Circuit City on the Rocks?

Circuit City has announced a bone-crushing $239.2 million loss for the second quarter of this year. According to various news reports, management has stopped trying to find a buyer for the company, and is trying to find ways to shore up the ailing company. This includes shelving plans for opening up new stores, cancelling all the stores planned for next year. In fact, the company may close more existing stores. Traffic is way down in the stores, and the company is looking to boost sales in the upcoming holiday sales season. Fortunately, their top vendors have expressed support for the company, so obtaining inventory should not be a problem.

Maintaining profit margin could be a serious problem. While the company has made some progress on that score, the chief merchandising officer John Kelly was quoted as saying that they are willing to come up with “compelling offers to enhance traffic.” Translation: we’re going to slash prices if that’s what it takes to get people in the door this year. And you can be sure that Best Buy and Wal-Mart and Costco are listening to that kind of talk.

With the stock and real estate markets down, widespread uncertainty about the economy, and tightening credit for consumers and businesses alike, there’s little reason to be optimistic that the declines in consumer electronics sales are going to turn around on their own. Circuit City’s situation only underscores my expectation that we’re going to see aggressive discounting early in the HDTV market this year, with significant discounts starting in as little as a week or two. If you want a new HDTV and have the cash, you should be able to get a great deal this fall. And ultimately, a price war won’t be good news for Circuit City.