Wednesday, January 21, 2009

Short Circuit sales

Because Circuit City announced Friday that it’s going out of business, last night I decided to stop by a store and see what’s going on.

Sales were at 10-30% off — 10% for most major items, 20% for recorded content, and 30% for accessories. (I think that says more for the margins on the items than their relative demand).

Two guys walking around to each other were complaining about the prices. As one said, “the special prices aren’t all that special.” I would agree that 10% off of list price is beaten by the average weekend special. Indeed, that was the complaint of shoppers interviewed Monday by the LA Times.

However, I spoke to a sales rep in the TV section (10% off) and got a quite different story. He admitted that “We had better prices 2-3 days ago,” when the store still had specials that were advertised before the GOOB was announced.

Still, he said the store was getting 2 truckloads of merchandise to replace all the TVs sold since the GOOB began. The store was nearly out of 32" LCD TVs — their main HDTVs in the $500-$1000 range — and it sounded like they’ll all be gone within a week or so.

I told the sales rep that I thought all the TVs would be gone at 30%, and he winced — since (he said) the top margin on any TV was only 24%. After hearing about the 32" TVs, I moved my prediction forward: I suspect a 20% discount timed for SuperBowl Sunday (Feb. 1) would clear out most of the inventory.

However, if the Mervyn’s sale (also run by a professional liquidator) is any indication, I expect the 10% rate will continue until for at least 3 weekends (Jan. 18, Jan. 25, Feb. 1) before they drop prices again, and they will end February at 30% off.

The employee noted that they will get paid until March 31, and if they sell out early, they don’t have to show up for work. (Smart way for the owner/liquidator to align incentives). So the big discounts will come in March, when most of the high-volume items have been sold.

I probably won’t be back: by the time the discounts get interesting, it will be picked over. I bought most of the home electronics that I needed either upon moving to the Bay Area in 2002 or at the Good Guys liquidation three years ago.

The WSJ notes that this is boom time for liquidators, with lots to sell. However, there is more inventory than the traditional liquidation channels (such as Marshalls and can support: both due to increased supply and falling demand.

With the recession likely to continue past 2009 into 2010, more retail bankruptcies are coming. So, like mortgage brokers during the housing bubble, liquidators will enjoy boom times for a few years before until the economy improves for the rest of us.

Update: Time magazine has an article about the four liquidators clearing out $1.7 billion in inventory.

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