Today's bankruptcy filing at Circuit City comes as no real shock. The ailing consumer electronics giant already announced it was closing 155 stores (or about 20 percent of its total) in a last-ditch effort to stay solvent. Creditors agreed to float the chain a $1.1 billion loan to keep remaining locations open through the holiday season. But it does raise questions about how retailers will fare during the next few vital weeks, especially sector leader Best Buy.
RBC Capital says the liquidation could pressure Best Buy this holiday season, but will be a positive in the long run:
Although pricing trends remain soft within the CE space, we believe that Circuit City's profit sharing deal with liquidators will in part guard against a major bottoming out in CE product prices. While these closures may add sales/margin pressure on Best Buy in the near-term, we believe they should be a significant long-term positive for Best Buy.
With Best Buy locations in roughly 85% of Circuit City's markets, we believe that BBY will be well positioned to garner significant market share from further store closings.
Best Buy has said it wants to take over some locations formerly occupied by failed rivals.
Retail is continuing to suffer as the economy slows and consumer spending slumps. Circuit City may be one of the largest retail bankruptcies this year, but it is by no means the only one. As Portfolio.com notes, "Mervyns, Linens 'n Things, Levitz, Sharper Image, and Lillian Vernon have all filed for Chapter 11 this year."
Extra: A timeline of Circuit City's nearly six-decade (!) history.