Circuit City Liquidation May Be Hard For Co,Mixed For Rivals
16 Enero 2009 - 1:08PM
Noticias Dow Jones
The liquidation of Circuit City Stores (CCTYQ) may end up being
a tough sell for the company itself and is sure to carry impacts
for its competitors, retail consultants said.
The second largest electronics retailer behind Best Buy Co.
(BBY) may not be able to draw foot traffic even with
going-out-of-business sales because consumers, as demonstrated
during the Christmas holiday, aren't buying despite deep
discounts.
Even an "everything must go" approach may not stir an abundance
of interest because shoppers are becoming used to such
proclamations, analysts said.
"I think Circuit City will be able to liquidate through its
stores, but it will be challenging," said Gregory Segall, managing
partner of private-equity firm Versa Capital Management. "Moving
merchandise will likely be tough no matter how motivated Circuit
City's liquidators are."
Circuit City operated 567 U.S. stores as of Dec. 31, making its
liquidation one of the biggest in recent memory and pouring
merchandise onto a consumer-electronics market where Best Buy,
Wal-Mart Inc. (WMT), Amazon Inc. (AMZN) and, to a lesser degree,
RadioShack Inc. (RSH) compete.
There are also scores of regional electronics chains, like P.C.
Richard & Sons in the New York area.
In the short term, at least, rivals will be hurt by what Circuit
City is able to sell, especially as its discounts get deeper,
analysts said.
Circuit City "will pull down prices for the other retailers,"
said Craig Rowley, national retail-sector leader at the Hay Group
consulting firm.
"We're in an environment where 30% or 40% isn't uncommon for
healthy retailers," Rowley said. "Circuit City's liquidators will
probably end up offering higher discounts."
As a result, the other retailers, many of whom spent the last
few months cutting inventory so they could move new products at
higher prices, will again have to engage in margin-hurting
discounting, Rowley said. "Spring will probably be tough for them,"
he said.
But there is also going to be a less crowded
consumer-electronics field, and that's to the benefit of Circuit
City's competitors, especially Best Buy, analysts said.
Best Buy's domestic comparable-store sales for the fiscal year
that ends February 2010 could see a 7-percentage-point benefit from
the liquidation of Circuit City, said Jack Murphy, an analyst at
William Blair & Co.
Circuit City filed for Chapter 11 bankruptcy protection on Nov.
10, hoping to continue operating as it found a buyer.
The company said on Friday it will begin liquidating.
Analysts said the move was most likely spurred by its lenders,
led by Bank of America Corp., which were becoming fearful that the
company wouldn't be able to get rid of its merchandise before it
would have to start vacating stores.
Spokespeople for Circuit City and Bank of America didn't return
phone calls for comment.
Once a retailer files for Chapter 11, it has 210 days before its
landlords can move to evict it, or negotiations will have to occur
to extend the timeframe, Segall said.
-By Karen Talley, Dow Jones Newswires; 201-938-5106;
karen.talley@dowjones.com
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