Circuit City Blames “Wal-Mart” Effect for Business Woes

  • Comments: 3
  • Written on: May 4th, 2007

I came across a business story a couple days ago on MSN.com that claimed that Circuit City, Sears, and Best Buy’s flat panel television profits are all being destroyed by Wal-Mart.

The story states that beginning during the last holiday season, Wal-Mart dramatically cut the prices of it flat panel televisions (some as much as 50%), which forced other retail giants to follow suit if they wanted the holiday flat panel business.

But that is where the MSN story stopped making sense and became a bash Wal-Mart tirade that pinned every electronics profit woe directly on the retail giant’s big blue star.

The story states that despite the fact that Wal-Mart is the second largest seller of electronics (behind Best Buy) in the US, the Arkansas-based company is only a “bit player” in the flat panel television market. The story points out that when Wal-Mart dropped its price on its Panasonic televisions, they sold out almost instantly.

If I am piecing this together correctly, Wal-Mart drops the price on a name brand flat panel TV for the holidays and immediately sells out. Therefore, all of the other retailers must also drop their prices to compete? Seriously, if you were planning on buying a flat panel TV for Christmas, and Wal-Mart was out, you would go somewhere else, right?

I don’t see how you can pin the shrinking profit margins on a product to the fact that Wally World sold a few thousand TVs around the nation at a roll-back price. There is a natural product life-cycle at work here, that has little to do with Wal-Mart.

Aside from what appears to be an obvious contradiction in the text of the story, I thought it was comical that retailers like Sears, Best Buy, and Circuit City were COMPLAINING about a larger retailer infringing on their turf.

The funny thing is that you didn’t hear locally owned Shaffer’s TV and Appliance store in Lincoln, NE squawk when Best Buy parachuted a box store one block from their location (or even when a Circuit City was installed 10 blocks from them as well).

Shaffer’s simply adjusted their business model to deal with the new environment and has now successfully competed there for years. In fact, that is where I bought my 42″ Panasonic big screen because they had a better selection than Best Buy!

I think it is time for the big-box retailers to take a dose of the medicine they have been handing out for years. Just like the rest of the “small guys” but there, Circuit City, Sears, and Best Buy are going to have to find a way to compete – or be assimilated.

  1. Peter P.
    Peter P. said on May 9th, 2007 at 11:10 am

    The big shots will try anything to bring down the little guys. But I don’t really see Wal-mart as a little guy since they are a nationwide company now. if anything Wal-mart has wiped out a lot of the little guy shops. Because Wal-mart is able to buy in bigger bulks and sell things at “low low” prices the little mom and pop shops are not able to compete with them so they are forced to shut down. Sad Sad thing.

  2. Special K
    Special K said on May 17th, 2007 at 6:19 pm

    It is a shame that mom and pops go away when Walmart comes in but remember Walmart started as a mom and pop itself. Unfortunatly in order to make it in the business world you can’t just settle for having a small chain of stores.

    To answer the question asked in this article about “Seriously, if you were planning on buying a flat panel TV for Christmas, and Wal-Mart was out, you would go somewhere else, right?” accually you wouldn’t unless Walmart was completely out. What most don’t understand or realize (and what the story did not explain) is that Walmart has a mass reserve and if an item is out its normally only temporary. The next shipment will be there in 2-3 business days. Most people either ask this or are told this and then they wait.

    Either way companies like Circuit City, Sears and CompUSA
    have been able to go long enough with 30% + margins. Best Buy has been tring to somewhat follow the same practices as Walmart but on avg there margins are 17% +. Walmart sits at a 13% + margin on tvs and Sam’s sits at a 9% + on margin. Good practice for consumers I say.

  3. Joe B
    Joe B said on May 18th, 2009 at 11:51 am

    I foresaw Circuit City’s demise almost 10 years ago and it was caused by poor management. In the Honolulu store (as in many stores) they had too many employees (management said no big deal, they are all on commission — well it cost to keep commission employees on the books). Even on busy days, there were many employees that had nothing to do but stand around and talk to other employees. CC got rid of appliances, saying too little profit (but suspect they had to put up too much money to maintain the stock). CC spun off CARMAX (very profitable) to raise money. The shelves were not being restocked as items were sold (suspect money problem) — to solve this problem, the high shelves were replaced by lower shelves so the store would appear well stocked even though they had less merchandise. Later, some shelves were removed and the existing shelves were rearranged further apart. Consequently, over the years, they appeared to be in trouble and their failure can not be blamed entirely on another company but has to be in a large part due to poor management. It amazes me that some Wall Street pros recommended the stock several times over the years when it was obvious CC was having money problems.

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