Best Buy, hhgregg Fight for Circuit City’s Customers

Forget for a second that the National Retail Federation is predicting November and December sales will decline 1 percent compared to a 3.4 percent decline last year, creating a not-so-merry holiday sales season.

Circuit City is out of the picture this year. Tweeter, which existed for part of the 2008 holiday season before it suddenly shut down, is gone.

Electronics retailers should look on the bright side and focus on grabbing as many free agent customers as possible.

Best Buy is Optimistic

The big-box retailer is ramping up its holiday season staff compared to last year, planning to aggressively promote margin-heavy services like Geek Squad, according to Reuters.

“We are hiring more people for seasonal sales this year than last year. We see (competitive) price, plus services, as a major upside for us,” said Best Buy CEO Brian Dunn, who expects Best Buy to report positive same-store sales during the holiday season.

Best Buy, which saw its Q2 earnings drop 22 percent, says it has gained some market share since Circuit City closed despite competition from Walmart for those customers.

"Circuit City's demise has put customers in play and ... we have gained more share than anybody since Circuit City's departure," Dunn said.

Given low margins on deep discounted products such as flat-panel TVs, however, more customers won’t necessarily translate to profit growth. Dunn denies that Best Buy has grown its market share by discounting products. Instead, Best Buy is gaining ground by promoting its service including Geek Squad, Dunn said.

hhgregg Emerges

While everybody is looking at Best Buy, Walmart, Target, Amazon and the likes to pick up Circuit City’s slack, Indianapolis-based hhgregg has quietly developed plans of its own.

“When a window opens, we take advantage. Circuit City’s demise no doubt is a big part of that opportunity,” hhgregg CEO Dennis May told Business Week.

The 118-store chain is more “specialty” than Circuit City was. It features smaller, less product-heavy stores and commission-based sales people. Employees get 280 hours of training in their first year to ensure hhgregg has “high-caliber people who know the product and how to sell,” May said.

Part of hhgregg’s push includes store openings in and around the Washington D.C. market. Of course, hhgregg’s surge is happening during a recession — a tough time to sell TVs and home appliances, which make up 85 percent of its $1.4 billion sales.

To compensate, hhgregg began selling game consoles and netbooks to stimulate traffic. Mainly, though, hhgregg is banking on its sales staff converting sales of higher-performance (higher-margin) products. The company reports a gross profit margin of 31 percent versus Best Buy’s 25 percent, according to Business Week.

With its store openings, hhgregg is focusing on Circuit City’s most lucrative markets. It also promotes its best-performing managers in order to spread its corporate culture — a technique practiced by Tweeter during its glory days.