Circuit City Closings Short-Change Consumers

"For consumers, a lack of diversity is never good," said Stephen Baker, vice president of industry analysis of the NPD Group, a retail industry analysis firm. "Clearly, people closing stores, especially one of the big guys, isn't a good thing."

According to Baker, the Circuit City closings will give consumers a lack of choice of where to buy consumer electronics. In the end, consumers will have to travel further to get the items they want while also having a narrower product selection at their disposal. It will also give consumers fewer pricing options.

"Your opportunity to buy things is somewhat diminished," Baker said.

Circuit City built its name by consistently undercutting the competition, offering electronics at a few dollars cheaper than Best Buy and others to get an edge.

Circuit City on Monday announced that it will close 155 of its stores nationwide in a host of key markets. The Richmond, Va.-based company also said it would hold off on opening new stores. The closings come amid slumping sales and weak economy, factors that have been hurting consumer electronics retailers in recent months.

"Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply," said Circuit City Vice Chairman and acting President and CEO James A. Marcum in a statement. "The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors. The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company's financial situation as quickly as possible."

And, according to Baker, the closings come at a time when consumer confidence is already down, a trend retailers are hoping to buck as the holiday season approaches.

Overall, however, Baker said the closings shouldn't further impact consumer confidence. But the lack of diversity it introduces could hurt.

"Diversity is the most important to this industry," he said. "If it does impact the consumer, it's the loss of choice. They lose somebody who sold a hell of a lot of stuff."

Along with consumers taking a hit, Baker said vendors and manufacturers will also have to revaluate their retail plans. Essentially, vendors are losing 155 locations to sell their products and will have to look into new ways to engage customers.

Vendors, Baker said, will now have to find new locations and ways to sell their products. Brands and OEMs will have to look elsewhere to make up for the sales volume they saw from Circuit City. Whether that means kicking their relationships with the Best Buys and Wal-Marts of the world up a notch or working out new deals with smaller niche retailers, manufacturers will have to look elsewhere. Some vendors will also have to find new ways to gain leverage and rethink their distribution models and integrate new sales channels.

And for the competition, Baker said Circuit City closing 155 stores could give them an incremental bump and help them pick up additional volume. And with the holiday shopping season kicking into high gear in the next couple of weeks, Circuit City's closures happened at an opportune time for the competition as consumer electronics retail starts to snap out of the September and October sales doldrums.