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Back From the Dead, Circuit City's Resurrection Threatens Best Buy Inc

By Rich Duprey - Updated Mar 14, 2018 at 4:39PM

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The return of the formerly bankrupt electronics retailer poses a big risk for its still-troubled superstore rival.

Zombies are coming! No, not the Valentine's Day midseason return of the hit television show The Walking Dead, but rather the resurrection of once-dead electronics store retailers that threaten to eat the soul of those chains still living, most notably leading superstore Best Buy (BBY -2.77%).

Short circuiting
As the economy headed toward the rack and ruin of the financial collapse nearly a decade ago, once-thriving electronics stores were pushed to the precipice and then fell over the edge. Circuit City, Sixth Avenue Electronics, Tweeter, CompUSA, Sam Goody, and numerous smaller shops all met their demise. Some, like RadioShack, managed to hang on for a while longer, but the advent of e-commerce and Amazon.com (AMZN -2.34%) changed the way consumers shopped, meaning it was only a matter of time before it also succumbed, which it did last year. It's only still operational because of a partnership with Sprint (S) and a strategy to minimize its once-sprawling footprint keeps it on life support.

Woman looking at a wall of televisions in an electronics store

Image source: Getty Images.

Best Buy also stumbled hard, also nearly going under, and though it managed to gain some traction, it's never been the same electronics retailing powerhouse it once was. The industry shakeout hasn't really made those left behind healthier.

Best Buy's most recent quarterly report shows how weak its position still is: Computer and mobile phone comparable-store sales tumbled 7% on disappointing holiday sales numbers. The competition isn't doing any better; hhgregg (HGGGQ) reported another quarterly loss of $27 million as net sales and comps both collapsed by nearly 11%, while Conn's (CONN -1.90%) said consumer electronics comps dropped 9% even as it chose to exit video game products, digital cameras, and certain tablet sales.

The dead walk the earth
And now the dead are returning to haunt the living. Circuit City is reportedly back from the grave, opening a new store in Dallas with plans to have as many as 50 or even 100 more operating within a year. 

According to Twice magazine, after going bankrupt in 2008, the electronics retailer was bought by Systemax in 2009 with an idea to supplement its online site TigerDirect (it also tried to breathe new life into CompUSA, too), but the IT supplier ultimately abandoned the effort last year.

Circuit City was purchased again by two retail veterans who believe there's a chance to reanimate it as a bricks-and-mortar chain, albeit a much smaller one with stores only 2,000 to 4,000 square feet in size and focused on products that are fancied by millennials: smartphones, tablets, notebooks, wearables, networking equipment, video game products, headphones, drones, 3D printers, and DIY kits with "electronic price tags" linking them to a millions-SKU inventory online.

Reanimator redux
If that sounds a lot like RadioShack's plans for the afterlife, you're right. The electronics retailer maintains some 1,700 small-footprint stores from an empire that once stretched over 4,000 locations, and feature a lot of the same curated merchandise Circuit City plans to carry. It also no longer carries a variety of cellular plans, instead exclusively offering only Sprint in its co-branded stores. Moreover, the chain unveiled a revamped website just before the holiday season.

If Circuit City and RadioShack are making a comeback, can we expect The Wiz, Sixth Avenue, or even Crazy Eddie to make an appearance, too? Doubtful. Amazon.com may have permanently damaged the viability of specialty retailers. It reported last week that North American sales of electronics and other general merchandise soared 28% in the fourth quarter to $17.3 billion and rocketed 31% higher across all of 2015, hitting $50.4 billion.

Best Buy may have turned the tables a little bit on Amazon by using "webrooming" to its advantage, but online shopping -- with its depth and breadth of product, not to mention the availability of free shipping on most of its inventory through a Prime membership -- suggests the Amazonian juggernaut is not worried.

Judgment Day is coming
Who should be concerned about the resurrection of Circuit City and the lingering on of RadioShack is Best Buy, which can least afford to have sales siphoned away. Over the first nine months of its fiscal year, the electronics retailer saw its net earnings from counting operations more than halved.  

The playing field is no longer level and any further saturation of the consumer electronics market with once-dead retailers taking a bite out of the living means they could all end up as zombies -- companies that are dead or dying but just don't know it.

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Stocks Mentioned

Sprint Corporation Stock Quote
Sprint Corporation
S
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.73 (-2.34%) $-2.73
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$72.62 (-2.77%) $-2.07
hhgregg, Inc. Stock Quote
hhgregg, Inc.
HGGGQ
Conn's, Inc. Stock Quote
Conn's, Inc.
CONN
$9.31 (-1.90%) $0.18

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