Shop Talk

Check Out Line: Best Buy profit misses mark

Check Out how Best Buy missed expectations.

The top U.S. consumer electronics retailer checked in with a lower-than-expected profit on Tuesday, as it still had trouble selling videogames and digital cameras to cautious shoppers.

Its profit fell to $158 million, or 37 cents per share in the second quarter that ended Aug. 29, from $202 million or 48 cents per share, a year earlier.

Excluding a tax impact, its profit was 40 cents a share, while analysts had expected Best Buy to post a profit of 41 cents per share.

The failure of Circuit City, which closed its doors early this year, has helped Best Buy gain market share in past months. But the latter’s failure to meet profit expectations stood out in the broader retail sector, where several other companies have leaned on cost cuts and lower inventory to compensate for weak demand.

Also in the basket:

U.S. retail sales surge, producer prices up on energy

Everything you ever wanted to know about liquidation sales

By Dhanya Skariachan

Ever walked out of an out-of-business sale hoping to return when the discount gets even deeper? Ever found your much-desired bargain-priced pair of shoes or television set already snapped up by an early bird?

With so many U.S. retailers going out of business and many having liquidation sales (Circuit City, Goody’s and Linens ‘n Things are three recent examples) savvy consumers should prepare in advance to get a good deal amid all the chaos.

So, what do we do? Check out ShopSmart’s five quick tips to make the best out of liquidation sales.

Always check prices at local stores before buying something at a liquidation sale. Sometimes, they slash prices to tackle threats from their rivals that have gone kaput. Plus, it doesn’t hurt to do business with a store that might be around for a while, does it?

Do your homework before you go shopping at one of these sales. Warning — you might not find the sales staff very helpful. Many liquidators tend to employ not-so-knowledgeable sales staff, simply because that’s all they can afford. And yes, don’t expect your cheap television set to be shipped home. You will most likely have to do it yourself.

Remember to check the warranty on the product. Whether it’s issued by the maker or a third party, it should still apply after the store goes out of business. Nevertheless, you might still want to call the manufacturer to confirm, especially if the brand is not one that the retailer normally carries.

Check Out Line: Get ready for another going-out-of-business sale

Check out the latest liquidation sale in the retail world.

U.S. regional department store chain Gottschalks will be liquidated after it failed to attract a buyer willing to operate the company as a going concern, the creditors’ committee said.  Going-out-of-business sales at the company’s 58 department stores and three specialty apparel stores in six western states are expected to begin around April 3.

A joint venture of liquidators won the auction for the assets of the Fresno, California-based chain, which filed for bankruptcy protection in January.  The auction is subject to bankruptcy court approval.

Liquidation sales in the current environment of lower consumer spending are not unusual.  In November, Circuit City Stores became the highest-profile retailer to file for bankruptcy during the recession and liquidated its assets after failing to find a buyer.

Also in the basket:

Pistachios recalled due to salmonella risk

Aeropostale opens first international store in Dubai

Check Out Line: Best time to leave Best Buy?

Check out who’s checking out at Best Buy.   Brad Anderson is retiring as CEO  of the electronics retailer in June and will be succeeded by COO Brian Dunn.   “I’ve always wanted to leave the organization at the right interlude: when I saw a new leader ready to take the organization to a new level, higher than I could take it myself,” Anderson said in statement.   But he is also leaving during the worst retail environment in decades, one that is seeing competitor Circuit City go out of business.   Best Buy same-store sales fell 6.5 percent in December, though that made it one of the best performing retailers during that key holiday month.   “I don’t think the Street will have an issue” with Best Buy naming Dunn, Telsey Advisory Group analyst Joseph Feldman said. “I think the question would be about timing.”   Given the retail environment, Dunn might also want to question the timing.   Also in the basket:   Coach posts lower profit, cuts expansion plans   Sainsbury seen cutting 200 central support jobs

(Reuters photo of Anderson at 2004 Reuters Consumer Summit)

Check Out Line: Circuit City circled by suitors

Check Out Circuit City in deal talks.

The bankrupt electronics chain is negotiating with two undisclosed parties that could either buy the company or provide it with additional financing.  The company said the parties are considering providing it with financing to allow it to sustain its operations and restructure through a stand-alone plan, and/or buying the company outright.

Naturally, eyes will turn south toward Ricardo Salinas Pliego. The Mexican retail and media tycoon said in November that he owned 28 percent of Circuit City shares and indicated that he might seek control of the chain, which buckled under the pressure of declining consumer spending and increasing competition by the likes of Wal-Mart and Best Buy. It filed for Chapter 11 bankruptcy protection in November.

Circuit City received a takeover offer from Blockbuster Inc last year, but the movie-rental company later withdrew it and Circuit City was again on its own.

Consumer electronics sales have suffered mightily this year, as a year-long recession has led to consumers to seek out bargains on big-ticket gadgets or forego them altogether. Best Buy, the country’s top specialty electronics chain, narrowed its full-year profit forecast on Friday after posting a 6.5 percent drop in December same-store sales.  

And with a government report on Friday showing that U.S. unemployment has hit its highest level in almost 16 years, those TVs, GPS devices and computers are likely to be tough sells for some time.

 Also in the basket:

Check Out Line: Online shopping woes

Check Out the drop in online sales.   Even online retailers are ready for 2008 to end. After we heard about the abysmal holiday season at stores, comScore said online sales for the holiday period up to Dec. 23 dropped 3 percent. It was the first decline in online spending since comScore started tracking online sales in 2001.   The end of 2008 will also mark the first quarter that online sales fell. From Oct. 1 through Dec. 28 e-commerce spending fell 4 percent to $36.8 billion, according to comScore.    So who were the biggest winners and losers in December? Through Dec. 24, Hewlett Packard‘s online traffic in the U.S. rose 28 percent to more than 19.4 million unique visitors.  Apple, with more than 35 million visitors, saw its traffic rise 19 percent.  Meanwhile, traffic to Circuit City‘s site fell 21 percent.  Presumably shoppers were spooked after it filed for bankruptcy protection and said it would shut some stores. Dell‘s traffic was down 17 percent.  EBay was still the most popular site, though its traffic fell 4 percent to 85.4 million visitors.  

Also in the basket:

Jobless claims drop by much more than expected

China dairy boss pleads guilty in melamine case

Bratz dolls to get reprieve, manufacturer says

Walmart Pulls Out of Nielsen’s PRISM (Advertising Age)

(Reuters photo)

Rivals try to profit at Circuit City’s expense

Circuit City’s competitors are trying to capitalize on the retailer’s store closures by wooing its customers.

Regional chain hhgregg is accepting Circuit City gift cards for purchases of electronics, appliances and mattresses at its stores. The Circuit City gift card value, when verified, will be good toward up to 20 percent of the hhgregg purchase price.

Hhgregg launched the promotion before the Thanksgiving Day holiday but said on Tuesday that it was being extended through Super Bowl Sunday weekend, which ends Feb. 1.

“We are continuing this promotion as a way to demonstrate hhgregg’s superior customer service and to assist those who may be impacted by other retailer’s store closures,” hhgregg marketing Vice President Jeff Pearson said in a statement.

Meanwhile, RadioShack has broadcast radio ads in Atlanta, a market where Circuit City is closing most stores, urging shoppers to come to its outlets to buy digital cameras, mobile phones and GPS systems.

“Times are tough so this holiday season, put your trust in a store that you know will be around,” the speaker on the RadioShack ad says.

Circuit City filed for bankruptcy protection last month and is hoping to emerge from Chapter 11 in the first half of 2009. The retailer is holding liquidation sales at 155 of its about 720 U.S. stores in big cities such as Phoenix and Atlanta.

Gift cards: distressed assets, holiday-style

Holiday gift cards are feeling a lot less like the gift that keeps on giving.

Over the past few years, gift card popularity exploded and retailers rushed to display new merchandise the day after Christmas, hoping to attract shoppers flush with new cards.

Retailers could count on consumers to splurge on full-priced merchandise or spend all the money on the card, plus a few dollars more.

But as shoppers have witness a slew of retail bankruptcies this year (Sharper Image, Linens N Things, Mervyn’s, Circuit City), they are showing some reluctance toward buying the cards as gifts for friends and relatives.

A survey by America’s Research Group conducted for Reuters found that 43.2 percent of respondents said they will give gift cards less often this year because they worry that those cards would be worthless if a retailer files for bankruptcy.

Additionally, with retailers already rolling out tremendous discounts to entice consumers to spend their limited dollars, shoppers may find they can buy presents this year for less than the amount they were planning to spend on a gift card.

“You’d rather buy a $75 sweater for $30, than a $50 gift card,” said NRF spokeswoman Ellen Davis.

Check Out Line: Short-Circuit City

Check out Circuit City’s bankruptcy filing.   It’s been expected for some time, but Circuit City on Monday said it filed for Ch. 11 bankruptcy reorganization.   The thing is that there is some doubt about whether reorganization will work.   “We would note that we have not seen a consumer electronic retail(er) successfully reorganize in Chapter 11 in our 24 years in this space,” Credit Suisse analyst Gary Balter said.    “One reason is that consumers become reluctant to buy extended service warranties from chains in bankruptcy and ESP’s are a key part of the profit formula,” he said in a research note.

Tweeter filed for bankruptcy protection in June 2007 and was later bought by Shultze Asset management.  But that chain filed for Ch. 11 again last week.   There are a lot of places out there to buy flat screen TVs, DVD players, video games and the like and that competition from Wal-Mart, Best Buy and others is one thing that put pressure on Circuit City.   Circuit City lost money in five of the last six quarters and as the global credit crunch pinched suppliers, those suppliers have tightened credit terms.   Circuit City already said it is shutting down 155 stores.  But the bankruptcy filing is a sign the company didn’t even have time to wait through the key holiday shopping season before reorganizing.  Or the weakened economy could just mean that there wouldn’t have been enough demand to matter.   So Circuit City hits the reset button and hopes it isn’t “Game Over.”   Also in the basket:    Hard times for European luxury firms (WWD, subscription required)   McDonald’s Oct. same store sales rise 8.2 pct   Tesco shares fall on Asia slowdown worries

(Reuters Photo)

Circuit City employees speak

Circuit City employees say they’re not surprised the struggling retailer is closing 155 stores in an attempt to remain solvent amid deteriorating liquidity and tighter credit conditions from vendors.

Employees interviewed by Reuters correspondent Chelsea Emery at Circuit City’s Paramus Towne Square, New Jersey store seemed resigned to difficut times ahead. The store is not among the 155 slated to close and employees who work there declined to give their last names.

“People thought (this news) was coming with the economy. It’s not a big surprise. They’ve (corporate headquarters) got to do what they’ve got to do. They’re not going to get bailed out like Lehman Brothers,” said television salesman Marko. “People aren’t going to buy plasma TVs when they can’t buy milk … We (employees) are trying to stay positive as we can.”

David, a supervisor for Firedog, said the store had a meeting this morning about the closures. “We’re all nervous,” he said, adding that employees had been told earlier in the year that any store closures would happen much later, even into January. “This (news today about 155 stores) is unexpected.”

Employees “are all nervous. We’re trying to fight to stay open,” computer salesman Anthony said.

(Photo/Reuters)