Circuit City Files for Bankruptcy

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"The assistance you will get at Best Buy, you just can't get it at Wal-Mart," says Pali Capital Managing Director Stacey Widlitz.

The news is not so good for consumer electronics suppliers. Among Circuit City's largest unsecured creditors are Hewlett-Packard (HPQ), Samsung Electronics, and Sony (SNE). With one fewer customer, these firms now have reduced leverage in dealing with huge retailers, says Howard Davidowitz, founder of retail consultancy and investment bank Davidowitz & Associates in New York. "If you are a supplier, this is really bad news," he says.

Holiday Blues

That's nothing new, though; consolidation has vastly reduced the number of merchants in this space for some time now, tilting the balance of power from manufacturers to retailers. (Some manufacturers, like Apple (AAPL), have even chosen to become retailers.) Last year, the top five consumer electronics retailers accounted for 55% of sales, compared with 42% 10 years ago, according to economist Shawn DuBravac of the Consumer Electronics Assn.

Circuit City's woes add to what was already shaping up to be a decidedly non-jolly holiday season (BusinessWeek, 11/6/08). Retailers and manufacturers alike are bracing for their worst fourth quarter in years, as cash-strapped and credit-crunched shoppers eschew big-ticket items like plasma TVs. The Consumer Electronics Assn. expects fourth-quarter sector revenue to rise 3.5%, a steep drop-off from the 12.5% gain posted in last year's fourth quarter.

"With consumers so far underwater, that's a problem if you're selling discretionary merchandise," Davidowitz says.

Boyle is deputy Corporations editor for BusinessWeek. McConnon is a staff editor for BusinessWeek in New York.