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Best Buy, Circuit City go gadget to gadget

/ Source: CNBC

As the holiday shopping season ticks away, two of the biggest players in consumer electronics — Best Buy and Circuit City — go head to head, gadget to gadget.

In the brutally competitive world of consumer electronics, one fact is often missed.  These two giants reversed their positions over the last decade.

“It was only ten years ago that these two companies were in the exact opposite position,” said Lehman Brothers retail analyst Alan Rifkin. “Best Buy was dangling by a thread and Circuit City was knocking the ball out of the park.

The stores sell many of the same products. Each stresses low prices. Each seems to be everywhere.

Yet they are different.  For one thing, Best Buy has sales this year of about $25 billion; Circuit City booked less than $10 billion.

“The single biggest differentiator is service,” said Rifkin. He has had an underweight rating on Circuit City shares for almost 5 years.

During that time, Best Buy shares have risen about 50 percent, while Circuit City's have declined by the same amount.

Line by line
Best Buy has bested Circuit City on both same store-sales growth and market share growth. It has also won in consumers' minds — as it demonstrated recently on this year’s Black Friday, the traditionally heavy shopping day after Thanksgiving.

“We saw 150 people in line at the Union, N.J. Best Buy store,” he said. “Five minutes later, half a mile away, we saw less than 15 people in line at Circuit City.”

But veteran retail industry consultant Jay McIntosh at Ernst & Young reminded us that the competition is not just between Best Buy and Circuit City.

”It’s a hugely competitive market,” he said. “The consumer electronics superstores compete against one another very aggressively. But also there are department stores that compete in this area, discounters and there are online retailers.”

“We're not at the point where we can say that David is ready to slay Goliath,” said Rifkin. “Clearly today Best Buy has the upper hand on Circuit City. But this is retailing, and you can't rest on your laurels, and you can't take the consumer for granted. You have to win him over every day.”

So if Best Buy doesn't primarily compete against Circuit City, who does it fear?  Turns out its Wal-Mart and Dell Computer.  Wal-Mart, for its low prices and economies of scale.  And Dell, for its online business model and increasing product selection.