.
7-07-2009 @ 4:25AM
al coholic said...
I bet if you look a little closer you will see that the real problem is that Best Buy's business model is doomed. Like the Barnes & Noble brick and mortar stores that are now stripped bare of products and languishing because so many now buy online, people have voted with their feet and the electronics business will never be the same.
As trust in online stores with low overhead and unbeatable prices has risen, Best Buy has seen it's traffic change from buyers to lookers who then go home and order the stuff they handled at the store online for less.