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Circuit City Starts Going-Out-of-Business Sales at U.S. Stores

By JC | January 22, 2009

Not long ago we published an article titled “Best Buy profiting as Circuit City falls: Barron’s”. Today we are following up with the news that Circuit City has begun its “Going out of Business Sales” at its US Stores. After reading the article at Bloomberg about the start of the sale, there are a couple of items that are of particular interest for investors:

  1. This is the failure of a major US Corporation outside of the Financial sector
  2. Consumer sentiment is grim. As more companies US consumers are familiar with and shop at begin to close down, the consumer sentiment is only likely to worsen.
  3. and,

Regional chains may gain “disproportionate market share relative to their sizes*”

The same arguments made in favor of Best Buy in our previous article are going to be true for Regional chains. Although Best Buy is picking a lot of the shoppers from Circuit City, other regional chains like HHGregg will benefit from the removal of a competitor. Short term, however, might not be the time to jump on the wagon. Currently Circuit City is still operating many of its stores and its “Going out of Business sales” are likely to bring massive amounts of customers seeking for bargain prices. This will most likely drive customers to their stores hurting sales at Best Buy and others. The real question is how long will this sale attract customers and if this more than makes up for all the sales the other retail stores have enjoyed as customers switch from Circuit City to their stores.

Regional chains’ brighter prospects are no secret; Best Buy jumped $2.39, or 8.8 percent, to $29.53 on Friday. HH Gregg rose 5.7 percent; Conn’s gained 11 percent.

Baron’s and Jim Cramer are among not a few sources felling bullish on Best Buy. Investors should weight the current economic situation with the huge market gain Circuit City’s competitors are gaining and seek opportunity.


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