As most everyone knows by now, Circuit City has come out unsuccessful in a long financial struggle brought about by the country's economic downturn. The chain will be liquidating its assets (stores, merchandise, etc.) starting immediately. Its website has already been shut down, and 34,000 employees will soon be left out in the cold.
It doesn't take a rocket scientist to figure out that adding such a significant number of people to the ranks of America's unemployed isn't a good thing. In terms of the state of America's economy, Circuit City's closing is just one more tragedy in the ongoing catastrophe that is this country's economy. But I think it's also worth taking a look at the situation as it relates to the home entertainment business, as well as to the electronics business in general – in other words, how it relates to us, the customers.
To start off, some people will see prices lowered at their local Circuit City stores. Don't expect anything major, though. Federal law mandates that Circuit City give its employees 60 days notice of their termination, which they just did today, so they can't sell off all of their merchandise immediately. For that reason, I doubt prices will be slashed very much. Of course, that's up to the individual liquidator for each store, so every store will probably be a little different.
But what I find a lot more interesting than what's happening at Circuit City stores until the end of March is what will happen to everyone else once CC is gone. My prediction is that in the short term, we're going to see higher prices at Best Buy and other electronics retailers (like Target and Walmart). That's not to say that Best Buy will raise its prices – it's just going to be less likely to discount its merchandise from MSRP for a while. And why shouldn't it? With its biggest competitor gone, there's little reason to cater the particularly discriminating customer.
But while the death of Circuit City may seem like a victory for the likes of Best Buy, I don't think it will take long for brick and mortar electronics stores to finally realize that their true competition has never been with each other – it's been with the Internet. For months now, Amazon.com has routinely matched (and often beaten) Best Buy's weekly advertised prices and there is no way that Best Buy can continue selling cheaper electronics like DVDs, Blu-ray discs, and video games for MSRP once it's recognized Amazon as its main competition. So in the long run, this could actually turn out well, with Best Buy lowering its prices from time to time in order to compete with online retailers.
I'm not an economist in the least, but as someone who has followed the business of these two companies (and watched their advertisements each week) for years now, I've come to be able to notice the ebb and flow of prices in the home entertainment market. The past few weeks have been devoid of any deep discounts from Best Buy, Circuit City, and even Amazon, which is actually a bit uncharacteristic of retailers immediately after holidays. I guess the bubble was bound to burst sooner or later. Without any reason to spend more at Circuit City than the value of any soon-to-be-useless gift cards one might have lying around, there just hasn't been a compelling reason to shop there...and unfortunately, there won't ever be one again at this point. That's how business works, though, and we can only trust that Best Buy and other retailers will try to learn some important lessons from this situation. Here's hoping that in the long term, they'll amount to something both profitable and sustainable.