Another Follow-up

It's a little bit eerie, when you write about a wave of potential failures in the Retail sector, and less than a month later one of the major companies you were reading about is going into the tank. But only a little bit, since I got that tip (for the post titled “Retail is Burning”) from online research in the first place, and this is what a business analyst does. No, we don't just walk in, look around for a few moments, and then tell the owner, "You are a business!" In this particular case, the company in question is Circuit City, and they have begun preparations to sell off the company, most likely to Blockbuster. What, exactly, Blockbuster will do with the stricken retail chain remains to be seen...

The biggest issue cited in the story is the downturn in the U.S. economy, which is making consumers skittish about purchasing non-essential items like home electronics in the first place, and definitely putting a damper on the sales of big-ticket items wide-screen televisions and home theater systems. Without these sales the company cannot sell lucrative extended warranty and service plans, delivery services or installation and set-up services, either, which is a major problem since that's where most electronics retailers make the majority of their money. However, the chain's large number of brick-and-mortar locations, including many in under-performing or declining communities, was also cited as a factor, as was the increasing competition from both industry leaders like Best Buy and warehouse store competitors like Costco and Wal-Mart. Blockbuster's management has a history of closing marginal stores and making the surviving ones more profitable, and they might be able to figure out how to compete with the warehouse stores. But it's really hard to imagine what they intend to do about the economy...

The thing is, Blockbuster has not done well itself, in recent years. Their new CEO has had some luck restructuring the company and returning the focus of their operations to sectors (e.g. real world locations) and advantages (e.g., convenience, speed, low price) where they can successfully compete with newer, more technology-dependant competitors like NetFlix and iTunes. Blockbuster is expected to become profitable again later this year, although it remains to be seen if they can stay ahead of the competition in the longer term -- and there's no way to tell if acquiring another problem company will actually help them.

From an outsider's point of view, it does seem as if there might be a niche left in the electronics business that Circuit City could take over, although it would take a major effort to move into it. The big issue with much of their competition is the lack of service; in a warehouse store there is literally none to speak of, and even big-box retailers like Best Buy and Wal-Mart are prone to either not having enough help on the sales floor or else trying to sell you whatever they have the most of in the store, whether that's what you needed or not. In theory, a retailer could add value for the customer by hiring good sales associates and training them to help customers of low and moderate technical ability to find what they need and get the support they require. They would also, of necessity, have to remedy the chain's supply problems, since finding the article you want and then not being able to purchase any is another major source of customer dissatisfaction.

If the concept sounds familiar, it should: it's the Nordstrom model, applied to electronics. If the new Circuit City operations can develop the reputation for being the place where you can go to get exactly what you need, whether you know what that is or not, every time, with people who can get you through the process quickly and efficiently... Yeah, they might make a go of it. But if they try to compete on price or convenience alone, they're going to be wrecked...