The Official Wirewize Blog

Back in the late 1990s at the height of the dotcom boom, there was a neighborhood in Manhattan called Silicon Alley (not terribly original, but then NYC has always been a secondary player in the “new economy”).  At one strategic corner, close to many of the Silicon Alley sweatshops, there was a Starbucks.  On another corner about a block away, there was a Seattle’s Best coffee shop.  Everyone from the ponytailed CEOs to the tattooed programmers took their coffee break at one of the two spots — whichever one they preferred.

Starbucks did not prefer this arrangement.  So they opened another shop another block away from Seattle’s Best.  Eventually, Seattle’s Best cried uncle and closed the location, which was sandwiched between two Starbucks stores.  Starbucks promptly moved a branch into the old Seattle’s Best location (making for three locations in a 2 block radius), and once there was no more threat, simply closed two of the three stores.  Kill the competition and once it’s dead, pretend it was never there.  Then pick up the remainders for chump change.

What was the upshot for Silicon Alley coffee drinkers?  One choice only, unless you were willing to go out of your way to a nearby stank deli with lousy coffee.

A similar scenario is looming on the horizon in the CE industry.  A major retailer — a company that was arguably once the most important retailer — is on the ropes financially, as are many former top-tier companies in the current U.S. economy.  The recent news of store closings at Circuit City, followed by an announcement of bankruptcy protection, has sent shock waves throughout the consumer electronics landscape.

We can hear some of you snickering.   Companies with poor customer service, mindless cost-cutting and a history of losing money probably deserve what they get, no?  Spare us the schadenfraude, and now let’s look ahead at a CE market with no Circuit City, should that come to pass.

Let’s start by assuming that arch competitor Best Buy will snap up some of the many stores that Circuit City has closed.  So instead of competition for your dollars between brands and prices offered at two competitors, you now have only the brands and prices that Best Buy offers.  Are you better off?  So much better off that Best Buy is the only place you need?

If Circuit City does in fact go away, the competition in what’s called the “specialty electronics retailing” sector would be slim to non-existent in most of the country.  For the vast majority of the selling landscape, you’d have a world of Best Buy and the discount chains — Wal Mart, Target, Costco and the like.  Keep in mind that profit margins for CE items like televisions, receivers, disc players, etc. are already razor thin.  In fact, some sets have to be sold at a loss.  Which is not a problem for a retailer like Wal Mart, which does “loss leaders” all the time and can make up the difference selling high-margin shampoo and groceries once you’re in the store.  But selling electronics at a loss isn’t a recipe for healthy commerce for a company that primarily sells electronics.  How long before they start to go away too?

Now imagine you’re a manufacturer who sells your products through places like Best Buy and Circuit City.  One of them goes away.  You’ve not only lost a major outlet to sell your products, but also your bargaining power on pricing, display space and the like.  If the lone remaining specialty electronics chain is the only real game in town, and dozens of brands are fighting for shelf space, who will make the final decisions on what gets pushed and what doesn’t? How much choice will anyone besides the retailer have over what’s available and for how much?

None of this is an excuse for Circuit City, which hasn’t exactly been the poster child for customer satisfaction.  But their problems are our problems.  Or they will be, very soon, unless something dramatic changes.  If you think the CE shopping experience is lacking now — ignorant, disinterested sales clerks if you’re lucky, nobody at all to help you at all if you’re not — then just wait until Wal Mart, Target and Costco are the places to go for home theater.

The Internet never looked so good…..

#  #  #