News

IPOs are jumping and the Nasdaq is up—some mid-summer economic indicators point toward a recovery, but you wouldn't know it from retail reports. Circuit City, Good Guys, and Harvey Electronics are singing the blues, while discounter Costco is whistling all the way to the bank.

Electronics retailers typically depend on the winter holiday shopping season to boost their year-end bottom lines. The hoped-for buying surge apparently hasn't happened in 2002, since Best Buy and Circuit City are both projecting slow sales.

Call it the comeback kid. Only a year ago, electronics retailer Best Buy Company was on the brink of disaster. Reeling from rapid expansion---34 new stores in two years---and suffering from an industry-wide sales slump, the retailer was said to be close to defaulting on some large-scale loans. Customers were being offered no-interest long-term credit as an inducement to buy anything on the sales floor.

The US economy took a severe downturn last year following the terrorist attacks of September 11, and this year has been hit by the stock market's decline in the wake of the accounting scandal–fueled collapse of Enron and WorldCom, Inc. Electronics retailers have ridden out the slump fairly well, buoyed by a consumer trend toward "cocooning," or putting their disposable income into their homes. For most retailers, the popularity of DVD and home theater has offset diminishing sales of stand-alone audio.

Some ultra-high-end two-channel specialists may still be singing the blues, but others in the electronics retailing business are humming happier tunes.

The last months of 2002 were uneven ones for electronics retailers. American consumers, apparently trying to stretch their home entertainment dollars as far as possible, patronized discount stores while bypassing more upscale competitors.

The terrorist attack of September 11 will likely worsen an already dark period for American retailers. The Dow Jones Industrial Average declined by more than 14% in the week after the attack, the largest slide since the week of July 21, 1933. In the present circumstances, Americans are generally reticent to spend money, according to many reports, a situation that will affect manufacturers and retailers for months or years to come.