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Is this Finally It For Circuit City?

How you can take advantage of the possible failure of the big-box retailer.


Lee Distad · October 8, 2008

By almost any yardstick, 2008 has been a rough year for the CE industry, in both the custom and mass market channels.

While virtually no one in the business has remained unscathed, perennially beleaguered retailer Circuit City has been especially tempest-tossed.

Despite disappointing results, including a worse-than expected holiday season, Circuit City started out the year with buyout rumors swirling. The parties involved included Ultimate Electronic’s Mark Wattles, PE legend Carl Icahn, and Blockbuster Video, believe it or not.

However, things have looked steadily grimmer for Circuit City since last summer when Blockbuster withdrew their initial takeover offer after examining the books.

Since then, unimpressed by neither the company’s turnaround plans, or the ouster of president and CEO Philip J Schoonover, the market has repeatedly lashed their share price. The retailer says that they are working with outside advisers to improve their financial performance.

At end of trading Tuesday, Circuit City hit an all time low of fifty cents a share.

That means a company that did 11.7 billion dollars in sales last year has a market cap of less than a hundred million. Sounds like a bargain.

Where’s the Money Going to Come From?

Yet if there are any takers for Circuit City, they haven’t made themselves known. Earlier, investor Mark Wattles suggested that there were other potential suitors besides Blockbuster.

All of them have failed to materialize.

When you consider that since January, an average of more than 3 million shares in Circuit City have changed hands every single day, you would expect that someone, somewhere is stocking up in anticipation of gaining a controlling interest in the company.

With a serious decline in cash on hand and credit facilities, will Circuit City be able to fund enough inventory to make 2008’s holiday season a win?

Right now, the prevailing sentiment on the Street is that CC is more likely to go to zero than see an angel investor take them private. But since no one has a crystal ball, we’ll have to wait and see.

How Circuit City’s Potential Failure Affects You

In the meantime, how does the potential of CC going under affect you, the CE pro?

For a start, we may see more install labor come onto the job market. Dealers always complain about how hard it is to find good candidates for installer jobs.

Amongst the several thousand Firedog employees are probably a few more diamonds-in-the-rough. 

While custom channel dealers enjoy sneering at the level of ability often displayed by big-box installers, as long as a potential recruit has the right attitude, you can train them on the things you need him to know.

In addition, while competition is good for business, having a competitor fold can be equally good: suddenly the pie in your marketplace isn’t being divided amongst so many dealers.

Not to mention that while some custom dealers shun the practice of fixing other companies’ messes, some thrive on it. If that’s your cup of tea, you may well find yourself inundated with half-finished jobs on your plate.

In every adversity, there lies opportunity. Just like right now financial giants like Warren Buffet are taking advantage of the broader economic woes, so too can small dealers make the best of other companies’ bad situations.

Lee Distad is a freelance CEDIA Certified Professional Designer who offers design and process consultation to firms in the Custom Installation industry, as well as copy writing and other professional writing services. Lee’s business and industry blog can be read at http://www.leedistad.com



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